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UBS Whistleblower Finds Himself in Federal Prison

209 points by rmah 16y ago

eftpotrm 16y ago
While this seems a strange way to encourage whistleblowers to come forward, for perspective - http://www.nytimes.com/2008/06/20/business/20tax.html http://www.nytimes.com/2008/06/20/business/20tax.html Mr. Birkenfeld pleaded guilty to helping Mr. Olenicoff evade $7.2 million in taxes on $200 million in hidden offshore assets. Mr. Birkenfeld will be sentenced in August. Mr. Olenicoff pleaded guilty last year to filing a false 2002 tax return. http://en.wikipedia.org/wiki/Brad_Birkenfeld http://en.wikipedia.org/wiki/Brad_Birkenfeld "With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early and give complete and truthful disclosures.... Mr. Birkenfeld did not come in and give complete and truthful disclosures. Therefore, he is not entitled to whistleblower status." http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqRUmD2LzH.E http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a... Zloch, who didn’t explain his reasoning, could have given Birkenfeld a maximum five-year term. Prosecutors had noted that Birkenfeld didn’t initially reveal his role in the scheme when he first came forward as a whistleblower.
- barrkel 16y ago
  The earlier a whistleblower comes in, he will both be (a) less implicated in whatever dirty business was going on, and (b) he will have less valuable information. In effect, such rules help conspirators, because they can use it against one another: if you break the conspiracy, the US govt will use your lateness in coming forward, and your compliance with the conspiracy up to date, against you.
  - eftpotrm 16y ago
    To repeat the quote: "With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early and give complete and truthful disclosures.... Mr. Birkenfeld did not come in and give complete and truthful disclosures. Therefore, he is not entitled to whistleblower status." Late as he came forward, if it had been the truth, the whole truth and nothing but the truth, he would have been entitled to whistleblowing protection. It wasn't, which is why he's in prison, but was of value which is why he's doing less time than he could have been.
    - barrkel 16y ago
      I'll repeat it again: > With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early > Late as he came forward, if it had been the truth, [...] he would have been entitled to whistleblowing protection It seems you are drawing a conclusion that isn't warranted by the quote. IMO, there is no way to give the whole truth about any situation. That edict is disingenuous and always has been; it's easy to elicit more details by drilling down, and it's similarly easy to interpret words in a way that they weren't meant to give the wrong impression - selective quoting is an art mastered by tabloids everywhere. And also, it's natural to be reticent about implicating oneself in a crime - in fact, there are laws permitting silence on risk of self-incrimination for very good reasons. It seems that you suggest whistleblowers should be denied this.
      - eftpotrm 16y ago
        There are two criteria for protection in the quote: * Come in early * Give complete and truthful disclosures Come in early is a clear problem, I agree, partly because as I recall the way penalties are structured means everyone has an incentive to let it happen for as long as they can be confident that no-one else will implicate them. However, the information we have is that he didn't initially reveal that he was a part of the illegal scheme. The whole point of whistleblowing legislation is to permit those involved with conspiracies to come forwards and expose their fellow conspirators in exchange for their own liberty. I apologise for inadvertent selective quotation but he was trying to have his cake and eat it; to gain the credit for exposing the wrongdoing of others while withholding details of his own wrongdoing, thus distorting the evidential picture. Whistleblowing law is designed to let people in his situation bring down others by breaking the devil's pact of mutual downfall that would otherwise result, and so by definition to gain this unusual protection requires candid self-incrimination.
- tedunangst 16y ago
  Unrelated, but the case of http://en.wikipedia.org/wiki/Mark_Whitacre http://en.wikipedia.org/wiki/Mark_Whitacre is also interesting.
lionhearted 16y ago
I've got a perspective here that will likely run contrary to the dominant view, but I encourage you to think about for a moment - I'm of the belief that the ability to keep your work, voluntary exchanges, and assets private contribute to a free society in the same way that attorney/client privilege, priest/community, and spousal privilege all exist. Now, in the United States, we don't have that and people know that and live with that. But people doing business in Switzerland are under the impression that they have a very private, safe relationship with their banker, the same way you'd have with your lawyer, psychiatrist, priest, or spouse. This man breaching that is doing a very serious thing. This goes beyond politics. When you have a private relationship with a professional, sanctioned by the local law, that says that you have private confidence and that's betrayed... that's serious. If you don't believe in the Swiss banking system, not working there is acceptable. Protesting it is acceptable. Taking on a fiduciary duty of loyalty and confidence, and then breaching it... that's serious. The average American might not think this way, because they don't have a private relationship with their banker. But generalize this to all duty - this man pledged duty, people were under the impression that he had a duty of confidence to them, and he breached that. This doesn't get into right/wrong, but it's something worth thinking about.
- cletus 16y ago
  Actually, the fact that a disgruntled tech can who exposes secret bank accounts to governments [1] gives me a lot of faith that secrecy will inevitably be broken where it actually matters. It's this same reason that allows us to dismiss such laughable conspiracy theories as the faked Moon landings, aliens at Roswell and so on. Let's not forget that many use these Swiss bank accounts for practices that vary from the questionable (eg evading taxes illegally) to the nefarious (eg hiding assets for the Nazis and various dictators). [1]: http://abcnews.go.com/Blotter/t/story?id=5378080&page=1 http://abcnews.go.com/Blotter/t/story?id=5378080&page=1
