MGT 227 UNLV Business Law Efforts of Whistleblowing Questions

was unjust given his altruistic services to the U.S. government in providing evidence against UBS. The Department of
Justice officials who indicted Birkenfeld stated that if he had fully disclosed the nature of his relationship with Olenicoff,
unlikely that he would have been prosecuted, which brings us back to the question of Birkenfeld’s true motives in comin
forward as a whistle-blower-was it really altruism, or was he looking for a way to handle the mess that the Olenicoff cas
had created for him?
In either event, there was a definite silver lining in Birkenfeld’s cloud. As a key figure in the qui tam lawsuit between the
U.S. government and UBS, he was eligible for up to 30 percent of the money recovered from UBS. On September 11, 20
the IRS announced that he would receive $104 million for his assistance in the UBS case. Birkenfeld was unable to be
present at the press conference announcing the award since he was under house arrest until November 2012. One last
ironic fact in Birkenfeld’s battle with his former employer and the U.S. government-his award was fully taxable as regula
income.
In an April 2015 interview with CNBC, Birkenfeld appeared to be enjoying the fruits of his labors in his private luxury box
TD Gardens, home of his beloved Boston Bruins hockey team. And yet, Birkenfeld made it clear that he wasn’t finished
with the Department of Justice. He remained committed to the pursuit of explanations as to why 50,000 people were
allowed tax amnesty when the DOJ could have pressed the Swiss banks for the names of all Americans who held secre
accounts.
Before you admire his altruism, there is an agenda at work here. “Mr. 30 percent,” as he became known during his two-
and-a-half years in prison, wasn’t satisfied with his $104 million share of the $780 million UBS settlement. Since those
50,000 people who took advantage of the IRS amnesty program poured an estimated $7 billion into IRS accounts,Evidence provided by Birkenfeld revealed that these “vacations” were, in fact, carefully planned trips to service UBS’s
wealthy American clients at luxury yacht races and art shows where, conveniently, UBS bankers could also mingle,
network, and solicit new clients. Unfortunately, since those bankers were not licensed to conduct business in the United
States, their actions amounted to a clear violation of U.S. banking regulations.
With such a strong case, the U.S. government was able to negotiate, for the first time, the delivery of 4,500 client records
of U.S. citizens who were using UBS accounts to evade their domestic tax obligations. Even though UBS sought the
intervention of the Swiss government to help its case, it came down to pragmatic reality. With 30,000 employees and a
large financial services business in the United States, the bank could not risk losing access to such a large market if it was
to remain a global banking institution. In 2009, the bank agreed to pay a fine of $780 million to settle the U.S.
government’s case.
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For Birkenfeld, the immediate outcome was not so positive. Despite his request for immunity for past actions as
a UBS banker, he elected not to fully disclose his relationship with California real estate billionaire Igor Olenicoff,
who was indicted for trying to evade U.S. taxes on $200 million hidden in Swiss and Lichtenstein bank accounts.
Birkenfeld was charged with helping Olenicoff by referring him to a UBS specialist in the creation of offshore “shell”
corporations designed to hide the true ownership of UBS accounts. Olenicoff cooperated with the investigation and paid
$52 million in fines and back taxes. As a result of his cooperation, Olenicoff served no jail time.
Birkenfeld, on the other hand, was charged with conspiracy to commit tax fraud, pleaded guilty, and received a sentence
of 40 months in prison, beginning in January 2010. While he did not dispute his relationship with Olenicoff, Birkenfeld
maintained that his involvement was only as a referral to another UBS specialist. As such, he felt strongly that his jail timeBradley Birkenfeld was born in the Boston area but spent the last decade of his professional banking career in Geneva,
Switzerland, as a personal banker for wealthy American clients of Swiss banking giant UBS. He has achieved notoriety in
the financial services industry as the whistle-blower of the largest tax fraud case in history. As a result of evidence he
provided, his former employer, UBS, paid a $780 million fine, agreed to modify its international banking practices, and
turned over the account records of 4,450 American account holders who, the IRS believed, were actively seeking to
evade their U.S. tax obligations.
Birkenfeld was an average midlevel banking executive, and his motives in becoming the first banker to ever provide
evidence on Swiss banking practices were initially perceived as altruistic. He offered to wear a wire transmitter to record
conversations with high-level UBS executives and to provide documentation on almost 19,000 UBS accounts. In return, he
asked for immunity for his past actions as a UBS employee. When we consider the nature of his work, his request for
immunity appears to be a very smart move.
Birkenfeld’s duties—he was a personal banker-included providing concierge-level service, under the protection of highly
secretive Swiss banking laws, helping clients invest, spend, and move their money around the world. Such personal
service included, for one wealthy client, the purchase of loose diamonds in Geneva and then personal delivery of those
diamonds to the United States, carried through customs in a toothpaste tube. Despite a statement from Birkenfeld that the
value of the diamonds was “less than $10,000” (which meant that they did not need to be declared at U.S. Customs), the
choice of packaging raises questions about his desire to not draw attention to himself while traveling to the United States.
Indeed, it was this practice of low-key, “under the radar” visits from UBS bankers to the United States on trips recorded in
their business calendars as “vacations” that drew the attention of the FBI.Birkenfeld and his lawyers announced that they would be pursuing the same percentage of that larger amount.
By November 2016, Birkenfeld was telling his side of the story in a book entitled Lucifer’s Banker: The Untold Story of
How I Destroyed Swiss Bank Secrecy. As a permanent resident of the island nation of Malta, Birkenfeld now volunteers his
time advising the governments of other nations, including Norway, France, Germany, and Greece, on better protection
and compensation for whistle-blowers. There has been no news on his pursuit of his “fair share” of the $7 billion
recovered by the IRS.
QUESTIONS
1. Birkenfeld was adamant that his prison sentence was unfair when compared to the fact that no one else (e.g., Olenicoff
or UBS bankers) went to jail. Did he have a point?
2. Why did UBS elect to settle with the U.S. government?
3. Given that there was an immunity agreement in place, what did the Department of Justice gain from prosecuting
Birkenfeld?
4. Critics are concerned that even with the large qui tam award, Birkenfeld’s prison sentence will discourage other tax
whistle-blowers from coming forward. Is that a valid concern? Why or why not?