April 18, 2016. Today is “Tax Day,” when millions of Americans honestly pay their fair share of taxes. Today is also a day we all owe thanks to the whistleblowers who forced over 54,000 American tax cheats who held illegal accounts in Switzerland to plead guilty to their crimes and pay their back taxes and penalties.
These prosecutions, both civil and criminal, have also resulted in major Swiss banks going bankrupt, others pleading guilty to crimes and paying billions in penalties. All told, as of today over $13.769 billion has been collected from the Swiss banking cheats, and billions more will be recovered as the prosecutions continue.
Here is the story.
Ten years ago Senator Charles Grassley, a well known advocate for whistleblowers, introduced and guided into law a tax whistleblower provision that incentivized employees with inside information to come forward. Employees who risked their jobs and careers would be rewarded with 15-30% of the monies collected by the IRS based on their information.
In early 2007 the first major whistleblower to use this law stepped forward. Bradley Birkenfeld was a Swiss banker with inside information as to how the largest bank in the world, the Zurich based UBS, had an illegal program of over 19,000 Americans, all of whom held nondisclosed and secret accounts in Switzerland.
Birkenfeld’s disclosures triggered the largest successful tax fraud prosecutions in world history. The results were staggering – and the power of whistleblowers to change the world was affirmed.
As reported by the U.S. Government Accountability Office (“GAO”), in its 2013 report on Offshore Tax Evasion (page 36), based on the whistleblower’s disclosures, UBS was forced to enter into a deferred prosecution agreement with the United States. In exchange for avoiding criminal charges UBS was forced to pay a $780 million fine and turn over information on 4,450 U.S. clients.
Birkenfeld’s whistleblowing forced UBS to agree to turn over the names of the U.S. citizens who held illegal bank accounts in Switzerland. This concession, which needed the government of Switzerland to enter into a formal treaty with the United States, radically undermined Swiss bank secrecy. Switzerland had boasted for decades that its domestic laws protected the identity of U.S. account holders. Based on Mr. Birkenfeld’s disclosures, secrecy could no longer be guaranteed.
As explained in the publication swissinfro.ch, “The US had long suspected Swiss banks of harboring US tax cheats. But Swiss banking secrecy made this impossible to prove. That changed when former UBS employee Bradley Birkenfeld case to the Department of Justice with strong documentary evidence in 2007.” Swiss-US tax evasion saga: where are we now? (January 2016).
What happened next was simply amazing:
- The Whistleblower is Rewarded. In 2012 the IRS paid Mr. Birkenfeld the largest individual whistleblower reward in history: $104 million.IRS Reward Decision. Although just a small fraction of the billions of dollars the U.S. was collecting as a direct or indirect result of his disclosures, the reward sent a powerful message to international bankers around the world: You could make more money turning your U.S. clients into the authorities then you could ever make servicing their illegal accounts. Numerous new whistleblowers stepped forward.
- U.S. tax cheats panic and take advantage of an amnesty program. As of October 2015, 54,000 Americans voluntarily turned themselves in taking advantage of an “amnesty” program. As GAO explained, Switzerland’s agreement to name names “created uncertainty among UBS account holders as to whether their names were on the list,” so to escape prosecution, tens of thousands of millionaires and billionaires turned themselves in.
- Smaller Swiss Banks Reach Deals with DOJ to Avoid Prosecution. 80 smaller Swiss banks paid a total of $1.36 billion in penalties. In addition, these banks were forced to “make a complete disclosure of their cross-boarder activities; provide detailed information on an account-by-account basis for accounts in which U.S taxpayers have a direct or indirect interest;” agree to close all illegally held U.S. accounts, and “provide detailed in formation as to other banks” that hold illegal U.S. accounts. DOJ, “Justice Department Announces Final Swiss Bank Program Category 2 Resolution,” (January 27, 2016). In addition to these “Category 2” banks, other smaller institutions have also paid fines, including Landesbank ($23 million) and Swiss Partners Group ($4.4 million).DOJ Tax, 2017 Congressional Budget.
- Prosecution of the Larger Swiss Banks. In addition to the 80 banks referenced above, the Justice Department initiated criminal prosecution against 15 other Swiss banks, including the largest such institutions. The prosecutions are ongoing, but, to date, have resulted in the following: Credit Suisse plead guilty to criminal conspiracy and paid $2.811 billion in fines and penalties; the oldest bank in Switzerland, Wegelin, pleaded guilty to tax fraud, paid $74 million in fines and was forced to go bankrupt; Bank Leumin group paid $270 million in fines and the Julius Baer Group Ltd paid $547 million in fines and penalties.
- Individual prosecutions. Recoveries obtained from the prosecutions of the numerous tax cheats who failed to participate in the amnesty program. These prosecutions are ongoing and difficult to document. But as of February 2015 the IRS documented 45 successful criminal prosecutions of American-UBS account holders alone, resulting in $224 million in recoveries. By 2016 DOJ announced that over 100 U.S. account holders had been found guilty in federal court. DOJ Tax, 2017 Congressional Budget. Many more have or will occur.
All told, taxpayers have recovered a total of $13.769 billion.
But this is just the beginning of the benefits obtained by every American as a direct result of whistleblower disclosures, led by Mr. Bradley Birkenfeld. Other benefits include:
- Untold billions has been transferred from illegal offshore accounts back into the U.S. financial system, subject forever to fair taxation;
- Every known illegal U.S. account in Switzerland has been closed;
- A worldwide investigation into illegal offshore accounts held in other countries is ongoing;
- Prosecutions against major Swiss banks and taxpayers who failed to turn themselves in continue.
When issuing its reward to Mr. Birkenfeld, the IRS stated that he had “provided information on taxpayer behavior that the IRS had been unable to detect.” His “comprehensive information” “was exceptional in both its breadth and depth” and “formed the basis for unprecedented actions against UBS, with collateral impact on other enforcement actions.” IRS Reward Decision.
The findings of the IRS were reinforced in the Department of Justice Tax Division’s 2013 budget request submitted, which further documented the revolutionary impact of Birkenfeld’s disclosures. The Tax Division its investigation into the “Swiss banking giant UBS,” triggered by Birkenfeld’s information, was “the centerpiece of the Division’s current efforts.” The UBS case “resulted in an historic agreement” that “dealt the fabled Swiss bank secrecy a devastating blow.” DOJ, “Tax Division U.S. Department of Justice FY 2013 Congressional Budget.” Even in its 2017 budget request, the Tax Division was acknowledged that Mr. Birkenfeld’s disclosures led to the “process leading to unprecedented disclosure of account information for accounts held by U.S. persons – a case that is still paying dividends.” DOJ Tax Division, FY 2017 Congressional Budget.
Today, special thanks are due to Senator Charles Grassley for having the wisdom to enact the Tax Whistleblower Law; to Bradley Birkenfeld for having the courage to risk everything to expose the illegal banking scams; and the foresight of the IRS Office of the Whistleblower to issue the largest individual whistleblower law in history to encourage others to follow in Mr. Birkenfeld’s footsteps in order to effectively hold the biggest and most corrupt banks in the world accountable.
About the author: Stephen M. Kohn was co-counsel to Swiss Bank whistleblower Bradley Birkenfeld in his IRS case and serves as the Executive Director of the National Whistleblower Center.