As Obama Golfs with UBS CEO Days After Firm Avoids Criminal Prosecution,
UBS Whistleblower Given 40-Month Jail Term
[From DemocracyNow.org]

[August 27, 2009] On the first day of his vacation in Martha's Vineyard, President Obama spent five hours golfing with UBS executive Robert Wolf, an early financial backer of Obama's presidential campaign. As the pair teed off, another UBS banker, Bradley Birkenfeld, had just been handed a forty-month prison sentence after pleading guilty to assisting a client evade taxes. It was the first sentence in a wider scandal that has seen UBS admit to helping wealthy Americans dodge their tax obligations. On his own initiative, Birkenfeld blew the whistle on UBS. His disclosure and cooperation with US authorities provided inside information into the bank's conduct and sparked the massive federal investigation.

JUAN GONZALEZ: On the first day of his vacation in Martha's Vineyard, President Obama spent five hours golfing with Robert Wolf, the president of UBS Investment Bank and the chairman and CEO of UBS Group Americas. Wolf, an early financial backer of Obama's presidential campaign, raised $250,000 for him back in 2006 and in February was appointed by Obama to the White House's Economic Recovery Advisory Board.

While Wolf shared a tee time with the President of the United States, another UBS banker, Bradley Birkenfeld, had just been handed a forty-month prison sentence after pleading guilty to assisting a client at UBS evade taxes. It was the first sentencing of the massive UBS tax case.

Three days earlier, UBS had struck a deal with US tax authorities to disclose the identities of about 4,500 of its American clients who are suspected of hiding assets and evading taxes through secret Swiss accounts. The amounts are said to add up to billions. UBS struck a separate settlement in February to avoid criminal prosecution, admitting to helping wealthy Americans dodge their tax obligations and agreeing to pay $780 million in penalties.

AMY GOODMAN: Where does Bradley Birkenfeld fit in? On his own initiative, he blew the whistle on UBS. His disclosure and cooperation with US authorities provided inside information into the bank's conduct and sparked the massive federal investigation. The forty-month sentence Birkenfeld received, after coming forward and pleading guilty to facilitating offshore tax evasion himself, was harsher than his attorney and even the prosecutors had expected.

For more on this story, we're joined in our firehouse studio by Sharona Coutts, a reporter with ProPublica, has been covering UBS story. Her latest article is "UBS and the Taxpayers' Hidden Billions." And in Washington, DC, we're joined by Stephen Kohn, the executive director of the National Whistleblowers Center.

We welcome you both to Democracy Now! Sharona, let's talk to you first about UBS, one of its original names actually Union Bank of Switzerland. The significance of what this bank has done? Fined $780 million for exactly what?

SHARONA COUTTS: Well, basically the—technically, that huge amount of money was broken down into different buckets. Part of it was to simply pay the taxes that were supposed to be owing. It's not the entire amount of taxes owing. Part of it was penalties and disgorgement of profits, although, according to the legal documents, this business, this part of UBS's business, where they were helping their US clients—they were, you know, helping them avoid US taxes—that earned them $200 million a year. And it started—the dates that are being used are between 2001 and 2007. So, in profits alone, I mean, that's more than the $780 million that they've had to hand over.

AMY GOODMAN: But the fact of the matter is, right, I mean, on the one hand, UBS had to pay the US government $780 million, but they had just gotten two-and-a-half billion dollars in a backdoor bailout from the bailed-out insurance company AIG.

SHARONA COUTTS: Yeah, look, there's money flowing everywhere. I mean, these companies are so huge. I don't know. I mean, I don't think that you can really try and get to a point where you're going to have it flat, you know, that there's—and the $780 million, as I just said, doesn't even equal the profits they made. That's not even talking about the amount of taxes that should have flowed to US Treasury that did not as a result of their conduct, that they've admitted was wrongful.

JUAN GONZALEZ: Stephen Kohn, executive director of National Whistleblowers Center, where does Bradley Birkenfeld fit in? How did he become a whistleblower in this case?

STEPHEN KOHN: Well, Brad, he voluntarily contacted the Justice Department, Congress, the SEC, provided a wealth of information about UBS's illegal activities. He was the quintessential whistleblower, an insider who had responsibility, had contact with the schemes, and turned it over voluntarily. This was an unprecedented amount of information about secret bank activities and money laundering.

AMY GOODMAN: Explain exactly Bradley Birkenfeld's role. Who was he—what was his position at UBS? And talk about, oh, like the diamonds in the toothpaste tube.

STEPHEN KOHN: Well, essentially, UBS, in my view, from what I've looked at, had set up an institutional criminal conspiracy to help millionaire—multimillionaires and billionaires in the United States avoid taxes. They had a major wealth group. Bradley was part of that. And their whole process—and this was not just one or two rogue employees; this was official bank policy, thousands and thousands of accounts. Who are these people? What positions of influence do they hold in the United States? These are people who have set up secret accounts to avoid paying billions in taxes.

