Swiss secrets: A triple-double crossTell
NEW YORK — On Oct. 5, 2005, high-flying American banker Bradley Birkenfeld abruptly resigned his plum position in the Geneva office of Switzerland's premier financial institution, UBS. The sole reason, he said, was his discovery of an internal document that, in his mind, revealed a calculated plan on the bank's part to disown him, or any one of his fellow cross-border bankers, should the music suddenly stop in UBS' dubious $20 billion dance with America's most wealthy.
The offending document was an internal brief from UBS Legal that cataloged cross-border banking activities illegal in the United States, where Birkenfeld and the other private bankers in UBS' wealth management division routinely made regular prospecting trips for wealthy U.S.-resident clients.
The rub was that – point by point – the list of prohibitions contradicted the fundamentals of Birkenfeld's job description: No establishing of business relationships "for securities purposes" the document read; no "solicitation of account opening" or "cold calling or prospecting;" and no contacting U.S. clients by "telephone, mail, email, advertising, the internet or personal visits."
"I'm like, 'Holy shit, this is a stick of dynamite!'" Birkenfeld said.
While it could hardly have come as a surprise to a sophisticated banker that aiding wealthy U.S. residents in shielding billions in offshore accounts and corporate shells skirted the law, to see the bank essentially disown that business in a formal document raised burning concerns. "It was a sandbag job," Birkenfeld said.
Though the document was dated November 2004, six months prior to Birkenfeld's discovery of it, none of the U.S. cross-border bankers had been told to stop what they were doing, Birkenfeld said. Quite the contrary: There were constant encouragements to book "new money" during the U.S. trips.
When Birkenfeld went to his boss and demanded an explanation, the boss brushed him off and Birkenfeld blew his stack. "I said, 'I'll fucking go outside with you right now. I want some answers and I want them now.'"
Birkenfeld continued to press the point in a series of terse emails addressed to Peter Kurer, the chairman of UBS, Martin Liechti, the head of UBS Wealth Management Americas International, and other UBS executives.
The bank, Birkenfeld suggested, seemed to be building an alibi for itself in the eventuality that an unlucky cross-border banker got caught.
Birkenfeld, in turn, may have used the document to create an alibi of his own, according to the timeline pieced together by prosecutors from the U.S. Justice Department years later.
"On or around" June 12, 2005, court records show — just five days before Birkenfeld sent his first angry memo to UBS management — Birkenfeld traveled to Liechtenstein to meet with his most important client, Orange County billionaire Igor Olenicoff , and a Liechtensteiner trust manager. The IRS had just raided Olenicoff's home and businesses roughly two weeks prior, discovering incriminating documentation of Olenicoffs dealings with Birkenfeld and UBS. Together now in Liechtenstein, the banker, the billionaire and the trust manager agreed to move Olenicoff's $200 million out of UBS to a Liechtenstein bank that could offer greater secrecy.
After Birkenfeld announced his resignation from UBS in October 2005, but before it became formal, he continued to pepper senior management with emails about the damning UBS legal memo, demanding that he be recognized as an internal whistle-blower. UBS chairman Peter Kurer responded on behalf of the bank, assuring Birkenfeld that UBS' in-house general counsel would conduct "an independent investigation." Kurer then instructed the general counsel to resolve an outstanding bonus dispute between Birkenfeld and the bank, documents show. Birkenfeld received 575,000 Swiss francs (about $535,000) in the out-of-court settlement.
But if Birkenfeld's UBS bosses thought he would go quietly, they were wrong. Instead, he would gather a raft of damning UBS internal documents and fly to Washington, where he'd secretly arranged to meet with prosecutors from the U.S. Department of Justice.
The question is why? He could have stayed put and lived happily ever after in the shadow of the Alps. What was waiting for him in Washington?
Potentially, a pile of cash a whole lot bigger than his 575,000 Swiss franc settlement from UBS.
American law first recognized the unique power of informants to expose major fraud in 1867, when Congress gave the Treasury Secretary discretion to pay rewards to anyone with actionable information about "persons guilty of violating the internal revenue laws or conniving at the same."
