11 ms·

I Won $104M for Blowing the Whistle But Was the Only One Who Went to Jail

461 points by monsieurpng 10y ago

tptacek 10y ago
This almost makes some kind of sense. The "whistleblower award" he got was the percentage of recovery the IRS pays as a bounty for intelligence on tax avoidance schemes; it's a portion of the money he actually helped recover for the government. There is a rational case to make for someone being both fully culpable for wrongdoing while still remaining entitled to bounties they've satisfied. For another complicated IRS recovery bounty case, see the story about Vanguard's "internal whistleblower" who is making the case to the IRS that their cost-saving structure is an unfair advantage, and that they owe taxes on those savings to the government. If that "whistleblower" prevails, he'll have harmed the retirement savings of tens of millions of Americans, all of whom benefit from Vanguard's novel structure. But there you go! As for this guy's superiors not being prosecuted, yeah, that sucks. The prosecutors can only make the cases they can make; this guy confessed.
- viraptor 10y ago
  > [...] this guy confessed. Yes, he did, but after: > All I asked for in return was a subpoena or immunity. They said no. I wonder realistically how long can you drag this out as a whistleblower? How many times can you say "I'll give you these people if you don't charge me", especially when your document stash is well hidden.
  - tptacek 10y ago
    It sort of looks like this bank exec traded 3 years in minimum security prison for more money than any of us could ever use in a lifetime. I'm pretty OK with that precedent!
    - viraptor 10y ago
      I'm not. It was not an exchange. He neither knew about the money, nor expected it at the start. I think it would be more precise to say: "Bank exec blew a whistle his company and got 3 years in minimum security prison. By coincidence he also got a lot of money afterwards." Basically unless the whole story the whistleblower reported was fabricated, I don't think there's any situation where I'd be ok with the whistleblower being the only one jailed. As part of a larger group - sure, maybe. Otherwise what's the point of whistleblowing? It would only work if you hate the company more than you like your current life. Or if you knew how to do it anonymously.
      - tptacek 10y ago
        What do you mean he didn't know about it? He's a banking exec whistleblowing on tax evasion. The IRS bounty on recoveries is not exactly a secret. Even in the unlikely event that he himself wasn't aware of his prospects when he went in, you'd assume literally the very first thing any competent lawyer would have told him was "you stand to make a hundred million dollars if you go through with it". The thing I like about the precedent? That banking executives need to be on their toes because all of their colleagues have an immense incentive to rat them out.
        deleted 10y ago
        [deleted]
        frank_jaeger 10y ago
        > (It is, however, extremely important to me that I make clear that I had no idea there was a law like this for a reward when I resigned from UBS in October 2005, as the law passed in December 2006.)
        tptacek 10y ago
        Huh. Fair point. I stand corrected.
        wnoise 10y ago
        Immunity plus the bonus would be a better incentive to rat them out.
    - rhizome 10y ago
      You're undervaluing time spent locked up.
      - tptacek 10y ago
        I would do 3 years for $100MM. I would do the next three years for $100MM, and they're pretty important years in my family! Someone offer me $100MM to be imprisoned for the next three years; I will put my money where my mouth is on this.
        djdjjd 10y ago
        We all knew you were a prostitute for the state, but now we know your upper bound. I suspect your lower bound ia significantly lower. Lap dog.
        roel_v 10y ago
        I'll do it for $90MM though, pick me! Pick me!
        tedunangst 10y ago
        This would make for an interesting loser pays auction.
        grecy 10y ago
        I smell a reality TV show...
        pyvpx 10y ago
        if you assume a 4-5% return on the money, only want to live off the returns (not the principal) and "six figures" (say, $250,000) is enough as yearly, net income...the lowest a person would go is about USD$6.7MM (after tax, of course)
        oblio 10y ago
        In the US ;)
    - st3v3r 10y ago
      I'm not. Most people won't be in the position to get that kind of deal.
    - Lazare 10y ago
      I'm not. As near as I can tell from objective sources, Birkenfeld: 1) Deserved the money 2) Did not deserve prison. You can't equate those.
      - tptacek 10y ago
        Unless I'm misreading, he's a bank executive who smuggled diamonds internationally to held a Russian oligarch avoid US taxes. Why exactly are you immunizing him?
        Lazare 10y ago
        To clarify: I don't feel that he deserved prison for what he was accused of and eventually pled guilty to in a plea bargain, given the totality of the circumstances. Which was not, unless I'm misreading, anything to do with diamond smuggling. Mind you, it's possible he plead guilty to what seems (to me) as vaguely absurd charges to avoid a much harsher penalty for the diamond smuggling and such.
        random314 10y ago
        https://en.wikipedia.org/wiki/Igor_Olenicoff#Tax_evasion https://en.wikipedia.org/wiki/Igor_Olenicoff#Tax_evasion Prosecutors were extremely reluctant to prosecute the oligarch and didn't want him in jail. However they were pretty vigorous with his banker!
      - nickpsecurity 10y ago
