Commerzbank cooperating in IRS case involving employee

Fri Sep 28, 2012 6:48pm EDT

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(Reuters) - Germany's Commerzbank (CBKG.DE) said on Friday it was cooperating with U.S. prosecutors in a case involving a bank employee who is charged with exposing an Internal Revenues Service whistleblower, and who himself is a former IRS examiner.

The charges come at a time of heightened attention to whistleblowers after an informant in another bank case earlier this month won a record-setting award from the IRS.

Dennis Lerner, 59, who a Commerzbank spokeswoman in Germany said is still employed by the bank, was arrested on Thursday at his home in New Jersey and taken before a U.S. District Court judge in Manhattan.

Lerner worked as an IRS examiner from June 2010 to August 2011.

Lerner was charged with four counts of violating federal conflict-of-interest laws and improperly disclosing confidential IRS information, including the identity of a whistleblower, according to legal documents released by Preet Bharara, the U.S. attorney for the Southern District of New York.

"The bank is fully cooperating with the authorities," the Commerzbank spokeswoman said by telephone on Friday. She declined to answer further questions.

Lerner, who was released on bail, could face up to 20 years in prison, Bharara's office said.

A man reached by phone at Lerner's home declined to comment. Jonathan Marvinny, identified as Lerner's attorney in court documents, could not be reached for comment.

The IRS declined to comment on the bank or the whistleblower involved. "We will not tolerate breaches of public trust by IRS employees," IRS spokesman Terry Lemons said.

FORMER EXAMINER

The Lerner case is unusual, but somewhat worrisome, said David Kovel, partner at law firm Kirby McInerney, who focuses on whistleblower cases.

"This situation is a real breaking of that covenant we have between the IRS and the whistleblower," he said, while saying the case was atypical and that the agency is generally very protective of whistleblowers.

In his role as an IRS examiner, Lerner audited an international bank for alleged underreporting of $1 billion in income, with help from a confidential whistleblower, said a statement from Bharara and legal documents based on a probe by the Treasury Inspector General for Tax Administration, an IRS watchdog unit.

That bank, though unidentified in the legal documents, was Commerzbank, sources close to the case said.

While he was working at the IRS, Lerner led negotiations between the agency and the bank on a $210 million proposed settlement, the documents filed by Bharara said.

In September 2011, Lerner abruptly left the IRS and took a job as North American tax director at the bank.

Despite warnings from the IRS about talking with agency employees, Lerner subsequently phoned his former colleagues about the audit. He encouraged IRS employees to conclude the settlement negotiations, at one point walking in on talks between agency and bank employees, the documents said.

Lerner also divulged to people not employed by the IRS the identity of the whistleblower and "details regarding pending IRS audits of other companies," the documents said.

The Commerzbank spokeswoman declined to comment on the status of the bank's audit settlement with the IRS.

No public announcement has been made either by the bank or the IRS of a settlement between them in the case discussed in the legal documents filed by Bharara.

Earlier this month, the IRS gave a record-setting $104 million whistleblower award to Bradley Birkenfeld, who was at the center of a breakthrough tax fraud case against Swiss bank UBS AG (UBSN.VX).

The IRS whistleblower office has recently come under fire from some members of Congress for not quickly pursuing whistleblower claims.

(Reporting by Patrick Temple-West in Washington and Nanette Byrnes in Chapel Hill, N.C.; Additional reporting by Alexander Huebner in Frankfurt; Editing by Kevin Drawbaugh and Leslie Adler)

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