The IRS has since built some of its highest-return tax fraud cases on insider information — but until recently the Informant Rewards Program at IRS was a mess. It was decentralized and discretionary. Good tips slipped through the cracks. Good cases got lost. Whistle-blowing was a crapshoot at best.
That changed, at least on paper, in December 2006 when congress and President George W. Bush sent whistle-blower incentives sky high, creating a centralized Whistleblower Office at the IRS as part of the Tax Relief and Health Care Act.
Under the new law, an informant would collect 15 to 30 percent of any sum recovered as a result of his or her information. When you consider that the U.S. Treasury loses up to $100 billion a year in offshore tax fraud alone, 15 to 30 percent of a big fraud case can mean massive money. Also, under the new law, an informant's involvement in the fraud, formerly a disqualifier, is no longer an obstacle to a reward. In short, the IRS' new Whistleblower Office was designed to attract the Bradley Birkenfelds of the world.
It's not clear DOJ's tax division got the memo. In the spring of 2007, three months after Bush signed the new law and just prior to Birkenfeld's first meeting with prosecutors, Birkenfeld's attorneys in Washington sought assurances from the government that their client would be protected in exchange for his proffer. Instead, the lead DOJ tax division lawyer Kevin Downing and his colleague, Karen Kelly, set a surprisingly pejorative tone in an email exchange with Birkenfeld's then attorney, David Dickieson.
Kelly: "You should know that based on the information you have disclosed to date, we consider your client a tipster, not a whistle-blower. Allegations won't carry the day, by a long stretch. [There are specific laws that protect "whistle-blowers" but do not recognize any protection for 'tipsters.']"
Dickieson: "Karen – Call our client a 'tipster' or 'whistle-blower' or whatever you wish at present, but don't minimize the importance of the information that our client is about to give the government. This is a 'once in a career' case for the lucky government attorneys willing to follow up on the hard leads that our client is prepared to provide."
Kelly: "Just what I need, a 'once in a career case!!'"
It was a clear warning shot to be ignored at one's peril, say attorneys familiar with the way Downing ran his cases.
A veteran prosecutor — a New Yorker known for playing hardball — Downing looks as Irish as his name suggests: "Tall, dark and handsome," said one former adversary, who quickly added "bully, snide, insulting and dismissive" to round out the list. Karen Kelly is cast of the same mold, said several attorneys who have faced her: tough with "a grating personality."
Full immunity was a non-starter until Birkenfeld showed his cards, the prosecutors said.
Birkenfeld rolled the dice, leading Downing, Kelly and a special agent from IRS Criminal Investigation through his trove of UBS documents over three marathon sessions at DOJ headquarters in Washington in June 2007. The cumulative picture that emerged was one of a rogue division within one of the world's biggest banks not only blatantly breaking U.S. law, but actively covering its tracks.
Birkenfeld wanted to help prosecutors catch them in the act. He provided a phone and email list for the Geneva-based cross-border bankers and senior management who traveled to the U.S. in service of the alleged fraud. Mapping their travel to the United States and the clients they met with was a matter of a few wire-tap warrants, Birkenfeld suggested. He says he offered to travel to Switzerland, meet his old bosses and wear a wire to gather evidence.
His enthusiasm rubbed the DOJ lawyers the wrong way. "Downing said to me, 'You watch too much TV, Brad — that's Hollywood,'" Birkenfeld recalled. "I was telling the DOJ how to do its business, and they fucking hated that."
As tension mounted, Birkenfeld's attorneys sought immunity from future prosecution with increasing urgency, but the government suddenly moved the goalposts further down field. The insider detail Birkenfeld was providing about the wider scheme was invaluable, but Downing wanted more: The names of all of Birkenfeld's clients. But there were some secrets Birkenfeld wasn't prepared to disclose, and that's where it all came crashing down.
This article originally appeared on GlobalPost.
Michael Bronner, a New York-based investigative journalist, previously worked for the weekday edition of CBS News/60 Minutes. He has been a freelance contributor to Vanity Fair since 2005. A screenwriter, producer and director, he was also a co-producer on the Universal Pictures/Working Title feature film “Green Zone” about Iraq and an associate producer on the Oscar-nominated “United 93.”