        He aided tax evasion for U.S. and other companies. IRS threatened to come after me for about $1.20 once. No kidding. This guy helping them disguise tens of millions to billions... who knows amount... in taxes they owed? "Did not deserve prison." Oh no, I think the scumbag did. His bosses deserved a longer sentence, too. Although, they're doing what their country makes a lot of money on. So maybe heroes of private industry over there. ;)
- zeveb 10y ago
  > recovery the IRS pays as a bounty for intelligence on tax avoidance scheme Tax evasion. Tax avoidance is legal; evasion is illegal. The one is avoiding taxes by applying the law; the other is breaking the law in some fashion or another.
  - josh2600 10y ago
    The line between evasion and avoidance is really a matter of opinion (that we colloquially call 'case law'). It's hard to know what the delta actually is... I would argue that intent isn't really that different between the two.
    - epx 10y ago
      It is completely different. A freegan is a tax avoider.
    - CamelCaseName 10y ago
      The difference is very important because tax avoidance is completely legal and encouraged. Tax evasion is illegal. Your statement below is false as written: >the IRS pays as a bounty for intelligence on tax avoidance scheme From the IRS' website: [1] "The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe" You can't fail to pay a tax that you legally avoid. [1] https://www.irs.gov/uac/whistleblower-informant-award https://www.irs.gov/uac/whistleblower-informant-award Here is some more information on the difference between tax avoidance and tax evasion: http://www.investopedia.com/video/play/tax-avoidance-vs-tax-evasion/ http://www.investopedia.com/video/play/tax-avoidance-vs-tax-...
      - DrJokepu 10y ago
        While it would be unconstitutional in the United States, keep in mind that in certain countries "ex post facto" making certain tax avoidance schemes retroactively unlawful is not unheard of, e.g. BN66 in the UK: https://en.wikipedia.org/wiki/BN66 https://en.wikipedia.org/wiki/BN66
- deleted 10y ago
  [deleted]
- sliverstorm 10y ago
  ... their cost-saving structure is an unfair advantage, and that they owe taxes on those savings to the government. From what I remember, it's not about unfair advantages, but simply that they could have charged higher mutual fund fees, and thusly owe taxes on the fees they could have charged instead of the fees they actually charged.
  - Cerium 10y ago
    Really? That makes no sense to me. Like it being wrong to work part time because you pay less taxes.
    - tptacek 10y ago
      It is so much weirder than that. Vanguard's signature benefit is the way its organized: rather that a company that owns and manages funds, it's a collection of funds that own and share the management company. All of the expenses and overhead involved in managing the funds come directly out of the returns of the fund, so the company and its investors have aligned incentives. The problem is that the funds have a client/vendor relationship with the management company. Since the vendor is captive to the funds, it has no incentive to charge its clients market rates for its services. But since it's a separate taxable entity, it theoretically cannot gift (or discount) its services to its clients without the clients recognizing those benefits as taxable income. The "whistleblower" here is a former tax lawyer for Vanguard. Since Vanguard is basically one of the largest money managers in the world, that guy stands to make almost ten billion dollars in bounty fees if the IRS recovers based on his theory. As always, start with Matt Levine: https://www.bloomberg.com/view/articles/2015-11-25/calpers-fees-and-culture-consultants https://www.bloomberg.com/view/articles/2015-11-25/calpers-f...
      - Cerium 10y ago
        Thanks for the link, it was a good read.
      - klipt 10y ago
        But lower fees mean higher returns which means clients already pay more capital gains tax etc. Frankly if that's a tax loophole, then every credit union is in massive trouble. Not to mention restricted banks like USAA.
- st3v3r 10y ago
  "There is a rational case to make for someone being both fully culpable for wrongdoing while still remaining entitled to bounties they've satisfied." Not really. Throwing them in jail sends the message that whistleblowing is looked down upon, and thus fewer people will do it. If the whistleblower doesn't have immunity from prosecution, the only way for them really to blow the whistle is to confess to a crime.
  - tptacek 10y ago
    It's not the whistleblowing that's looked down on! It's the knowing and deliberate participation in something you acknowledge is a crime. This guy was extremely culpable for the offenses he participated in (read the other link posted on the thread).
  - rhino369 10y ago
    That also sets up a precedent where you can engage in criminal behavior as along as you rat your co-conspirators at a later date. Confessing should be considered favorably during settlement, but a get out of jail card in every situation is ridiculous.
  - gozur88 10y ago
    The mistake he made was implicating himself in a crime without getting the deal first. He should have gone in and said "I can testify to criminal behavior, but only if you'll give me immunity." That's probably what his bosses did.
    - tptacek 10y ago
      It should be either-or. Either you take the time and the money, or you get off with a warning and don't make a dime from the IRS.
      - st3v3r 10y ago
        Why? Without that money, what's the incentive to blow the whistle? Not to mention that most whistleblowers are blacklisted, so they have a difficult time finding work after doing so. If they don't get that money, they'll likely end up under a bridge somewhere.
