IRS Awards UBS Whistleblower $104 Million
|September 14, 2012||Posted by Jeffery J. Smith under News|
Ever Hear of Bradley Birkenfeld?
by Walter Hamilton & Stuart Pfeifer
It pays to rat out your tax-dodging clients.
A former banker who helped wealthy Americans illegally evade taxes, and later confessed his transgressions and cooperated with the government, has been awarded $104 million in what appears to be the largest-ever whistleblower case.
Bradley Birkenfeld, a globe-trotting financier at Swiss banking giant UBS, helped rich Americans set up phony companies to conceal secret Swiss bank accounts. He gave them credit cards to access their hidden cash. He once converted a U.S. client’s money into diamonds, then smuggled the gems across the Atlantic in a toothpaste tube.
Birkenfeld eventually changed his stripes, and gave the IRS detailed information about the inner workings of an extensive effort by UBS to lure Americans who were seeking to avoid taxes.
In 2007, he told the Justice Department something that it had 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 in deposits from U.S. clients.
“The comprehensive information provided by the whistleblower was exceptional in both its breadth and depth,” the IRS said in a whistleblower award document made public by Birkenfeld’s lawyers.
The bank’s extensive tax-avoidance program began unwinding in 2007 and the IRS eventually conducted an amnesty program in which several thousand Americans voluntarily disclosed their overseas accounts. To avoid prosecution, UBS paid a $780-million fine and agreed to disclose the names of 4,450 U.S. clients.
But the case also underscored the gray areas that often are inherent in whistleblower cases.
Birkenfeld himself pleaded guilty to conspiracy related to the case in 2008 and went to a federal prison in January 2010. His sentence was reduced for good behavior and he was released last month.
“The IRS today sent 104 million messages to whistleblowers around the world — that there is now a safe and secure way to report tax fraud and that the IRS is now paying awards,” his lawyers, Stephen M. Kohn and Dean A. Zerbe, said in a statement. “The IRS also sent 104 million messages to banks around the world — stop enabling tax cheats or you will get caught.”
JJS: Who’s the cheater? The person trying to hang onto their property or the institution trying to take it from them?
We can all agree that everyone should contribute to society. It might also be considered fair if those who succeeded better should contribute more. But neither ethical principle leads to paying taxes.
One can contribute to society in many ways — pick up litter, tutor a child, visit the elderly, adopt an orphan, restore a wetland, campaign for reform, etc.
Paying taxing can be damaging to society, as when politicians misspend the money on invading another country or when doing so reinforces the hierarchy of the state above the individual.
Also, government does not distinguish between earned income vs. income that was not earned by the citizen’s application of labor or her investment of capital. Political jargon uses the phrase “unearned” but uses it inaccurately. If someone pays you for your labor or capital, then that payment you earn. If someone pays you for your land or natural resource or even a government-granted privilege, then that payment you do not earn. If politicians are to tax anyone’s income, then it should not be one’s true earnings but one’s actual unearned payments.
If government taxed society’s payments for nature — or instituted land dues or charged land use fees — then it’s not likely that there’d be many if any undue fortunes. Most millionaires and billionaires get their heaps of cash not from their talented labor or wise investment but from others’ payments for nature or from holding a privilege from government such as a TV license. If government redirected the socially-generated values of nature and privilege into the public treasury, then there would not be so much loose cash flowing around to create the millionaires and billionaires that government later tries to tax.
Taxing upstream, when people are spending money for nature and privilege, is much more efficient than taxing downstream, when a powerful elite has already gotten its claws on such revenue flows. It’s not just politically efficient but more economically efficient, too. Taxing income distorts the price for labor and capital while redirecting the spending for nature and privilege prevents speculation and thus prevents the speculative distortion of the worth of Earth and of state-granted favors.
People don’t want their government to lose the power to tax anything because they think that taxation is a way to get back at greedy people who make too much money or ake money unfairly. But that is a petty way to go through life and it’s not very successful. Over time, the income tax has grown lighter on the rich, heavier on the middle class and indirectly the poor. And from the tax collector’s POV, it is one heck of a lot easier to identify the owner of a parcel and determine its locational value than it is to find an overseas bank account and precisely tally up all of a rich person’s income and assets.
Taxists could get much better results if they considered the tax base. Is what they want to tax a value generated by labor and capital? Or is it a value generated by nature or government granted privilege. Not only would the morality of taxation be improved but so would the economy of society. Every place that has ever taxed land has prospered, to the degree it taxed locations. So forget true private wealth and deal with real common wealth. It’d be a win/win for both taxpayer and tax collector.
Re-Solving The Economic Puzzle
To learn more about this tax shift, you could read this book by Walt Rybeck. It’s non-technical. It’s Rybeck’s intellectual journey– from his native Appalachia to Latin America, civil rights battles, and more. In thirty-two short chapters, each as much a page-turner as the one before, the book has a wide sweep but uses simple terms. It appeals to moral intuition without casting blame or finding scapegoats. There’s a review of the book on this site. And one can go to Walt’s FB page and give it a “like”.
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