After recent rumors of a turnaround for financial whistleblowers seeking rewards under the Internal Revenue Service's (IRS) whistleblower reward program, it is fitting that one of its rare financial awards goes to United Swiss Bank (UBS) whistleblower Bradley Birkenfeld. Not only is Birkenfeld the biggest tax fraud whistleblower in history (who handed the IRS key information on a silver platter), but he is especially deserving as he is the only person to go to prison among the thousands of Swiss bank account tax cheats he exposed. (Easy to understand now that we have a presidential candidate who hides money in offshore tax havens.)
Birkenfeld was released from prison in August after an usually harsh sentence. Despite the fact that Birkenfeld shattered 75 years of Swiss bank secrecy when he approached investigators about a UBS tax evasion service involving thousands of illegal offshore accounts – held by some of your favorite actors, politicians, and sports figures – and billions of U.S. dollars. Instead of targeting UBS kingpin Martin Liechti, the Justice Department turned on Birkenfeld. To add insult to injury, the prosecutor, Kevin Downing, is now in private practice at Miller & Chevalier defending the very tax cheats Birkenfeld turned in.
Until recently, to say the Internal Revenue Service (IRS) had been slow to implement the IRS whistleblower reward program would have been an understatement. The IRS' implementation (or lack thereof) was so extreme that this summer it caused longtime whistleblower supporter Charles Grassley (R-IA) to object to two Department of Treasury nominees.
The award for Birkenfeld marks a much-needed turnaround for the IRS' whistleblower office, and will hopefully encourage other financial whistleblowers to come forward.
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I wrote extensively about Birkenfeld's case during his prosecution and sentencing (here, here, here, and here). After complaining internally to UBS for two years, in June 2007 Birkenfeld voluntarily met with Justice Department prosecutors and an IRS Special Agent during three full days in which he provided unprecedented and voluminous information about UBS’s cross-border and offshore business activities, the UBS offices and private bankers that were directly involved, and the details of 19,000 UBS accounts for its American customers.
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The Government Accountability Project praised the U.S. Department of Justice (DOJ) Office of Inspector General (OIG) for today's announcement of a new Whistleblower Ombudsman position. The job will include monitoring of whistleblowing disclosures and retaliation claims, communications with whistleblowers on the status of their cases, and liaison with other whistleblower protection agencies such as the U.S. Office of Special Counsel. GAP has long advocated for the creation of Ombudsman offices at the DOJ and other OIGs, as evidence of a commitment to establishing effective working relationships with whistleblowers. Institutional Ombudsman offices are required by the pending Whistleblower Protection Enhancement Act (WPEA), as well.
Regarding new DOJ OIG Michael Horowitz, GAP Legal Director Tom Devine commented:
"In announcing this new position, Mr. Horowitz is off to a flying start toward earning trust from whistleblowers and their advocates. At GAP, we know that any Ombudsman faces tough tasks but whoever assumes this new position at DOJ will certainly confront challenges. There is a history of mutual distrust between whistleblowers and the DOJ OIG, and OIG staff who have worked closely with whistleblowers in the past faced suspicion and harassment. The relationship between whistleblowers and government investigators inherently is difficult and strained, at best. But a working relationship is indispensable for effective law enforcement, and OIGs can play a major role in preventing retaliation or nipping it in the bud. The Ombudsman post is an institutional commitment to start reaching that potential."
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Yesterday marked the end of Bradley Birkenfeld’s prison term for conspiracy to defraud the United States. However, what he actually did was save taxpayers billions of dollars after exposing the secret corruption of UBS, the largest bank in Switzerland. UBS conducted a tax evasion scandal, allowing thousands of Americans to illegally evade taxes by using offshore bank accounts. After complaining to the UBS with no response, Birkenfeld blew the whistle to the U.S. government about the scheme. He provided extensive information about the company’s illegal operation, including the UBS agents directly involved and the details of 19,000 American-owned accounts.
In return, Birkenfeld was prosecuted, after pleading guilty to conspiracy in 2008. The DOJ claims Birkenfeld was not forthcoming about his status as a private banker for Igor Olenicoff, but Birkenfeld made his status known prior to the indictment in testimony to the Senate. In this same testimony, he revealed Olenicoff’s money laundering scheme. From GAP’s Jesselyn Radack:
After negotiations with the Justice Department broke down over its refusal to provide Birkenfeld a "friendly subpoena," which would provide the compulsory process necessary for him to reveal client names without violating Swiss bank secrecy laws, he reached out to the U.S. Senate Permanent Subcommittee on Investigations, which was investigating tax havens and more than happy to subpoena him. Accordingly, Birkenfeld testified to the Senate on October 11 and November 13 of 2007, in which he identified Igor Olenicoff by name as one of his biggest clients. At the same time, Birkenfeld also provided substantially the same information on Olenicoff to the IRS and the SEC.
In other words, prior to Olenicoff himself being charged criminally by the Justice Department, Birkenfeld had provided sworn testimony to the Senate identifying him, described his $200 million account at UBS, and detailed his own involvement as Olenicoff’s private banker at UBS.
For his truthful exposures, Birkenfeld spent two and a half years in prison, while those involved in the tax evasion scheme received little to no punishment. Martin Liechti – the UBS executive who led the illegal operation – returned to Switzerland without further punishment. As the kingpin walked with impunity, other small time crooks who assisted in the scandal were granted amnesty in return for small fines. The bank received a $780 million dollar fine, although the scandal cost the U.S. billions of dollars.