bradleybuda 10y ago
A little more detail from a neutral source on why Birkenfeld was jailed: http://content.time.com/time/business/article/0,8599,1928897,00.html http://content.time.com/time/business/article/0,8599,1928897...
- CalChris 10y ago
  One difference between the two stories is that the Time article says he went to the Feds because of the problem with his bonus. That doesn't make sense because he had already spirited out the UBS documents which he wouldn't have had access to after resigning. He also didn't know at the time that he would eventually get a whistblower bonus. So the separation bonus was real money.
- Lazare 10y ago
  Still seems very shady. His defence, as portrayed in the article, seems to be that they 1) did not offer him a cooperating witness agreement which he would seem to have deserved and 2) was being asked to break serious laws in the country of residence. Conversely, the DoJ's defence, against as portrayed in the article, seems oddly nebulous, and in light of the later IRS decision, probably flat out wrong. Most odd.
chc 10y ago
It sounds like he didn't actually go to jail for the crime he blew the whistle on, per se, but for continuing to cover up part of the crime afterward by refusing to produce information they knew he had. Maybe all the folks who got non-prosecution agreements actually cooperated with investigators.
- sremani 10y ago
  His explanation was good, that he needed to keep appearances and not leak to others he was co-operating with government. Any way, he had the last laugh, the DoJ is a bunch of political hacks who hate Whistle-blowers any way.
- hacknat 10y ago
  Maybe. Stories like this are what make me sick when I think about our Justice department. That, and Aaron Swartz...and a slew of other things I guess.
  - tptacek 10y ago
    It's "Swartz". Aaron Swartz. Not "Schwartz".
    - cdelsolar 10y ago
      That's what he said
      - tptacek 10y ago
        No, it isn't. (I'm not hitting refresh on these things waiting for the corrections).
    - O5vYtytb 10y ago
      May the Schwartz be with you.
- viraptor 10y ago
  The way I read it, he wasn't actually hiding anyone. This reads like sarcasm to me: > Yeah, I was hiding all right. Hiding by walking right up to the DOJ headquarters in Washington, D.C. and dropping this massive, calculated tax evasion scheme in their laps.
guelo 10y ago
It's worth noting that both Kathryn Keneally, the assistant attorney general mentioned in this article, and Kevin Downing, the lead prosecutor that got him jailed, both now work for private law firms helping large corporations shelter their taxes.
- winstonsmith 10y ago
  It's the elephant in the room, textbook revolving door regulatory capture.
  - DannyBee 10y ago
    So, let's ignore the SEC here for a second (which truly is a mess): These folks are tax lawyers. They obey every ethical restriction placed on them by the state bars. If they quit the federal government, where exactly are they to go to have a job?
    - winstonsmith 10y ago
      The narrowness of career paths for highly specialized attorneys combined with the possibility of entering an altogether different remuneration universe at the law firms the DOJ is theoretically adversarial to is what makes the revolving door spin, and the spinning of the door is what turns "adversarial" into "theoretically adversarial". That is the problem. I didn't say there was an easy solution. The generalization of this principal to other government institutions (agencies, departments, offices including even the presidency) is one of the great problems of governance of our time. You can take the remuneration discrepancy as the "0=1" conclusion of a reductio ad absurdum argument against unfettered capitalism or as an argument that resistance is futile.
      - DannyBee 10y ago
        "That is the problem. I didn't say there was an easy solution." I do not believe there is any solution, actually, other than paying them enough to not want to go into private law firms :)
ipsin 10y ago
I was so confused by the chronology, particularly with respect to smuggling diamonds in a toothpaste tube[1], which I'd read about previously. What I can't figure out is if that evidence was actually retained and entered as evidence at trial, or if the image in the article I linked was a reconstruction. [1] http://upstart.bizjournals.com/views/columns/2008/09/17/UBS-Diamond-Smuggling-Scandal.html?page=all http://upstart.bizjournals.com/views/columns/2008/09/17/UBS-...
victorhooi 10y ago
Aha, but does he need to pay taxes on that $104 million? =)
- samfisher83 10y ago
  Yes he does.
- deleted 10y ago
  [deleted]
wrs 10y ago
Just to clarify a minor point -- the person he says threw her Blackberry across the room in frustration over his award is described by the NYT article as being frustrated because it was larger than her department's entire budget, not necessarily because he got an award at all.
- eppsilon 10y ago
  And she threw it "across the table", not across the room as he stated.
intrasight 10y ago
Whistle blowing is a total crap shoot. We'd have much more of it if that wasn't the case.
- Terr_ 10y ago
  If the data you provide is so damning you don't even need to prove that you're a reliable source, then you could submit it anonymously, as an encrypted block along with a public key to decrypt it. Then, if things look favorable, you can step forward and prove your identity by supplying the matching private-key. I expect the problem is that first "if" -- authorities may want to be super-sure of the origin of the information before they proceed with it.
  - rjbwork 10y ago