  - lionhearted 16y ago
    Or hiding money from the Nazis... secrecy is agnostic, but the ability to keep your affairs private lends protection to people who get unfairly persecuted. When a benevolent government knows everything about you, that's fine until they start acting non-benevolently...
cletus 16y ago
It's important to remember tha whistleblower statutes protect you from retaliation by the company when you expose illegal behavior. They do not protect you from prosecution for any illegal activity you've done. That being said, often the DA or US Attorney (as appropriate) will offer lighter sentences and/or immunity to secure a prosecution.
iwwr 16y ago
It's somewhat fanciful to think the government, upon receiving this windfall of 'reappropriations' will turn around and put them toward paying the national debt (or at least reducing the deficits). More tax income doesn't reduce the individual 'working man' tax burden, spending just increases to cover the windfalls. BTW, this is very revealing: "I'm going out of my way,” he said in a prison interview. “Risking my career. Risking my reputation. Risking my life. And trying to unfold the largest fraud in US history." versus Birkenfeld's attorneys argue that he's entitled to a percentage of all the tax revenue recouped as a result of his whistleblowing.
- kenjackson 16y ago
  Why is that a "versus"?
  - iwwr 16y ago
    He's not entirely a disinterested party, concerned for the public good etc...
    - kenjackson 16y ago
      Still not a versus. You can try to solve a crime expecting personal gain. For example, many detectives probably wouldn't work for free. They solve crimes w/ the expectation that they will be paid for their results as agreed to by some contract.
      - iwwr 16y ago
        When the upside is you get $100M and the downside may be having to quit your job?
        kenjackson 16y ago
        The downside is prison or maybe your life. You start taking millions from influential people, and my job is the last thing I'm worried about.
steve19 16y ago
Birkenfeld, a US citizen, was helping US citizens commit tax fraud. He now expects the IRS to pay him a percentage of the money he helped steal from the US goverment/citizens? He is crazy.
DFreed 16y ago
Interesting article and interview from CBS 60 Minutes http://www.cbsnews.com/stories/2010/08/05/business/main6745655.shtml http://www.cbsnews.com/stories/2010/08/05/business/main67456...
trustfundbaby 16y ago
I find it interesting that he never actually denies the allegations of tax fraud
ajays 16y ago
A lot of people seem to be saying that "he broke the law" and "he was a part of the scheme" , so he deserves a prison term. But this is ridiculous. Think about it: all of his activities are a subset of the activities that UBS is accused of. He is being accused of helping 1 person hide his assets; but UBS helped 19000! So how can he be sent to prison, but no one from UBS? Shouldn't there be other UBS executives being charged?
- AndrusAsumets 16y ago
  Some countries have adopted exceptionally sane methods for fighting antitrusts where the first company that comes forward with proof that law was broken will be pardoned from the law. Although the company itself was in the ring of bad guys and broke law, it still will not be facing any penalties. I can not really see why this practice couldn't be applied to elsewhere.
hippich 16y ago
deal with cash, digital one - http://bitcoin.org http://bitcoin.org: - no central issuing center - all transactions are open, but no information about ownership by particular person is shown - almost no fees for money transfers - and transfer itself takes as little as 10 minutes (if you trust another person - instantly) - limited supply of bitcoins - meaning you will not loose value over time and inflation.
- deleted 16y ago
  [deleted]
jfager 16y ago
I thought this story was fascinating, so I did a little bit of background digging, since this article is pretty thin. There are a bunch of relevant legal documents and news stories up at http://www.pogo.org/pogo-files/alerts/whistleblower-issues/wi-wp-20090825.html http://www.pogo.org/pogo-files/alerts/whistleblower-issues/w... Note that this is very much a pro-whistleblower site, and so is slanted towards the idea that Birkenfeld shouldn't be in prison. I'm not so sure, though. According to Birkenfeld's own request for clemency, the sequence of events that led to him going to the IRS was: after ~4 years of working with wealthy clients at UBS, in June 2005, he found an internal legal document prohibiting many of the actual practices of the bank. He wrote an internal memo to his superiors about the discrepancy, and then resigned in October 2005. When UBS didn't pay him a bonus he thought he was entitled to, in early 2006, he invoked whistleblower protection claiming that UBS was retaliating against him, in an effort to recover that bonus. He didn't approach the IRS and DOJ, though, until early 2007, and didn't actually talk until June 2007. And while he described UBS's practices, he didn't go into specific details about clients except for one, Igor Olenicoff, for whom he had, among other things, smuggled diamonds in a toothpaste tube. It's his activity dealing with Olenicoff that he's in prison for, and he pleaded guilty to those charges. Tellingly, though, Olenicoff was already under IRS investigation in - drumroll - 2006 (http://www.forbes.com/forbes/2006/1009/042.html http://www.forbes.com/forbes/2006/1009/042.html), and he eventually pleaded guilty to tax evasion in December 2007 and paid $52M in back taxes and fines (http://www.irs.gov/newsroom/article/0,,id=212163,00.html http://www.irs.gov/newsroom/article/0,,id=212163,00.html). To me, Birkenfeld's actions look a lot more like CYA than principled whistleblowing.
- cakeface 16y ago
  This kind of analysis is why I read HN. Thanks for doing the legwork jfager!
Cadsby 16y ago
A lot of well written exchanges in this thread. Too bad much of it is an apologetic for the wealthy evading their civic obligations, yet again. Meanwhile the average working American is lectured daily on the values of "personal responsibility."
ck2 16y ago
Government asks you to spy on your neighbors all the time. But report on big money doing something wrong and you are screwed. Oh and the IRS just waived sanctions for offshore accounts recently too.

