You may recall a few years ago – actually, the four year anniversary of this story is this week – when Swedish bank UBS admitted it helped U.S. clients bypass the IRS. It was hit with a $780 million fine and was forced to hand over all of its documents.
UBS Admits Wrongdoing
As part of the deal that was approved that same year by a federal court judge in Fort Lauderdale, FL, UBS was also forced to change the way it did business, especially with Americans who had “undeclared” accounts. On January 17, 2009, the Justice Department announced that it had arrived at the agreement after much negotiation with the financial entity,
UBS admitted to conspiring to defraud the United States by impeding the IRS.
Calling it an “unprecedented move”, the government also said that UBS would immediately be forced hand over the identities, account information and other documents that would help the government on American soil.
The government also said it had known that Swiss bankers routinely traveled to the United States with one goal: to market Swiss bank secrecy to United States clients interested in attempting to evade U.S. income taxes. In fact, these Swiss bankers made close to 4,000 trips such as those. In the same announcement, it was also announced that because the bank had fully acknowledged its role in the actions and because it fully cooperated and had already begun to take remedial actions, the United States would recommend dismissal of the criminal charges. This was contingent on the bank fully carrying out its obligations under the agreement. That said, there were two former UBS bankers who didn’t get off so easy – they were charged with and plead guilty to charges of conspiracy for similar conduct.
That was basically the end of this case and it soon fell out of the headlines. Until today.
A former UBS banker Bradley Birkenfeld, is the proud recipient of a $104 million reward for exposing the bank’s program that helped those American taxpayers hide their assets. Sounds like the actions of a hero, right? Not exactly. Birkenfeld also was hit with a 40 month prison term. As it happens, he was neck deed in the illegal behaviors as well. He legal teams attempted to get the verdict set aside, but it didn’t happen.
In fact, the IRS paid out more than $125 million last year – compared to $8 million in 2011. This begs the question as to why there’s a sudden peak in the payouts by the federal government. Are there more good Samaritans stepping up to the plate? Is it really all about the money? As it happens, that $125 million went mostly to Birkenfeld. After his payout, that left $21 million left for other whistleblowers. That’s still more than the total reported for 2011, but it certainly explains the spike.
Here’s what many Americans are unaware of: Since 1867, the IRS has had full authority to make these types of rewards payments. Not only that, but there were new laws enacted in 2006 that greatly expanded the agency’s ability to process tips while also increasing the potential rewards made available to those whistleblowers. In fact, those who do become whistleblowers are entitled to up to 30% of the sum that’s recovered for big cases. For those that involve less than $2 million, the payment structures are smaller – though still impressive. As a result of these new laws, the Securities and Exchange Commission received more than 3,000 tips in its first year of unveiling the whistleblower campaign.
Before you start thinking about paying off all of your credit cards and your mortgage, you should know these take years. As mentioned, it’s almost four years to the day since Birkenfeld turned whistleblower for the government. And he got hit with a prison sentence, too, let’s not forget. In fact, whistleblowers who stepped up to the plate with credible information in 2006 received nothing until last year.
There’s more though – the program as a whole has been heavily criticized. There aren’t enough resources to accurately investigate claims, either. It’s little wonder that it takes years for these to come full circle. Things did get a little better last year, though not enough to make that much of a difference. In 2012, the IRS wrote 128 checks to whistleblowers and few were more than the $2 million threshold for the heftier rewards. The IRS says the tips provided helped it recoup $529 million. And – there were a total of 332 tips proffered, which suggests that less than half were worthy of the federal government’s attention. There are some still under investigation, though hardly enough to account for the rest of the reports collected last year.
The Justice Department Tax Division says these are “milestones” designed to ensure U.S. citizens pay their fair share of taxes.
The veil of secrecy has been pulled aside, and we will continue to aggressively pursue those who shirk their federal tax obligations, or assist others in doing so,
said John DiCicco, acting assistant attorney general for the Justice Department Tax Division. And the IRS has something to say, too. It’s issued warnings to taxpayers that now’s the time to come forward and pay up or risk significant legal problems. The new laws allow more leeway for the government to “seek enforcement”. The IRS also said that those who’ve hidden unreported income off shore need to get right with their government. They should come forward and take advantage of the voluntary disclosure process.
How do you feel about whistleblowers? And should a whistleblower be allowed to collect any kind of reward if he’s played a role in the criminal act? The decision to pay off Birkenfeld is controversial and many are saying illegal behavior shouldn’t be rewarded with millions of dollars. We want to know what you think – share your thoughts with us in the comments or join the conversation on Facebook.
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