    Sorry, an encrypted block? A public key? Like, for my desk drawer? A private key? But i alreaady gave the public key out how can it be private too? See where i'm going with this? You've put a massive technical stumbling block on non-technical folks in order to expose wrong-doing.
    - Terr_ 10y ago
      Only if they do it from scratch. However, most of the possible encryption options and complicated parts of PKI aren't needed or relevant for this use-case. It's arguably even simpler than a zip-file utility when it comes to workflows.
  - intrasight 10y ago
    I'm not sure if that would satisfy the legal requirements of the wistleblower statutes. Plus, I don't see how that protects you once you do come forward as the source. So likely you'd end up with all the downsides without any of the upsides.
- Terr_ 10y ago
  If the data you provide is so damning you don't even need to prove that you're a reliable source, then you could submit it anonymously, as an encrypted block along with a public key to decrypt it. Then, if things look favorable, you can step forward and prove your identity by supplying the matching private-key. I expect the problem is that first "if" -- authorities may want to be super-sure of the origin of the information before they proceed with it.
themodder666 10y ago
Fuck this guy. No, seriously, fuck this guy. Why in the hell would anybody who's not an asshole decide to aid and abet the state in its coercive expropriation of money? I find this guy repulsive.
- developer2 10y ago
  Huh? He's the only person out of dozens/hundreds/thousands of employees who pursued. Everyone else is happy to have a comfy job that pays their bills, while burying their heads in the sand and praying that nobody shuts them down so they can keep their cushy salaries performing illegal work. "Fuck this guy". No, fuck almost everyone else who works for these kinds of companies, pretending like they're not the scum of society. Word to the wise: if you work for this kind of company, and do not have the gumption to stand and fight, get the hell out and run for the hills. You might just wind up being the scapegoat; better to get out and let the other willing participants take the fall.
  - fla 10y ago
    I see your point and agree but it must be understood that at that time, what these banker did was not illegal.
  - themodder666 10y ago
    'Illegal' does not mean immoral. I would dodge taxes if I could, as I don't much appreciate people robbing me.
- imh 10y ago
  Are you trying to argue that taxes are inherently bad or something? How should we pay for roads, bridges, schools, and all that?
ensiferum 10y ago
And this is just the tip of the ice berg. Think about all the scheming, scams, power mongering, corruption and outright crime that goes on in the banking business. Self regulation my ass. They're gambling on the whole planet basically. And ofc nothing will ever chance, because the banks own the goverments. A single "occupy wall street" protester will certainly get more time in the jail for minor offence than a bank exec would ever get for his crimes.
JakeAl 10y ago
His book: http://lucifersbanker.com/ http://lucifersbanker.com/ As secretary of state, in an unusual move Hillary Clinton intervened with UBS to help it out with the IRS and DOJ. He seems to imply that Hillary brokered the treaty to release the 52,000 names -- a deal which they backed out of citing Swiss law after only providing 4,500 names -- because of the global corporate elites tied to our government, politicians from all over the globe and CIA who would be implicated. He notes that the CIA funneled the money from Iran-Contra through a Swiss bank account, and the plane used to deliver the 400 million in unmarked cash to Iran came from Geneva. He also thinks it was the CIA that leaked the Panama Papers, selectively exposing names. After Hillary's deal, the Swiss bank paid Bill Clinton $1.5 million for speaking gigs. Total donations by UBS to the Clinton Foundation grew from less than $60,000 through 2008 to a cumulative total of about $600,000 by the end of 2014, according the foundation and the bank. There is no evidence of any link between Hillary's involvement in the case and the bank’s donations to the Bill, Hillary and Chelsea Clinton Foundation, or its hiring of Mr. Clinton. But her involvement with UBS is a prime example of how the Clintons' private and political activities overlap. It should also be noted that in 2011 the Clinton Foundation announced a partnership with UBS on the CEO-UBS Small Business Advisory Program which connects "small businesses" with - One-on-one pro-bono strategic financial and business counseling - Access to the entire suite of UBS's resources, including senior leaders within the firm's marketing, human resources, operations and Investment Banking divisions - Opportunities to network with industry influencers and major decision makers in both the private and public sectors. The ten small businesses enrolled in the program had average annual revenues of $8.44 million in 2010 and together employed a total of 400 people at the end of 2010. The entrepreneurs and their companies who participated are: Julie Azuma, Different Roads to Learning, Inc.; Dinesh and Josh Boaz, Direct Agents, Inc.; K.Y. Chow, GM Printing; Richelieu Dennis, Sundial Creations; Kenny Lao, Rickshaw Dumpling Bar; Tamara Mangum-Thomas, Sharpened Image, Inc.; Mike DiMarino, Linda Tool; Marjorie Perry, MZM Construction & Management Company, Inc.; Jeffrey Smalls, Smalls Electrical Construction, Inc.; and Larry Velez, Sinu.
Green-Man 10y ago
"I’ve tried to invest the reward money wisely. I collect Formula One memorabilia and antique hockey gear and sweaters from the NHL’s Original Six teams." I'm not sure if I understand the term "wisely" correctly.

