Whistleblower gets millions: good for compliance improvement (and makes us ask again–did Romney get amnesty?)

by Linda Beale

Whistleblower gets millions: good for compliance improvement (and makes us ask again–did Romney get amnesty?)

Bradley Birkenfeld, the UBS whistleblower who helped jumpstart the IRS’s enforcement of foreign bank account reporting and helped catch criminal tax evaders, ended up serving a relatively short prison term (for failure to be entirely forthcoming, in the case of one of UBS’s private banking customers) but also go a significant $104 million whistleblower award.  See David Kocieniewski, Whistle-Blower awarded $104 Million by I.R.S., New York Times (Sept. 11, 2012); Whistleblower Brad Birkenfeld Rewarded Record $104M for Exposing How UBS Helped Rich Evade Taxes, DemocracyNow.org (video available); Exhaustive Study Finds Global Elite Hiding Up to $32 Trillion in Offshore Accounts, DemocracyNow.org (July 12, 2012) (video or transcript available); Birkenfeld’s bonanza, The Economist (Sept. 11, 2012).

As Birkenfeld’s attorney put it:

“Today is a great day for all the honest Americans out there who work their job and pay their taxes. Today is a great day for tax fairness. Today is a terrible day for big-time tax cheats.”  Birkenfeld’s bonanza, The Economist (Sept. 11, 2012).

The very public and very large whistleblower award should do two things:

1) encourage other insiders who are aware of egregious company or individual tax-evading behavior to blow the whistle and

2) discourage other insiders and companies from egregious company or individual tax evading behavior.
There have always been anonymous brown-envelope tips to the IRS from those who know what is going on but don’t want to participate in it and don’t want their competitors to gain a competitive advantage because they do.  But whistleblowers generally have access to inside information that can break the dam on enforcement.  That certainly was the case with Birkenfeld, whose information– about smuggling diamonds for UBS’s private banking clients and other means taken to help such clients avoid reporting their assets to the US government–was instrumental in increasing awareness about tax crimes and increasing the fear of God (or rather, the fear of the “revenuer”) in sophisticated, wealthy taxpayers who had been able to hide some of their assets and wealth relatively easily before.

By the way–we still do not know whether GOP presidential candidate Mitt Romney participated in the amnesty program that was introduced in the wake of the UBS exposure of banking secrecy’s connection to tax evasion by wealthy Americans.  As most Americans know by now, Romney refuses to release his tax returns for the relevant years when he might have participated in the amnesty program to avoid criminal prosecution. 

 Until he does release his returns back to 2003 o4 so, there will continue to be questions regarding his taxes, as the wealthiest nominee ever with offshore holdings galore and his sole business experience being a hedge fund with numerous offshore entities and blocker corporations.  Specifically, Americans will wonder how his self-proclaimed patriotism and love of nation plays out in his ordinary decisions.  His hedge fund, Bain Capital, has also made the news as a participant in a claimed conspiracy of hedge funds to deflate the prices they pay for companies they acquire.  See Lichtblau & Lattman, Equity Firms Like Bain Are Depicted as Colluding, New York Times (Sept. 11, 2012).   

Both tax evasion and price-rigging are criminal activities, so it behooves Romney to release his returns and ancillary information so Americans can assess how he practices what he preaches in terms of love of country and rule of law.  Did he report his foreign assets as required all along?  Did he invest abroad (so that any purported “job creation” activity didn’t benefit us)?  Was he still influential in Bain during the period that it began, or carried on, price-fixing agreements with other powerful hedge funds?  Americans deserve to know.

Will this lead to better compliance in the future?  One suspects that there will always be those who enjoy the game of avoiding taxes so much that they will be willing to pay to play the tax evasion games even on the harder-to-manipulate playing field created by the crackdown on banking secrecy and offshoring of funds.  But hopefully they will be fewer, and less successful!

cross posted with ataxingmatter