(Reuters) - The whistleblower in a landmark tax-dodging case against Swiss bank UBS AG has won a record-setting $104 million reward from U.S. authorities in a strong show of support for the Internal Revenue Service’s controversial whistleblower program.
Bradley Birkenfeld, who once confessed to smuggling diamonds in a toothpaste tube, was not present at the news conference on Tuesday where the award was announced by his lawyers. He is under home confinement in New Hampshire, they said, after being released from prison last month.
Birkenfeld spilled many secrets about UBS, his former employer. But he was jailed after the government said he withheld other information about helping wealthy Americans hide money in secret Swiss accounts.
He is set to end his home confinement in late November, said the lawyers. They would not discuss their cut of the award.
In a case that shook Swiss banking to its core, UBS in 2009 entered into a deferred prosecution agreement and paid $780 million in fines, penalties, interest and restitution to settle charges that it helped 17,000 U.S. clients hide $20 billion. U.S. authorities are still investigating other Swiss banks.
As the U.S. government struggles with a massive budget deficit, U.S. Senator Chuck Grassley said as a result of the information provided by Birkenfeld, “billions of dollars in taxes owed will be collected that otherwise would not have been paid.”
Grassley has in the past criticized the IRS whistleblower program, which gathers information from people who want to alert the tax-collecting agency to misconduct. Grassley, a Republican, wrote a bill in 2006 that overhauled the program.
Last year, the whistleblower program collected only $48 million in tax revenues, down from $464 million in fiscal 2010. New whistleblower cases were down, as well, with some lawyers complaining that the program office was slow and uncooperative with whistleblowers.
Grassley said the case showed the whistleblower program can be effective, but he criticized the IRS for taking nearly four years to settle with Birkenfeld.
“If the IRS is serious about encouraging future whistleblowers, it needs to continue to honor the spirit and intent of the law and issue awards in a timely manner.”
The sum paid by the IRS to Birkenfeld is “the largest whistleblower reward issued to a single individual,” said Stephen Kohn, one of the former banker’s lawyers.
Dean Zerbe, another Birkenfeld attorney, said his client’s actions have brought in $5 billion in taxes from “big banks and wealthy individuals who tried to evade paying their fair share.”
IRS spokeswoman Michelle Eldridge confirmed the size of the reward and said, “The IRS believes that the whistleblower statute provides a valuable tool to combat tax non-compliance, and this award reflects our commitment to the law.”
The U.S. crackdown on Americans dodging taxes in Switzerland has spawned a diplomatic showdown between the two countries. In 2010, UBS agreed to disclose 4,450 American client names.
Eleven Swiss banks are known still to be under investigation by the United States and the Swiss have been seeking a legal deal to remove the taint from their financial industry.
The Birkenfeld case could prompt a backlash from the financial industry and its U.S. allies, said Solomon Wisenberg, a partner at law firm Barnes & Thornburg.
“The response could be for the friends of big business in Congress to argue this is an outrage that someone involved in this could get this kind of award,” he said.
“But if ever there was anyone who deserved a big reward it was this guy. He’s done something no one’s ever done before, essentially brought the Swiss banks to their knees,” said Wisenberg.
Reporting by Patrick Temple-West in Washington and Lynnley Browning in New York; Additional reporting by Nanette Byrnes and Kim Dixon; Writing by Kevin Drawbaugh; Editing by Tim Dobbyn