How the Department of Justice Protects Wealthy Tax Evaders

“The impact of whistleblowing has consequences more similar to a serious crime than a good deed”— Financial Journalist Constantin Seibt (Tages-Anzeiger News, Switzerland)

This is the fourth in a series of the unrecognized contributions that the Department of Justice makes to maintaining the ever-widening wealth gap.

Catching tax evaders depends largely on whistleblowers, employees of large banks and accounting firms who risk their careers and financial ruin to expose how these firms facilitate tax evasion for wealthy clients. Because:

● Tax evasion schemes are a complex string of shell corporations, trusts and powers of attorney threaded through multiple secrecy jurisdictions resembling the rigging of an 18th century schooner.

● The IRS doesn’t have the funding to develop expertise nor the time it takes to bust through the schemes to connect all the dots. And the politicians in the pocket of the wealthy continually cut the IRS budget so it cannot audit the super-rich—and the cuts are popularized as helping the average citizen escape the vigilance of the hated taxman.

If a whistleblower discloses those who defraud the wealthy, they are rewarded. The SEC whistleblower program is an example. However, if a whistleblower harms the interest of the wealthy, the DOJ steps in to vigorously pursue them. The billionaire-controlled media cooperate by suppressing any coverage.

This is the story of the DOJ’s punishment of a whistleblower who dared to reveal tax evaders among the super-rich.

Lucifer’s Banker

The DOJ first struck at whistleblower, Bradley Birkenfeld, who exposed the Swiss bank accounts of wealthy US taxpayers.

Birkenfeld worked in Switzerland at the wealth management department at UBS, the largest private bank in the world. He sold tax schemes to wealthy Americans. In a later book describing himself as Lucifer’s Banker, he recounts smuggling assets for American clients just like in a Hollywood spy movie such as diamonds hidden in toothpaste tubes.

In 2005, the US passed a new whistleblower protection statute (Tax Relief and Health Care Act) promising immunity to whistleblowers who gave evidence of US tax evaders and a share in money recovered. The money was necessary because whistleblowers would be blacklisted and never be able to work in their industry again. The immunity was necessary because the whistleblower would’ve been involved in the conduct, like Birkenfeld. And the evidence that they gave could be used against them.

Birkenfeld made arrangements with the DOJ for a queen-for-a-day immunity so he could prove to the DOJ that he had information to justify protection under the whistleblower program. He gave them some. But because Swiss law makes it a criminal offence to disclose banking information except under subpoena, Birkenfeld asked the DOJ to subpoena him for more details, but it refused.

Birkenfeld made an arrangement to go directly to the IRS and gave it the balance of his files and in particular told it of his golden goose client, a transplanted Russian oligarch named Igor Olenicoff.

When the DOJ learned about Olenicoff, it charged Birkenfeld criminally claiming that he had breached their agreement by not giving it the information about Olov in their first meeting. So now the DOJ had a Russian oligarch tax evader and a US citizen. Which was going to jail and which was going to be given a sweetheart deal? The Russian oligarch didn’t harm any wealthy Americans who would be the clients of law firms that the senior DOJ people could go to when they left government.

• The DOJ gave Olenicoff the sweetheart deal by which he paid a $50 million fine—a light slap on the wrist to a billionaire— but no jail.

• Birkenfeld got a 40-month jail sentence and served every second

Birkenfeld’s revelations resulted in massive recoveries for the US government:

• Birkenfeld provided tips that led UBS in 2010 to pay a $780 million U.S. fine for helping about 19,000 wealthy Americans hide up to $20 billion in secret bank accounts. The DOJ gave UBS a deferred prosecution agreement including a term which required UBS to turnover information about American citizens who had bank accounts there (DOJ Press Release,Feb 18, 2009).

• “The disclosure of Swiss banking information…set off such a panic among wealthy Americans that more than 14,000 of them joined a tax amnesty program”. (NYT, Sept 11, 2012)

• The IRS recovered more than $5 billion in unpaid taxes from the Birkenfeld disclosures.

• The IRS paid Birkenfeld $104 million as his share in the recovery according to the whistleblower provision of the act (NYT, Sept 11, 2012).

The fortress-like security of the Swiss bank account was shaken. Tax evaders looked for more secure destinations and found them right at home in states like South Dakota. For more on the present and more secure tax havens see: The US, The New Switzerland.

You can read about the DOJ’s more recent prosecution of whistleblower, Dr. May Edwards, who disclosed the evidence leading to Paul Maniford’s conviction, and who the Washington Posts calls the forgotten whistleblower, in my last post here.

The Clinton Controversy

The role of the elite in the Democratic party who possibly protect wealthy political donors should not be overlooked.

From the Birkenfeld revelations, the IRS sought disclosure of further information regarding some 52,000 names of American citizens with accounts at UBS according to the non prosecution agreement. Hillary Clinton, then Secretary of State, intervened. She met with the Swiss government and arranged a deal so that only 4450 accounts had to be released.

Lawyer Ernest A. Canning writing in The Hill noted:

“Afterwards, UBS increased its previous $60,000 in donations to the Clinton Foundation ten-fold. By the end of 2014, UBS donations to the Clinton Foundation totaled $600,000”.

“UBS also “paid former President Bill Clinton $1.5 million to participate in a series of question-and-answer sessions with UBS Wealth Management Chief Executive Bob McCann, making UBS his biggest single corporate source of speech income disclosed since he left the White House.” (The Hill, Oct 03, 2010).

There is no evidence of a pay for play scheme in the UBS payments to Bill Clinton or the Clinton charitable organization. However, as Canning comments:

“But there’s a more troubling question that arises. There can be little doubt that a media firestorm would ensue if a former president were to accept a lucrative speaking fee from the Mafia. Should the reaction be any different when the speaking fee comes from “banksters” who defrauded the U.S. government.”

Another thorny question is: were names protected and why?

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