With $104M whistleblower payout, IRS hoping money talks

Monday - 9/24/2012, 2:30pm EDT

Stephen Kohn, Executive Director of the National Whistleblowers Center

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By Amanda Iacone
Federal News Radio

An unprecedented $104 million reward to an international banking whistleblower serves as notice that the IRS is serious about working with informants to go after tax cheats and is willing to pay for the help, according to an attorney involved in the case.

Attorneys for former UBS banker Bradley Birkenfeld earlier this month announced the historic award for his insider information about secret off-shore accounts. Birkenfeld's help resulted in UBS paying $780 million to the U.S. government and allowed the IRS to collect $5 billion in back taxes, fines and penalties. UBS also turned over the names of more than 4,900 U.S. taxpayers who held illegal, off-shore accounts. The IRS is now investigating those account-holders for possible prosecution.

News of the reward came after Birkenfeld was released from prison. He served 31 months of a 40 month sentence after pleading guilty in 2008 to one count of conspiracy to defraud the U.S. related to his work for UBS, the Associated Press reported.

Birkenfeld is now seeking a presidential pardon with the help of the National Whistleblowers Center, a non-profit organization that helps employees who make lawful disclosure of waste, fraud, and abuse, said the center's Executive Director Stephen Kohn.

In an interview with The Federal Drive with Tom Temin and Emily Kopp, Kohn said what happened to Birkenfeld is unique but that it had a chilling affect on would-be informants. These employees already fear losing their jobs but the Birkenfeld case added the threat of imprisonment as well.

Stephen Kohn

"The government usually embraces these types of informants and protects them. Why they went after Birkenfeld is a mystery to me," Kohn said.

In the wake of the Birkenfeld case and following several years of scrutiny that the IRS was taking too long to implement a 2006 law allowing the tax agency to reward informants, the IRS made a bold statement by picking a case with a worldwide impact. And the $104 million award, after taxes, to Birkenfeld demonstrates that the agency means business, he said.

"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. The IRS also sent 104 million messages to banks around the world: Stop enabling tax cheats or you will get caught," the center said in its statement announcing Birkenfeld's award.

Kohn said the award also sets a precedent for how the agency will justify awards for future cases.

Awards paid out under the False Claims Act, which covers government contracting, averaged $2.6 million over the last 25 years, he said.

Last year, the IRS paid out $8 million in awards and collected $48 million in back taxes and penalties, according to its 2011 whistleblower report to Congress.

Kohn said the awards are key to encourage informants to come forward.

"If I can present them an option that includes a potential reward they usually make the choice to blow the whistle." Otherwise they go back to work and keep their mouths shut, he said.

The reward amount depends on the size of the recovery and the quality of information, Kohn said.

Lessons learned
Birkenfeld's case also provides a lesson for future whistleblowers. They should start directly with the pertinent whistleblower office. A key mistake that may have landed Birkenfeld in a federal prison is that he spoke first to prosecutors instead of seeking protections from the whistleblower office, Kohn said.

Federal whistleblower laws protect employees who report illegal activity even though they themselves participated in the fraud or the tax evasion, he said.

The government can deem whistleblowers as confidential informants. The whistleblower office also has policies in place to protect the informant's identity and sets the groundwork for a cooperative relationship as the investigation proceeds, Kohn said.

The federal Office of Special Counsel provides a gateway for federal employees to report wrongdoing.

Other federal Whistleblower laws address securities fraud, violations of the Foreign Corrupt Practices Act as well as workplace safety violations.

Despite the consequences of coming forward, Birkenfeld remains committed to helping others come forward, especially international bankers.

"He risked everything to blow the whistle on an international banking system that in his eyes, coddled terrorists, drug dealers, anyone who wanted to hide money and very wealthy people who were just ripping off the system," Kohn said.