Saturday, August 29, 2009

Thanks, IRS

I'm amazed. Apparently, the IRS investigators and federal prosecutors have decided that the best way to reward whistleblowers is to turn around and issue them longer, more onerous sentences than the tax evaders they helped convict.

Bradley Birkenfeld, a former UBS employee, spent 3 days with the IRS divulging information on UBS's tax evasion schemes, including the names, strategies, and documents that the government would need to make a slam-dunk case against UBS.

After prosecuting, and wringing a $780 million fine out of UBS, the prosecutors turned around and charged Birkenfeld with Tax Evasion Conspiracy. Why? Because Birkenfeld didn't reveal his own role in the scheme.

I'd agree that Birkenfeld not mentioning his involvement should warrant some punishment, but more severe than the people he helped to expose? That doesn't make sense. What's more, as mentioned here but omitted in the first article, Birkenfeld was stuck between a rock and a hard place. If he gave up the details of the clients he assisted as part of this scheme, Birkenfeld would have gone to jail in Switzerland. By keeping silent, he's now going to jail in the US.

The upshot of this whole scenario is that the incentive for helping the IRS is now nonexistent. We have numerous laws in this country designed to prevent corporations from retaliating against whistle-blowers, but apparently if the IRS is involved, it's a whole new ballgame. All this case has done has made it less likely for people to assist the government going forward, and in fact makes it easier for companies involved in tax fraud to use extortion to keep their employees from talking. "If you turn witness against us, it'll just be worse for you. Keep it quiet, and we'll all get off with a slap on the wrist."

Nice going, IRS.

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