* Birkenfeld in home confinement after time in prison
* His information ripped away Swiss bank secrecy
* Expected to encourage other to come forward
By Patrick Temple-West and Lynnley Browning
Sept 11 The whistleblower in a breakthrough tax
fraud case against Swiss bank UBS AG has won a
record-setting $104 million reward from the U.S. Internal
Revenue Service, a handsome payout that could entice more
informants to come forward.
Bradley Birkenfeld, who once confessed to smuggling diamonds
in a toothpaste tube, was not present at the news conference on
Tuesday where his award was announced by his lawyers.
He was released from prison just last month and is living in
New Hampshire under home confinement at a friend's estate where
he is gardening and assisting with other jobs involving manual
labor on the property, the lawyers said.
Based on netting roughly $44 million after paying federal
taxes and legal fees, which tax lawyers not involved in the case
called a reasonable estimate, Birkenfeld realized about $46,000
for each day he spent in prison.
In a case that shook Swiss banking to its core, UBS in 2009
entered into a deferred prosecution agreement and paid $780
million in fines, penalties, interest and restitution to settle
charges that it helped thousands of wealthy Americans hide
billions of dollars in secret Swiss accounts.
U.S. authorities are still investigating other Swiss banks.
Birkenfeld knew the inner workings of UBS and spilled many
secrets about his former employer's dealings with U.S. clients.
But he was jailed after the government said that he withheld
other information and he spent 30 months in prison.
He is scheduled to be freed from home confinement in late
November and he is continuing to help government tax authorities
with their investigations, said his lawyers, Stephen Kohn and
Dean Zerbe, who would not discuss their cut of the award.
The sum paid by the IRS to Birkenfeld is "the largest
whistleblower reward issued to a single individual," Kohn said.
In October 2010, a GlaxoSmithKline Plc quality
manager won $96 million for exposing manufacturing defects at a
plant in Puerto Rico. The drug company paid $750 million to
settle the charges.
Bryan Skarlatos, a tax lawyer with law firm Kostelanetz &
Fink LLP, said the IRS whistleblower program is likely to become
a bigger deal now, "people will come out of the woodwork."
Solomon Wisenberg, a partner at law firm Barnes & Thornburg,
said the award would draw attention to the IRS whistleblower
"Certainly there are a number of tax scams out there still,
and this sends a message: if I know something about that, even
if I am involved, I can get something for me out of that,"
Confirmed by the IRS, the award comes as U.S. and European
authorities are investigating a wide range of tax evasion cases
involving people with accounts in Switzerland, a long-standing
bastion of banking secrecy that is being forced to change.
In 2010, UBS agreed to disclose 4,450 American client names
to U.S. authorities. Eleven Swiss banks are known still to be
under U.S. scrutiny. The Swiss have been seeking a legal deal to
remove the taint from their financial industry.
The crackdown comes at a time of massive budget deficits for
the U.S. government and pressure on the IRS to collect more tax.
The information provided by Birkenfeld has brought in $5
billion in taxes from "big banks and wealthy individuals who
tried to evade paying their fair share," Zerbe said.
The IRS whistleblower program gathers information from
people who want to alert the tax-collecting agency to
misconduct. Last year, the program collected only $48 million in
tax revenues, down from $464 million in fiscal 2010. New
whistleblower cases were down as well.
Those results drew criticism earlier this year from
Republican Senator Charles Grassley, who wrote legislation
overhauling the program in 2006. But Grassley said on Tuesday
the Birkenfeld case showed the whistleblower program can work.
Wisenberg said friends of big business in Congress might
argue that it was an outrage for someone involved to get so
large an award.
"But if ever there was anyone who deserved a big reward it
was this guy," he said. "He's done something no one's ever done
before, essentially brought the Swiss banks to their knees."