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UBS whistleblower gets $104 million from US

US authorities have awarded former UBS banker Bradley Birkenfeld a $104 million reward for blowing the whistle on the Swiss bank's tax fraud, a whistleblowers group said Tuesday.

Published: 12 September 2012 08:45 CEST
Updated: 12 September 2012 11:13 CEST

UBS whistleblower gets $104 million from US

Photo: Martin Abegglen

"This is believed to be the largest reward ever given to an individual whistleblower in the United States and the first major reward issued under the IRS tax whistleblower law," the National Whistleblowers Center said in a statement.

Birkenfeld, who was released from a US prison last month, earned the reward from the Internal Revenue Service for providing the US government with "insider information on UBS's illegal offshore banking scheme," said the Washington-based nonprofit organization.

National Whistleblowers said his disclosures directly resulted in UBS paying a $780 million fine to the United States.

"Mr Birkenfeld's disclosures also forced the Swiss government to change its tax treaty with the United States, resulting in UBS turning over the names of over 4,900 US taxpayers who held illegal offshore accounts. These 'taxpayers' are now being investigated and prosecuted," the centre said.

The UBS case was part of a broad push by US tax authorities to gain information on accounts held overseas by Americans allowing them to avoid US taxation.

According to National Whistleblowers, more than 35,000 taxpayers have come forward to participate in so-called amnesty programs to voluntarily repatriate their illegal offshore accounts and the US has collected over $5 billion in back taxes, fines and penalties.

Birkenfeld's lawyers hailed the IRS payout as an important step in prompting people to come forward in reporting crime.

"Today is a great day for whistleblowers. Today is a great day for the vast majority of Americans who work their jobs and pay their taxes. Today is a great day for tax fairness," said Dean Zerbe, one of his attorneys. "Today is a terrible day for big-time tax cheats," he said.

In 2008, Birkenfeld pleaded guilty to conspiracy to defraud the United States. A year later he was convicted of the charge and sentenced to 40 months in jail.

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Switzerland's UBS faces €3.7-billion fine as crucial court ruling looms

UBS denies charges it helped French clients evade tax and says it will defend itself "vigorously". Photo: AFP

The trial opened last autumn after seven years of investigations, launched when several former employees came forward with claims of unlawful conduct.

The move came as authorities across Europe cracked down on tax evasion and dubious banking practices in the wake of the global financial crisis which erupted in 2007.

The pressure eventually forced Switzerland to effectively end its tradition of ironclad bank secrecy, by joining more than 90 countries which agreed to automatically share more client account information among each other.

In the UBS case, French authorities determined that more than €10 billion had been kept from the eyes of tax officials between 2004 and 2012.

The National Financial Prosecutor's office urged a €3.7-billion ($4.2 billion) fine, the largest ever sought in France, saying the bank and its directors “were perfectly aware that they were breaking French law” by unlawfully soliciting clients and helping them evade French taxes.

They also sought a €15 million fine for UBS's French subsidiary, and fines of up to €500,000 for six top executives, including Raoul Weil, the former third-in-command at UBS, and Patrick de Fayet, formerly the second-ranking executive for its French operations.

In addition, lawyers for the French state, which is a plaintiff in the case, asked for €1.6 billion in damages.

UBS, which was ordered to post €1.1 billion in bail, has denied the charges and said its operations complied with Swiss law.

It also says that it was “unaware” that some French clients had failed to declare assets in Switzerland, and that prosecutors have not produced any proof, such as client names or account numbers, to back up their fraud claims.

The case is being closely watched by industry executives at a time when Paris and other European capitals are hoping to lure multinational banks from London as Brexit looms.

'Milk tickets'

UBS is accused of organising or inviting prospective clients to prestigious outings such as the French Open or luxury hunting retreats, where UBS's Swiss bankers would meet their “prospects” — something they were not allowed to do under French law.

UBS France directors then used notes called “milk tickets” to keep track of how many “milk cans” – amounts of money – were transferred to Swiss accounts.

They say the system was merely a way to balance out bonuses due to French bankers who were effectively losing a client to their Swiss peers, and the notes were later destroyed.

But investigators claim the “milk tickets” were proof that UBS had a parallel accounting system for keeping the transfers off its official books.

Only one “milk ticket” was found during the inquiry, prompting defence lawyers to argue there was no proof to justify claims of a massive fraud.

Yet prosecutors pointed to the roughly 3,700 French UBS clients who later took advantage of an amnesty offer to regularise their tax declarations with the French authorities.

UBS has been embroiled in a series of similar cases, most notably in the United States, where the authorities said the bank used Switzerland's banking secrecy laws to help rich clients avoid taxes.

In 2009 it paid $780 million to settle charges it helped thousands of American citizens hide money from the Internal Revenue Service, and agreed to turn over information on hundreds of clients, severely denting Switzerland's long tradition of shielding banking clients and their operations from prying eyes.

That case was also prompted by a former American UBS employee turned whistleblower, Bradley Birkenfeld, whose book “Lucifer's Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy” was published in 2016.

Last November UBS was again sued by US authorities, who accuse the bank of misleading investors over the sale of mortgage-backed securities in 2006 and 2007, just before the financial crisis struck.

UBS has denied the charges and said it will defend itself “vigorously”.

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