461 points by monsieurpng 10y ago

This almost makes some kind of sense. The "whistleblower award" he got was the percentage of recovery the IRS pays as a bounty for intelligence on tax avoidance schemes; it's a portion of the money he actually helped recover for the government. There is a rational case to make for someone being both fully culpable for wrongdoing while still remaining entitled to bounties they've satisfied. For another complicated IRS recovery bounty case, see the story about Vanguard's "internal whistleblower" who is making the case to the IRS that their cost-saving structure is an unfair advantage, and that they owe taxes on those savings to the government. If that "whistleblower" prevails, he'll have harmed the retirement savings of tens of millions of Americans, all of whom benefit from Vanguard's novel structure. But there you go! As for this guy's superiors not being prosecuted, yeah, that sucks. The prosecutors can only make the cases they can make; this guy confessed.

viraptor 10y ago
> [...] this guy confessed. Yes, he did, but after: > All I asked for in return was a subpoena or immunity. They said no. I wonder realistically how long can you drag this out as a whistleblower? How many times can you say "I'll give you these people if you don't charge me", especially when your document stash is well hidden.
- tptacek 10y ago
  It sort of looks like this bank exec traded 3 years in minimum security prison for more money than any of us could ever use in a lifetime. I'm pretty OK with that precedent!
  - viraptor 10y ago
    I'm not. It was not an exchange. He neither knew about the money, nor expected it at the start. I think it would be more precise to say: "Bank exec blew a whistle his company and got 3 years in minimum security prison. By coincidence he also got a lot of money afterwards." Basically unless the whole story the whistleblower reported was fabricated, I don't think there's any situation where I'd be ok with the whistleblower being the only one jailed. As part of a larger group - sure, maybe. Otherwise what's the point of whistleblowing? It would only work if you hate the company more than you like your current life. Or if you knew how to do it anonymously.
    - tptacek 10y ago
      What do you mean he didn't know about it? He's a banking exec whistleblowing on tax evasion. The IRS bounty on recoveries is not exactly a secret. Even in the unlikely event that he himself wasn't aware of his prospects when he went in, you'd assume literally the very first thing any competent lawyer would have told him was "you stand to make a hundred million dollars if you go through with it". The thing I like about the precedent? That banking executives need to be on their toes because all of their colleagues have an immense incentive to rat them out.
      - deleted 10y ago
        [deleted]
      - frank_jaeger 10y ago
        > (It is, however, extremely important to me that I make clear that I had no idea there was a law like this for a reward when I resigned from UBS in October 2005, as the law passed in December 2006.)
        tptacek 10y ago
        Huh. Fair point. I stand corrected.
      - wnoise 10y ago
        Immunity plus the bonus would be a better incentive to rat them out.
  - rhizome 10y ago
    You're undervaluing time spent locked up.
    - tptacek 10y ago
      I would do 3 years for $100MM. I would do the next three years for $100MM, and they're pretty important years in my family! Someone offer me $100MM to be imprisoned for the next three years; I will put my money where my mouth is on this.
      - djdjjd 10y ago
        We all knew you were a prostitute for the state, but now we know your upper bound. I suspect your lower bound ia significantly lower. Lap dog.
      - roel_v 10y ago
        I'll do it for $90MM though, pick me! Pick me!
        tedunangst 10y ago
        This would make for an interesting loser pays auction.
        grecy 10y ago
        I smell a reality TV show...
        pyvpx 10y ago
        if you assume a 4-5% return on the money, only want to live off the returns (not the principal) and "six figures" (say, $250,000) is enough as yearly, net income...the lowest a person would go is about USD$6.7MM (after tax, of course)
        oblio 10y ago
        In the US ;)
  - st3v3r 10y ago
    I'm not. Most people won't be in the position to get that kind of deal.
  - Lazare 10y ago
    I'm not. As near as I can tell from objective sources, Birkenfeld: 1) Deserved the money 2) Did not deserve prison. You can't equate those.
    - tptacek 10y ago
      Unless I'm misreading, he's a bank executive who smuggled diamonds internationally to held a Russian oligarch avoid US taxes. Why exactly are you immunizing him?
      - Lazare 10y ago
        To clarify: I don't feel that he deserved prison for what he was accused of and eventually pled guilty to in a plea bargain, given the totality of the circumstances. Which was not, unless I'm misreading, anything to do with diamond smuggling. Mind you, it's possible he plead guilty to what seems (to me) as vaguely absurd charges to avoid a much harsher penalty for the diamond smuggling and such.
      - random314 10y ago
        https://en.wikipedia.org/wiki/Igor_Olenicoff#Tax_evasion https://en.wikipedia.org/wiki/Igor_Olenicoff#Tax_evasion Prosecutors were extremely reluctant to prosecute the oligarch and didn't want him in jail. However they were pretty vigorous with his banker!
    - nickpsecurity 10y ago
      He aided tax evasion for U.S. and other companies. IRS threatened to come after me for about $1.20 once. No kidding. This guy helping them disguise tens of millions to billions... who knows amount... in taxes they owed? "Did not deserve prison." Oh no, I think the scumbag did. His bosses deserved a longer sentence, too. Although, they're doing what their country makes a lot of money on. So maybe heroes of private industry over there. ;)