And Bradley became the whistleblower. He saw what was happening, and he went to the other side. And this is unprecedented in Swiss bank history. I mean, the Swiss banks are known for their secrecy. That secrecy is protected under Swiss law. What he did was courageous, in the sense that he can never return to Switzerland. He's a traitor there. And he turned over the banking information that has permitted this unprecedented investigation. It was his information that entitled the government to collect the $700 billion-plus, his information that has led to this deal to turn over four or five thousand names. But he has a lot more information that he's given to the government, and instead of protecting him and using him as the resource, they indicted him and are sending him to prison. Why is that shocking?

JUAN GONZALEZ: Sharona Coutts?

SHARONA COUTTS: Yeah, I just—I mean, look, obviously what Mr. Birkenfeld did was really useful, valuable. It's basically been the sort of key that's just opened this entire door to this area that for years has basically escaped prosecution. I mean, why does anyone have a Swiss bank account, you know? It's like, we know, we have known for a long time, that it's, in many cases, to avoid taxes. But I don't think we should necessarily hagiofy Mr. Birkenfeld.

I mean, the way that this case—my understanding of it, at least; and, you know, if I'm wrong, I want to be corrected—but the way that it came about was actually through an IRS investigation of his most important client, who was a California real estate tycoon, I guess, a guy who, you know, came from a Russian family. And he had basically set up this web of shell companies in lots of different jurisdictions that are known for housing hidden accounts in order to hide income and therefore avoid taxes. So that's my understanding of how the authorities became aware of Mr. Birkenfeld. So, I mean, you know, the guy did smuggle diamonds in a tube of toothpaste into the United States so that he could give them to this California client.

AMY GOODMAN: This is called the cross-border business—

SHARONA COUTTS: That's right.

AMY GOODMAN: —that UBS bankers engaged in, not only Birkenfeld, but a number of others that he then was exposing, where they're lying to customs agents—

SHARONA COUTTS: That's right.

AMY GOODMAN: —they're bringing in, well, like diamonds in the toothpaste tube.

SHARONA COUTTS: Well, it's an amazing—it's like a spy story, you know. I mean, these guys, they would very frequently come into the United States. They would lie to immigration officials, because they would say on the immigration forms that they were here for tourism. And that's an offense, to lie on those forms. They were here for business. They would occasionally say that they were here to visit family members. And my understanding is those family members didn't always exist, you know, and the dates of their visits coincide with things like, you know, the Miami art fair, so they were there prospecting for wealthy individuals whose business they wanted to win. And so, there was this huge apparatus, you know, that was going on.

And Mr. Birkenfeld was part of that. And why did he bring the diamonds in? Well, it's because his client in California wanted to access some of those assets that were hidden in Switzerland. You can't bring cash across; it's too risky. And if you turn up at a bank with, you know, a few million dollars in cash, they're going to report that, one would hope. But I guess the hope was if he was able to sell the diamonds, he'd be able to then get the cash from it. So that's what was going on.

JUAN GONZALEZ: I'd like to ask Stephen Kohn, the original government investigation into this said that there were 52,000 Americans that were clients of UBS involved in these accounts, but the Obama administration eventually settled on just turning over the names of 4,500 of these. Seems like most of the people involved are getting away scot-free, and it's not clear whether any of the 4,500 will end up being prosecuted once UBS turns those names over. Your reaction to that settlement that was announced not too long ago?

STEPHEN KOHN: Yeah, it's just very strange. Brad did turn over the 52,000 account identifications.

I also just want to correct the record: he initiated his cooperation with the United States before he was indicted and before he even knew that he might be indicted. So his becoming a whistleblower was not in response to an indictment and a plea deal; it was prior.

But the whole case is puzzling, because if the United States wants to crack tax fraud, if they want to crack money laundering or stop these practices in secret banks, why are they putting into prison for forty months the whistleblower? The billionaire to whom he was serving got probation. How are they ever going to get another banker to step forward and cooperate with an investigation?

And I agree with you with the—why aren't they going after the 52,000? UBS does a tremendous amount of business in the United States. The government has leverage over that bank. They don't have to make sweetheart deals with them.

AMY GOODMAN: I mean, it's very interesting, Stephen Kohn, that the judge, Federal Judge William Zloch in the Fort Lauderdale court, slapped him with a harsher sentence than the prosecutors asked for. Why do you think that is?

STEPHEN KOHN: I think that the concept of a high-ranking bank whistleblower is still very rare. I don't think the judge in the court fully understood it. I don't even think the Justice Department actually understands what is unfolding.

In other areas of whistleblowing, especially government contracting, the government has become used to people stepping forward, revealing billion-dollar frauds, and working with those—they call them "relators" and "whistleblowers"—to uncover the fraud and bring companies to justice.

This is the first major tax whistleblower since Congress enacted a law encouraging people just like Bradley to step forward with information. I think it's new territory. And I think they don't understand the pricelessness of getting someone like Bradley in that inside position. Face it, you're not in those boardrooms if you're a boy scout. But the point of the law is to get the insider to come out with the information. Without that, you'll never have a case. But by putting the insider, not inside the Justice Department's criminal investigatory task force, putting him in jail, serves no purpose. It undermines public policy.

AMY GOODMAN: Stephen Kohn, I want to thank you for being with us, executive director of the National Whistleblowers Center in Washington, DC. And Sharona Coutts, a reporter with ProPublica, her latest article is called "UBS and the Taxpayers' Hidden Billions."