On May 14, the U.S. Department of Justice (DOJ) announced charges against Swiss Life Holding AG and three subsidiaries for conspiring with U.S. taxpayers to hide almost $1.5 billion in assets and income in offshore accounts. The DOJ and the Swiss Life entities entered a deferred prosecution agreement and Swiss Life agreed to pay $77.3 million. If a whistleblower aided in the enforcement effort, they could be entitled to a whistleblower award for over $10 million.
Swiss Life Holding AG, Swiss Life (Liechtenstein) AG, Swiss Life (Singapore) Pte. and Swiss Life (Luxembourg) SA admitted to conspiring with U.S. taxpayers to conceal from the U.S. Internal Revenue Service (IRS) insurance policies and related policy investment accounts in banks around the world. According to the DOJ, the Swiss Life entities aided in the concealment of more than $1.452 billion in offshore insurance policies, including more than 1,600 insurance wrapper policies.
As part of the deferred prosecution agreement, the Swiss Life entities will pay $77.3 million in restitution, penalties, and forfeiture of all gross fees. The agreement also requires that Swiss Life entities “ refrain from all future criminal conduct, enhance remedial measures, and continue to cooperate fully with further investigations into hidden insurance policies and related policy investment accounts,” according to the DOJ.
“Swiss Life today is held responsible for creating and marketing specially designed insurance products to U.S. tax evaders seeking a new way to hide their offshore assets, in light of heightened Justice Department and IRS tax enforcement efforts,” said Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division. “Financial enablers here and abroad – and the taxpayers seeking their services – should know that we will continue to identify and unmask such schemes.”
The heightened enforcement efforts mentioned by Goldberg largely came out of the disclosures of UBS whistleblower Bradley Birkenfeld. Beginning in 2007, Birkenfeld provided the IRS with detailed information about how UBS, the largest Swiss bank, was concealing taxable income of Americans through the use of secret offshore accounts. Birkenfeld’s disclosure led directly to $780 million dollars in civil fines and penalties paid by UBS and over $25 billion dollars in collections from U.S. taxpayers. U.S. authorities correspondingly began investigating a number of other Swiss banks as part of a large-scale effort by U.S. authorities to crack down on the practice of wealthy Americans using Swiss banks to evade paying taxes.
Through the IRS Whistleblower Program, Birkenfeld received a $104 million whistleblower reward for his disclosures. The program entitles qualified whistleblowers, individuals who voluntarily provide original information about tax fraud that leads to the collection of funds by the government, to an award of 15-30% of the funds recovered. That means if a whistleblower was involved in the charges against the Swiss Life entities, they could be entitled to an award ranging from approximately $11.6 million to $23.2 million. However, a whistleblower must voluntarily provide the information to U.S. authorities. If an individual provides information after being contacted by the authorities, they are not eligible for a whistleblower award.
In March, whistleblowers sent a letter to the IRS Whistleblower Office alleging that the Swiss bank Credit Suisse has continued to help wealthy Americans avoid paying taxes after the Swiss bank promised the DOJ that it would cease doing so in a 2014 guilty plea deal. If the disclosure leads to a successful enforcement action, the whistleblowers, former employees of the bank, may be entitled to a large award.
In the 2020 fiscal year, whistleblower disclosures helped the IRS collect over $472 million from tax law violators, and the IRS issued over $86 million in awards to 169 whistleblowers. The Whistleblower Office, however, is plagued by extreme delays in the issuance of awards: on average, the Office takes over ten years to process a claim.
According to leading whistleblower attorney Stephen M. Kohn, founding partner at Kohn, Kohn & Colapinto, these delays undermine the effectiveness of the program but “are not the fault of the IRS Whistleblower Office.” He explains that the office “lacks the resources to properly respond to the thousands of whistleblower filings it receives each year.”
Kohn has argued for Congressional reforms to the IRS Whistleblower Program, including a strict 1-year deadline for adjudicating whistleblower claims and increased funding and resources for the Whistleblower Office.