
UBS Whistleblower Finds Himself in Federal Prison - rmah
http://www.cnbc.com/id/41257962
======
lionhearted
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.

~~~
barrkel
Taxation is at the heart of what makes the state possible, and it's the state,
as a guarantor of justice and peace, which makes creating and keeping wealth
possible. The wealthy benefit more from this arrangement, and it's fair that
they are taxed more as a result. I presume you're not arguing against the
existence of the state, or the need for taxation for its upkeep.

Given the need for taxation, making taxation fair requires information about
economic transactions. But there's a balance to be struck here: having the
state be informed about the details of every transaction, tied to each
individual, would probably be too dangerous for liberty. But on the other
hand, lack of oversight will lead to evasion and free-riding. So it seems that
it's best to put effort in investigation in proportion to detecting potential
free-riders.

Large amounts of money held in opaque arrangements abroad would seem to me to
have a high probability of abuse; and with the numbers of people involved
being small, the instrumental loss of liberty in having these arrangements
investigated seems to me small compared to the free-riding risk.

I also object to the argument you've used; it gives me a slimy feeling reading
it. You've tried to drag in this notion of privacy and respect by association
with "professionals", attorneys, priests and spouses (!), to what amounts to
hired thugs protecting a box of valuables. Banks spend a lot on appearances
because they need to give their customers the impression that they're safe
places for their customers' money, but at the end of the day, they're out to
extract as much of that money as they can. Banking isn't a respectable
business, particularly these days. They're a necessary part of the economic
infrastructure, a bit like water supply and sewers are to cities.

~~~
pragmatic
Could a system such as a national sales tax, provide privacy _and_ revenue at
the same time?

We need to collect data b/c the gov't has to know about your income, your
investments, etc, etc. But how about a (hypothetical) system where you only
pay taxes when you purchase goods. There wouldn't seem to be any fundamental
reason to keep information on _who_ purchased what. Just the fact that the
transaction occurred.

~~~
davidw
"Hypothetically", in Italy, lots of cash transactions with no receipts happen
because of the VAT, which is something like a sales tax.

~~~
rbanffy
Brazil tried to move this into the banking system - all withdrawals were
taxed. It was not very popular, but it was effective and devilishly hard to
dodge.

OTOH, companies routinely exchange services and that kind of transaction is
very hard to tax.

------
eftpotrm
While this seems a strange way to encourage whistleblowers to come forward,
for perspective -

<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>

 _"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=a...](http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqRUmD2LzH.E)

 _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
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
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
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
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.

------
jfager
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/w...](http://www.pogo.org/pogo-files/alerts/whistleblower-issues/wi-
wp-20090825.html) 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>), 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>).

To me, Birkenfeld's actions look a lot more like CYA than principled
whistleblowing.

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

------
iwwr
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._

~~~
jhamburger
At the same time, wasteful thoigh it might be government spending presumably
doesn't just go down a black hole. The working man receives a service or at
least the fringe benefit of that money being circulated back into the economy.

Either way, any use is more beneficial to ordinary americans than having the
rich horde billions of taxable dollars in offshore accounts.

~~~
tlb
Hoarding money isn't actually bad for ordinary Americans. It removes money
from circulation, which the Fed can make up for as necessary to regulate
inflation.

------
steve19
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.

------
cletus
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.

------
ajays
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
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.

------
DFreed
Interesting article and interview from CBS 60 Minutes

[http://www.cbsnews.com/stories/2010/08/05/business/main67456...](http://www.cbsnews.com/stories/2010/08/05/business/main6745655.shtml)

------
hippich
deal with cash, digital one - <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.

------
ck2
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.

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

------
Cadsby
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."