zeveb 10y ago
> recovery the IRS pays as a bounty for intelligence on tax avoidance scheme Tax evasion. Tax avoidance is legal; evasion is illegal. The one is avoiding taxes by applying the law; the other is breaking the law in some fashion or another.
- josh2600 10y ago
  The line between evasion and avoidance is really a matter of opinion (that we colloquially call 'case law'). It's hard to know what the delta actually is... I would argue that intent isn't really that different between the two.
  - epx 10y ago
    It is completely different. A freegan is a tax avoider.
  - CamelCaseName 10y ago
    The difference is very important because tax avoidance is completely legal and encouraged. Tax evasion is illegal. Your statement below is false as written: >the IRS pays as a bounty for intelligence on tax avoidance scheme From the IRS' website: [1] "The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe" You can't fail to pay a tax that you legally avoid. [1] https://www.irs.gov/uac/whistleblower-informant-award https://www.irs.gov/uac/whistleblower-informant-award Here is some more information on the difference between tax avoidance and tax evasion: http://www.investopedia.com/video/play/tax-avoidance-vs-tax-evasion/ http://www.investopedia.com/video/play/tax-avoidance-vs-tax-...
    - DrJokepu 10y ago
      While it would be unconstitutional in the United States, keep in mind that in certain countries "ex post facto" making certain tax avoidance schemes retroactively unlawful is not unheard of, e.g. BN66 in the UK: https://en.wikipedia.org/wiki/BN66 https://en.wikipedia.org/wiki/BN66
deleted 10y ago
[deleted]
sliverstorm 10y ago
... their cost-saving structure is an unfair advantage, and that they owe taxes on those savings to the government. From what I remember, it's not about unfair advantages, but simply that they could have charged higher mutual fund fees, and thusly owe taxes on the fees they could have charged instead of the fees they actually charged.
- Cerium 10y ago
  Really? That makes no sense to me. Like it being wrong to work part time because you pay less taxes.
  - tptacek 10y ago
    It is so much weirder than that. Vanguard's signature benefit is the way its organized: rather that a company that owns and manages funds, it's a collection of funds that own and share the management company. All of the expenses and overhead involved in managing the funds come directly out of the returns of the fund, so the company and its investors have aligned incentives. The problem is that the funds have a client/vendor relationship with the management company. Since the vendor is captive to the funds, it has no incentive to charge its clients market rates for its services. But since it's a separate taxable entity, it theoretically cannot gift (or discount) its services to its clients without the clients recognizing those benefits as taxable income. The "whistleblower" here is a former tax lawyer for Vanguard. Since Vanguard is basically one of the largest money managers in the world, that guy stands to make almost ten billion dollars in bounty fees if the IRS recovers based on his theory. As always, start with Matt Levine: https://www.bloomberg.com/view/articles/2015-11-25/calpers-fees-and-culture-consultants https://www.bloomberg.com/view/articles/2015-11-25/calpers-f...
    - Cerium 10y ago
      Thanks for the link, it was a good read.
    - klipt 10y ago
      But lower fees mean higher returns which means clients already pay more capital gains tax etc. Frankly if that's a tax loophole, then every credit union is in massive trouble. Not to mention restricted banks like USAA.
st3v3r 10y ago
"There is a rational case to make for someone being both fully culpable for wrongdoing while still remaining entitled to bounties they've satisfied." Not really. Throwing them in jail sends the message that whistleblowing is looked down upon, and thus fewer people will do it. If the whistleblower doesn't have immunity from prosecution, the only way for them really to blow the whistle is to confess to a crime.
- tptacek 10y ago
  It's not the whistleblowing that's looked down on! It's the knowing and deliberate participation in something you acknowledge is a crime. This guy was extremely culpable for the offenses he participated in (read the other link posted on the thread).
- rhino369 10y ago
  That also sets up a precedent where you can engage in criminal behavior as along as you rat your co-conspirators at a later date. Confessing should be considered favorably during settlement, but a get out of jail card in every situation is ridiculous.
- gozur88 10y ago
  The mistake he made was implicating himself in a crime without getting the deal first. He should have gone in and said "I can testify to criminal behavior, but only if you'll give me immunity." That's probably what his bosses did.
  - tptacek 10y ago
    It should be either-or. Either you take the time and the money, or you get off with a warning and don't make a dime from the IRS.
    - st3v3r 10y ago
      Why? Without that money, what's the incentive to blow the whistle? Not to mention that most whistleblowers are blacklisted, so they have a difficult time finding work after doing so. If they don't get that money, they'll likely end up under a bridge somewhere.

bradleybuda 10y ago

A little more detail from a neutral source on why Birkenfeld was jailed: http://content.time.com/time/business/article/0,8599,1928897,00.html http://content.time.com/time/business/article/0,8599,1928897...