209 points by rmah 16y ago

While this seems a strange way to encourage whistleblowers to come forward, for perspective - http://www.nytimes.com/2008/06/20/business/20tax.html http://www.nytimes.com/2008/06/20/business/20tax.html Mr. Birkenfeld pleaded guilty to helping Mr. Olenicoff evade $7.2 million in taxes on $200 million in hidden offshore assets. Mr. Birkenfeld will be sentenced in August. Mr. Olenicoff pleaded guilty last year to filing a false 2002 tax return. http://en.wikipedia.org/wiki/Brad_Birkenfeld http://en.wikipedia.org/wiki/Brad_Birkenfeld "With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early and give complete and truthful disclosures.... Mr. Birkenfeld did not come in and give complete and truthful disclosures. Therefore, he is not entitled to whistleblower status." http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqRUmD2LzH.E http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a... Zloch, who didn’t explain his reasoning, could have given Birkenfeld a maximum five-year term. Prosecutors had noted that Birkenfeld didn’t initially reveal his role in the scheme when he first came forward as a whistleblower.

barrkel 16y ago
The earlier a whistleblower comes in, he will both be (a) less implicated in whatever dirty business was going on, and (b) he will have less valuable information. In effect, such rules help conspirators, because they can use it against one another: if you break the conspiracy, the US govt will use your lateness in coming forward, and your compliance with the conspiracy up to date, against you.
- eftpotrm 16y ago
  To repeat the quote: "With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early and give complete and truthful disclosures.... Mr. Birkenfeld did not come in and give complete and truthful disclosures. Therefore, he is not entitled to whistleblower status." Late as he came forward, if it had been the truth, the whole truth and nothing but the truth, he would have been entitled to whistleblowing protection. It wasn't, which is why he's in prison, but was of value which is why he's doing less time than he could have been.
  - barrkel 16y ago
    I'll repeat it again: > With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early > Late as he came forward, if it had been the truth, [...] he would have been entitled to whistleblowing protection It seems you are drawing a conclusion that isn't warranted by the quote. IMO, there is no way to give the whole truth about any situation. That edict is disingenuous and always has been; it's easy to elicit more details by drilling down, and it's similarly easy to interpret words in a way that they weren't meant to give the wrong impression - selective quoting is an art mastered by tabloids everywhere. And also, it's natural to be reticent about implicating oneself in a crime - in fact, there are laws permitting silence on risk of self-incrimination for very good reasons. It seems that you suggest whistleblowers should be denied this.
    - eftpotrm 16y ago
      There are two criteria for protection in the quote: * Come in early * Give complete and truthful disclosures Come in early is a clear problem, I agree, partly because as I recall the way penalties are structured means everyone has an incentive to let it happen for as long as they can be confident that no-one else will implicate them. However, the information we have is that he didn't initially reveal that he was a part of the illegal scheme. The whole point of whistleblowing legislation is to permit those involved with conspiracies to come forwards and expose their fellow conspirators in exchange for their own liberty. I apologise for inadvertent selective quotation but he was trying to have his cake and eat it; to gain the credit for exposing the wrongdoing of others while withholding details of his own wrongdoing, thus distorting the evidential picture. Whistleblowing law is designed to let people in his situation bring down others by breaking the devil's pact of mutual downfall that would otherwise result, and so by definition to gain this unusual protection requires candid self-incrimination.
tedunangst 16y ago
Unrelated, but the case of http://en.wikipedia.org/wiki/Mark_Whitacre http://en.wikipedia.org/wiki/Mark_Whitacre is also interesting.

lionhearted 16y ago

