Blind justice

28 October 2016 By Gina Chon

The story of a UBS banker-turned-whistleblower sounds a cautionary note. Bradley Birkenfeld helped expose tax evasion at the Swiss lender, landing it with a big fine and cracking open the country’s bank secrecy rules. Though he collected a $104 million reward, he also ended up in jail.

Birkenfeld’s book opens with an inside look at the debaucheries of elite European banking, and the hall-of-mirrors tactics the very rich use to hide their wealth. Later, he shows how justice can be messy and even undermined by the people supposed to carry it out.

The account is particularly relevant because authorities are increasingly relying on whistleblowers to alert them to wrongdoing. The U.S. Securities and Exchange Commission is pursuing about 700 cases which started with a tip-off from an insider. The UBS investigation, which ended with the bank paying a $780 million fine, kicked off the U.S. government’s broader probe into tax evasion aided by Swiss banks.

The juicy, fast-paced tale reflects Birkenfeld’s former lifestyle as a private banker to the ultra-wealthy. He’s no saint and doesn’t pretend to be. The native of Massachusetts was introduced to the world of secret Swiss bank accounts at Credit Suisse and later Barclays. When he landed at UBS in Geneva he found a more sophisticated approach to wooing overseas clients. He was taught to carry an encrypted laptop and tell U.S. customs agents he was traveling for pleasure.

Wealthy clients arriving in the Swiss city would get taken on “Mr. Birkenfeld’s Magic Carpet Ride”, which included dinner at a five-star restaurant followed by a visit to an “upscale cabaret.” The next day, he would drive them to the UBS offices in a Ferrari, where they would head to the safe-deposit boxes two stories underground. American billionaire Igor Olenicoff became his first client.

When he wasn’t entertaining customers Birkenfeld would jet off to Monte Carlo or St. Barts with rich friends and their exotic girlfriends. “It was too much fun, and way too profitable.”

Though U.S. authorities began scrutinizing offshore accounts after the 9/11 attacks, Birkenfeld didn’t turn against his employer until 2005. He learned of a backdated internal memo that he took as a sign that UBS was going to sell him and his colleagues out.

He resigned and gathered evidence, which he sent to the bank’s general counsel and board members. Unsatisfied by the resulting internal investigation, he decided to contact the U.S. authorities. But as he was a Swiss resident and subject to local law, he couldn’t reveal clients’ names unless he received a U.S. subpoena.

Birkenfeld and his lawyers took the case to the U.S. Department of Justice in 2006, but found officials less than welcoming. They accused the banker of looking for a reward, and told him that asking for a subpoena was indicative of his guilt. Though he revealed that UBS held 19,000 secret offshore accounts on behalf of American citizens, the DOJ declined to issue a subpoena.

Frustrated, Birkenfeld approached the U.S. Senate Permanent Subcommittee on Investigations, which sent him a subpoena in 2007. Separately he worked with the U.S. Internal Revenue Service and the Securities and Exchange Commission.

Then-senator Carl Levin eventually held a hearing on UBS in 2009. By then, the DOJ was closing in. In 2008, U.S. authorities detained some of Birkenfeld’s bosses. He decided to go to the United States anyway and was arrested at Boston’s Logan Airport.

Prosecutors said although he had provided useful information, he didn’t disclose his role or provide evidence on Olenicoff, who pleaded guilty to filing a false tax return and paid a $52 million fine. The real-estate tycoon did not serve prison time. Nor did any other UBS executive.

Birkenfeld’s self-serving account does not spare criticism of others. Aside from UBS, he heaps scorn on the DOJ and prosecutors whom he says botched the case and cared more about protecting politically connected bank clients. “The DOJ had reached out for my treasure trove with one slimy hand, and slapped cuffs on me with the other,” he writes.

Though Levin wrote a letter of support, Birkenfeld was sentenced to 40 months. After he was freed in August 2012, the IRS awarded him $104 million in recognition of the taxes it had recovered from UBS clients.

Birkenfeld’s story is a reminder that while they can be a valuable source of inside information, whistleblowers are often zealous and can’t be easily placated. He’s not alone: a few months ago former Deutsche Bank employee Eric Ben-Artzi embarrassed the SEC by declining to accept an $8 million award related to alleged violations at the German lender. He wrote in the Financial Times that the SEC hadn’t been tough enough.

As Wall Street braces for more penalties, Birkenfeld’s memoir shows the perils facing those who choose to blow the whistle on wrongdoing – and those who listen to them. The last sentence in his book serves as a warning: “I’m still a hammer, looking for nails.”

 

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