CalChris 10y ago
One difference between the two stories is that the Time article says he went to the Feds because of the problem with his bonus. That doesn't make sense because he had already spirited out the UBS documents which he wouldn't have had access to after resigning. He also didn't know at the time that he would eventually get a whistblower bonus. So the separation bonus was real money.
Lazare 10y ago
Still seems very shady. His defence, as portrayed in the article, seems to be that they 1) did not offer him a cooperating witness agreement which he would seem to have deserved and 2) was being asked to break serious laws in the country of residence. Conversely, the DoJ's defence, against as portrayed in the article, seems oddly nebulous, and in light of the later IRS decision, probably flat out wrong. Most odd.

chc 10y ago

It sounds like he didn't actually go to jail for the crime he blew the whistle on, per se, but for continuing to cover up part of the crime afterward by refusing to produce information they knew he had. Maybe all the folks who got non-prosecution agreements actually cooperated with investigators.

sremani 10y ago
His explanation was good, that he needed to keep appearances and not leak to others he was co-operating with government. Any way, he had the last laugh, the DoJ is a bunch of political hacks who hate Whistle-blowers any way.
hacknat 10y ago
Maybe. Stories like this are what make me sick when I think about our Justice department. That, and Aaron Swartz...and a slew of other things I guess.
- tptacek 10y ago
  It's "Swartz". Aaron Swartz. Not "Schwartz".
  - cdelsolar 10y ago
    That's what he said
    - tptacek 10y ago
      No, it isn't. (I'm not hitting refresh on these things waiting for the corrections).
  - O5vYtytb 10y ago
    May the Schwartz be with you.
viraptor 10y ago
The way I read it, he wasn't actually hiding anyone. This reads like sarcasm to me: > Yeah, I was hiding all right. Hiding by walking right up to the DOJ headquarters in Washington, D.C. and dropping this massive, calculated tax evasion scheme in their laps.

guelo 10y ago

It's worth noting that both Kathryn Keneally, the assistant attorney general mentioned in this article, and Kevin Downing, the lead prosecutor that got him jailed, both now work for private law firms helping large corporations shelter their taxes.

winstonsmith 10y ago
It's the elephant in the room, textbook revolving door regulatory capture.
- DannyBee 10y ago
  So, let's ignore the SEC here for a second (which truly is a mess): These folks are tax lawyers. They obey every ethical restriction placed on them by the state bars. If they quit the federal government, where exactly are they to go to have a job?
  - winstonsmith 10y ago
    The narrowness of career paths for highly specialized attorneys combined with the possibility of entering an altogether different remuneration universe at the law firms the DOJ is theoretically adversarial to is what makes the revolving door spin, and the spinning of the door is what turns "adversarial" into "theoretically adversarial". That is the problem. I didn't say there was an easy solution. The generalization of this principal to other government institutions (agencies, departments, offices including even the presidency) is one of the great problems of governance of our time. You can take the remuneration discrepancy as the "0=1" conclusion of a reductio ad absurdum argument against unfettered capitalism or as an argument that resistance is futile.
    - DannyBee 10y ago
      "That is the problem. I didn't say there was an easy solution." I do not believe there is any solution, actually, other than paying them enough to not want to go into private law firms :)

ipsin 10y ago

I was so confused by the chronology, particularly with respect to smuggling diamonds in a toothpaste tube[1], which I'd read about previously. What I can't figure out is if that evidence was actually retained and entered as evidence at trial, or if the image in the article I linked was a reconstruction. [1] http://upstart.bizjournals.com/views/columns/2008/09/17/UBS-Diamond-Smuggling-Scandal.html?page=all http://upstart.bizjournals.com/views/columns/2008/09/17/UBS-...

victorhooi 10y ago

Aha, but does he need to pay taxes on that $104 million? =)

samfisher83 10y ago
Yes he does.
deleted 10y ago
[deleted]

wrs 10y ago

Just to clarify a minor point -- the person he says threw her Blackberry across the room in frustration over his award is described by the NYT article as being frustrated because it was larger than her department's entire budget, not necessarily because he got an award at all.

eppsilon 10y ago
And she threw it "across the table", not across the room as he stated.

intrasight 10y ago

Whistle blowing is a total crap shoot. We'd have much more of it if that wasn't the case.