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Earlier this month, Senator Chuck Grassley (R-Iowa) – a longtime supporter of whistleblower rights – objected to two Treasury Department nominees due to his concerns about the implementation (or lack thereof) of the IRS whistleblower reward program in the Dodd-Frank financial reform law. Grassley said in a floor statement:
My support for the final confirmation of these nominees will depend on both Treasury and Internal Revenue Service responses to questions I have posed regarding their implementation of the tax whistleblower program. I rewrote the statute in 2006 to encourage whistleblowing on big-dollar tax cheats. However, nearly six years since those changes were enacted, Treasury has yet to issue much needed regulations and IRS has paid less than a half dozen awards under the new program.
The much-needed whistleblower-reward program has instead been used against whistleblowers instead of in favor of them. Meanwhile, UBS whistleblower Bradley Birkenfeld is set to be released from prison next week after an usually harsh sentence. Despite the fact that Birkenfeld shattered decades of Swiss bank secrecy when he approached investigators about a UBS tax evasion scandal involving thousands of illegal offshore accounts and billions of U.S. dollars. Instead of targeting UBS "kingpin" Martin Liechti, the Justice Department turned on Birkenfeld.
I wrote extensively about Birkenfeld's case at the time of his sentencing. (here, here, here, and here). After complaining internally to UBS for two years, in June 2007 Birkenfeld voluntarily met with Justice Department prosecutors and an IRS Special Agent during three full days in which he provided unprecedented and voluminous information about UBS’s cross-border and offshore business activities, the UBS offices and private bankers that were directly involved, and the details of 19,000 UBS accounts for its American customers.
Birkenfeld had the potential to change an entire industry designed to evade U.S. taxes. Instead, the U.S. has been soft on UBS: letting bank kingpin Martin Liechti go free; under-fining the bank only $780 million for a multi-billion dollar fraud; settling for only 4,500 customer names of the 52,000 our government originally sought; and setting up an amateurish amnesty program that allowed the worst offenders to avoid criminal liability by paying fines. But worse, the Justice Department’s treatment of Birkenfeld is chilling would-be financial whistleblowers from coming forward, and will continue to do so for decades, to the detriment of the U.S. economy and all taxpayers—something that should be inconceivable during a global financial crisis.
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Attorney General Eric Holder recently complained in the wake of his congressional contempt citation – the first ever for an Attorney General – that Republicans are using him as a proxy for Obama in an election year.
In his first interview since Thursday’s vote, Holder said lawmakers have used an investigation of a botched gun-tracking operation as a way to seek retribution against the Justice Department for its policies on a host of issues, including immigration, voting rights and gay marriage. He said the chairman of the committee leading the inquiry, Rep. Darrell Issa (R-Calif.), is engaging in political theater as the Justice Department tries to focus on public safety.
I agree that in the political theater of the contempt citation, Holder is being used as a proxy for Obama. However, Holder has done plenty in his tenure as Attorney General to upset both sides of the aisle, and ought to take some responsibility for the actions the Justice Department has taken under his watch.
Obama might have ordered the assassination of American citizen Anwar al-Awlaki without charge or trial, but it was Holder's Justice Department that drafted the legal memo "authorizing" the killing. It is also Holder's Justice Department that continually asserts absurd secrecy claims to keep the memo from the public and the drone program from court oversight.
Under Holder, the Justice Department has
- endorsed indefinite preventative detention and targeted assassination of Americans,
- continued to use the state secrets privilege to shut down lawsuits challenging torture and extraordinary rendition, and
- maintained pro-secrecy positions in high-profile Freedom of Information Act suits.
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Eyal Press wrote an interesting piece this week, comparing the excessive attention that Justice Department prosecutors have directed at whistleblowers in the national security world in recent years to the absolute disinterest with which these same attorneys treat Wall Street whistleblowers.
He’s right. In fact, it’s striking. But finally, the real story behind the lack of criminal prosecutions produced by the financial crisis of 2008 and the ensuing Great Recession is starting to seep out. It’s a sorry tale of edited testimony, arm twisting and rule changing.
After the financial meltdown in September 2008, the Obama administration “rescued” both commercial and investment banks, as well as insurance monolith AIG. Tim Geithner, Henry Paulson, Jamie Dimon and the other Masters-of-the Universe staged a revival of the US economy in a stunning, all-star production that fall season. It was a spectacular performance. There was the mystery of the closed-door deals, the suspenseful, whipsaw swings of the Dow, the zany antics of the Republican presidential candidate, and the breathtaking confrontation with Congress. When it was over, we were all exhausted, and the Justice Department rang down the curtain.
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Yesterday, Attorney General Eric Holder said:
The American people can be — and deserve to be — assured that actions taken in their defense are consistent with their values and their laws.
I agree, Mr. Holder, but if you really cared about informing the American public more than silencing critics of the administration's Executive power grab, you would release the Office of Legal Counsel (OLC) memos "legalizing" assassinating American citizen Anwar Al-Awlaki without a shred of due process and engaging in secret drone warfare in the airspace of sovereign nations. Even the conservative Washington Post editorial board (whose opinion on drone strikes differs from mine) agrees on release of the memos:
If the administration is intent on reassuring the American public, it should release the Justice Department memorandum that lays out the domestic and international strictures which, it says, undergird its drone policy.
The offensiveness of the Justice Department's hypocritical secrecy is trumped only by Holder's Constitution-shredding rationalizations.
The factual scenarios Holder says would be enough to assassinate Americans amount to punishing individuals for thoughts. First Amendment need not apply.
[Holder] said the president is not required by the Constitution to delay action until some “theoretical end stage of planning — when the precise time, place and manner of an attack become clear.”