I've got a perspective here that will likely run contrary to the dominant view, but I encourage you to think about for a moment - I'm of the belief that the ability to keep your work, voluntary exchanges, and assets private contribute to a free society in the same way that attorney/client privilege, priest/community, and spousal privilege all exist. Now, in the United States, we don't have that and people know that and live with that. But people doing business in Switzerland are under the impression that they have a very private, safe relationship with their banker, the same way you'd have with your lawyer, psychiatrist, priest, or spouse. This man breaching that is doing a very serious thing. This goes beyond politics. When you have a private relationship with a professional, sanctioned by the local law, that says that you have private confidence and that's betrayed... that's serious. If you don't believe in the Swiss banking system, not working there is acceptable. Protesting it is acceptable. Taking on a fiduciary duty of loyalty and confidence, and then breaching it... that's serious. The average American might not think this way, because they don't have a private relationship with their banker. But generalize this to all duty - this man pledged duty, people were under the impression that he had a duty of confidence to them, and he breached that. This doesn't get into right/wrong, but it's something worth thinking about.

cletus 16y ago
Actually, the fact that a disgruntled tech can who exposes secret bank accounts to governments [1] gives me a lot of faith that secrecy will inevitably be broken where it actually matters. It's this same reason that allows us to dismiss such laughable conspiracy theories as the faked Moon landings, aliens at Roswell and so on. Let's not forget that many use these Swiss bank accounts for practices that vary from the questionable (eg evading taxes illegally) to the nefarious (eg hiding assets for the Nazis and various dictators). [1]: http://abcnews.go.com/Blotter/t/story?id=5378080&page=1 http://abcnews.go.com/Blotter/t/story?id=5378080&page=1
- lionhearted 16y ago
  Or hiding money from the Nazis... secrecy is agnostic, but the ability to keep your affairs private lends protection to people who get unfairly persecuted. When a benevolent government knows everything about you, that's fine until they start acting non-benevolently...

cletus 16y ago

It's important to remember tha whistleblower statutes protect you from retaliation by the company when you expose illegal behavior. They do not protect you from prosecution for any illegal activity you've done. That being said, often the DA or US Attorney (as appropriate) will offer lighter sentences and/or immunity to secure a prosecution.

iwwr 16y ago

It's somewhat fanciful to think the government, upon receiving this windfall of 'reappropriations' will turn around and put them toward paying the national debt (or at least reducing the deficits). More tax income doesn't reduce the individual 'working man' tax burden, spending just increases to cover the windfalls. BTW, this is very revealing: "I'm going out of my way,” he said in a prison interview. “Risking my career. Risking my reputation. Risking my life. And trying to unfold the largest fraud in US history." versus Birkenfeld's attorneys argue that he's entitled to a percentage of all the tax revenue recouped as a result of his whistleblowing.

kenjackson 16y ago
Why is that a "versus"?
- iwwr 16y ago
  He's not entirely a disinterested party, concerned for the public good etc...
  - kenjackson 16y ago
    Still not a versus. You can try to solve a crime expecting personal gain. For example, many detectives probably wouldn't work for free. They solve crimes w/ the expectation that they will be paid for their results as agreed to by some contract.
    - iwwr 16y ago
      When the upside is you get $100M and the downside may be having to quit your job?
      - kenjackson 16y ago
        The downside is prison or maybe your life. You start taking millions from influential people, and my job is the last thing I'm worried about.

steve19 16y ago

Birkenfeld, a US citizen, was helping US citizens commit tax fraud. He now expects the IRS to pay him a percentage of the money he helped steal from the US goverment/citizens? He is crazy.