Terr_ 10y ago
If the data you provide is so damning you don't even need to prove that you're a reliable source, then you could submit it anonymously, as an encrypted block along with a public key to decrypt it. Then, if things look favorable, you can step forward and prove your identity by supplying the matching private-key. I expect the problem is that first "if" -- authorities may want to be super-sure of the origin of the information before they proceed with it.
- rjbwork 10y ago
  Sorry, an encrypted block? A public key? Like, for my desk drawer? A private key? But i alreaady gave the public key out how can it be private too? See where i'm going with this? You've put a massive technical stumbling block on non-technical folks in order to expose wrong-doing.
  - Terr_ 10y ago
    Only if they do it from scratch. However, most of the possible encryption options and complicated parts of PKI aren't needed or relevant for this use-case. It's arguably even simpler than a zip-file utility when it comes to workflows.
- intrasight 10y ago
  I'm not sure if that would satisfy the legal requirements of the wistleblower statutes. Plus, I don't see how that protects you once you do come forward as the source. So likely you'd end up with all the downsides without any of the upsides.
Terr_ 10y ago
If the data you provide is so damning you don't even need to prove that you're a reliable source, then you could submit it anonymously, as an encrypted block along with a public key to decrypt it. Then, if things look favorable, you can step forward and prove your identity by supplying the matching private-key. I expect the problem is that first "if" -- authorities may want to be super-sure of the origin of the information before they proceed with it.

themodder666 10y ago

Fuck this guy. No, seriously, fuck this guy. Why in the hell would anybody who's not an asshole decide to aid and abet the state in its coercive expropriation of money? I find this guy repulsive.

developer2 10y ago
Huh? He's the only person out of dozens/hundreds/thousands of employees who pursued. Everyone else is happy to have a comfy job that pays their bills, while burying their heads in the sand and praying that nobody shuts them down so they can keep their cushy salaries performing illegal work. "Fuck this guy". No, fuck almost everyone else who works for these kinds of companies, pretending like they're not the scum of society. Word to the wise: if you work for this kind of company, and do not have the gumption to stand and fight, get the hell out and run for the hills. You might just wind up being the scapegoat; better to get out and let the other willing participants take the fall.
- fla 10y ago
  I see your point and agree but it must be understood that at that time, what these banker did was not illegal.
- themodder666 10y ago
  'Illegal' does not mean immoral. I would dodge taxes if I could, as I don't much appreciate people robbing me.
imh 10y ago
Are you trying to argue that taxes are inherently bad or something? How should we pay for roads, bridges, schools, and all that?

ensiferum 10y ago

And this is just the tip of the ice berg. Think about all the scheming, scams, power mongering, corruption and outright crime that goes on in the banking business. Self regulation my ass. They're gambling on the whole planet basically. And ofc nothing will ever chance, because the banks own the goverments. A single "occupy wall street" protester will certainly get more time in the jail for minor offence than a bank exec would ever get for his crimes.

JakeAl 10y ago

His book: http://lucifersbanker.com/ http://lucifersbanker.com/ As secretary of state, in an unusual move Hillary Clinton intervened with UBS to help it out with the IRS and DOJ. He seems to imply that Hillary brokered the treaty to release the 52,000 names -- a deal which they backed out of citing Swiss law after only providing 4,500 names -- because of the global corporate elites tied to our government, politicians from all over the globe and CIA who would be implicated. He notes that the CIA funneled the money from Iran-Contra through a Swiss bank account, and the plane used to deliver the 400 million in unmarked cash to Iran came from Geneva. He also thinks it was the CIA that leaked the Panama Papers, selectively exposing names. After Hillary's deal, the Swiss bank paid Bill Clinton $1.5 million for speaking gigs. Total donations by UBS to the Clinton Foundation grew from less than $60,000 through 2008 to a cumulative total of about $600,000 by the end of 2014, according the foundation and the bank. There is no evidence of any link between Hillary's involvement in the case and the bank’s donations to the Bill, Hillary and Chelsea Clinton Foundation, or its hiring of Mr. Clinton. But her involvement with UBS is a prime example of how the Clintons' private and political activities overlap. It should also be noted that in 2011 the Clinton Foundation announced a partnership with UBS on the CEO-UBS Small Business Advisory Program which connects "small businesses" with - One-on-one pro-bono strategic financial and business counseling - Access to the entire suite of UBS's resources, including senior leaders within the firm's marketing, human resources, operations and Investment Banking divisions - Opportunities to network with industry influencers and major decision makers in both the private and public sectors. The ten small businesses enrolled in the program had average annual revenues of $8.44 million in 2010 and together employed a total of 400 people at the end of 2010. The entrepreneurs and their companies who participated are: Julie Azuma, Different Roads to Learning, Inc.; Dinesh and Josh Boaz, Direct Agents, Inc.; K.Y. Chow, GM Printing; Richelieu Dennis, Sundial Creations; Kenny Lao, Rickshaw Dumpling Bar; Tamara Mangum-Thomas, Sharpened Image, Inc.; Mike DiMarino, Linda Tool; Marjorie Perry, MZM Construction & Management Company, Inc.; Jeffrey Smalls, Smalls Electrical Construction, Inc.; and Larry Velez, Sinu.

Green-Man 10y ago

"I’ve tried to invest the reward money wisely. I collect Formula One memorabilia and antique hockey gear and sweaters from the NHL’s Original Six teams." I'm not sure if I understand the term "wisely" correctly.