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A one-man wrecking crew for tax evasions

Bradley Birkenfeld, who used to help wealthy Americans hide millions from the IRS for a Swiss bank, disclosed his misdeeds to federal authorities and triggered a crackdown on tax cheats.

October 10, 2010|Stuart Pfeifer

In 2007, Birkenfeld traveled to Washington and told Justice Department officials something that had been suspected for years: UBS' private bank in Switzerland had helped Americans hide billions of dollars from the IRS. All told, prosecutors would later allege, UBS' private bank had $20 billion of deposits from U.S. clients.

The meeting spurred a massive criminal investigation that so far has led to the criminal prosecutions of UBS, three of its sales agents, a Swiss lawyer and seven U.S. citizens.

Among those prosecuted was Olenicoff, who pleaded guilty to filing a false tax return, was sentenced to probation and community service and agreed to pay $52 million in back taxes and penalties. An additional 150 people are already under criminal investigation, federal prosecutors recently disclosed.

The UBS case has shaken banking worldwide. To avoid prosecution, UBS agreed to pay a $780-million fine to the United States and to disclose the names of 4,450 of its U.S. clients. The announcement spurred thousands of Americans to voluntarily disclose their overseas accounts to the IRS.

The amnesty applications involved accounts held in 70 countries on every continent except Antarctica and prompted new concern about tax havens worldwide. Besides traditional hide-outs such as Switzerland, the Bahamas and Austria, the IRS says Americans have broadened their search for secrecy to banks in Central America and Asia.

Birkenfeld, whose actions have dramatically changed the world of offshore banking, has declined interview requests. At a court hearing this year, he said he simply followed his employer's instructions in landing clients like Olenicoff.

"UBS recruited me and trained me, as well as my colleagues, and pressured and incentivized us financially to do this business without advising us of the consequences," he said.

Judgment day for Birkenfeld came in August, when he stood before a federal judge in Florida on tax evasion charges. He was sentenced to more than three years in prison. But Birkenfeld's day in court did not go without thanks from the United States.

"Without Mr. Birkenfeld walking into the door of the Department of Justice in the summer of 2007," Assistant U.S. Atty: Kevin Downing said, "I doubt as of today this massive fraud scheme would have been discovered by the U.S. government."

These days, Birkenfeld spends his time at his brother's Boston condominium, an electronic monitor strapped to his ankle. He is scheduled to begin serving his prison sentence in January.

Schwedel said he believes the U.S. government has mistreated Birkenfeld.

"Without Bradley Birkenfeld, they would have had nothing. None of this would have happened," Schwedel said. "Meanwhile, everybody else gets set free and he gets to go to prison."

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