DFreed 16y ago

Interesting article and interview from CBS 60 Minutes http://www.cbsnews.com/stories/2010/08/05/business/main6745655.shtml http://www.cbsnews.com/stories/2010/08/05/business/main67456...

trustfundbaby 16y ago

I find it interesting that he never actually denies the allegations of tax fraud

ajays 16y ago

A lot of people seem to be saying that "he broke the law" and "he was a part of the scheme" , so he deserves a prison term. But this is ridiculous. Think about it: all of his activities are a subset of the activities that UBS is accused of. He is being accused of helping 1 person hide his assets; but UBS helped 19000! So how can he be sent to prison, but no one from UBS? Shouldn't there be other UBS executives being charged?

AndrusAsumets 16y ago
Some countries have adopted exceptionally sane methods for fighting antitrusts where the first company that comes forward with proof that law was broken will be pardoned from the law. Although the company itself was in the ring of bad guys and broke law, it still will not be facing any penalties. I can not really see why this practice couldn't be applied to elsewhere.

hippich 16y ago

deal with cash, digital one - http://bitcoin.org http://bitcoin.org: - no central issuing center - all transactions are open, but no information about ownership by particular person is shown - almost no fees for money transfers - and transfer itself takes as little as 10 minutes (if you trust another person - instantly) - limited supply of bitcoins - meaning you will not loose value over time and inflation.

deleted 16y ago
[deleted]

jfager 16y ago

I thought this story was fascinating, so I did a little bit of background digging, since this article is pretty thin. There are a bunch of relevant legal documents and news stories up at http://www.pogo.org/pogo-files/alerts/whistleblower-issues/wi-wp-20090825.html http://www.pogo.org/pogo-files/alerts/whistleblower-issues/w... Note that this is very much a pro-whistleblower site, and so is slanted towards the idea that Birkenfeld shouldn't be in prison. I'm not so sure, though. According to Birkenfeld's own request for clemency, the sequence of events that led to him going to the IRS was: after ~4 years of working with wealthy clients at UBS, in June 2005, he found an internal legal document prohibiting many of the actual practices of the bank. He wrote an internal memo to his superiors about the discrepancy, and then resigned in October 2005. When UBS didn't pay him a bonus he thought he was entitled to, in early 2006, he invoked whistleblower protection claiming that UBS was retaliating against him, in an effort to recover that bonus. He didn't approach the IRS and DOJ, though, until early 2007, and didn't actually talk until June 2007. And while he described UBS's practices, he didn't go into specific details about clients except for one, Igor Olenicoff, for whom he had, among other things, smuggled diamonds in a toothpaste tube. It's his activity dealing with Olenicoff that he's in prison for, and he pleaded guilty to those charges. Tellingly, though, Olenicoff was already under IRS investigation in - drumroll - 2006 (http://www.forbes.com/forbes/2006/1009/042.html http://www.forbes.com/forbes/2006/1009/042.html), and he eventually pleaded guilty to tax evasion in December 2007 and paid $52M in back taxes and fines (http://www.irs.gov/newsroom/article/0,,id=212163,00.html http://www.irs.gov/newsroom/article/0,,id=212163,00.html). To me, Birkenfeld's actions look a lot more like CYA than principled whistleblowing.

cakeface 16y ago
This kind of analysis is why I read HN. Thanks for doing the legwork jfager!

Cadsby 16y ago

A lot of well written exchanges in this thread. Too bad much of it is an apologetic for the wealthy evading their civic obligations, yet again. Meanwhile the average working American is lectured daily on the values of "personal responsibility."

ck2 16y ago

Government asks you to spy on your neighbors all the time. But report on big money doing something wrong and you are screwed. Oh and the IRS just waived sanctions for offshore accounts recently too.