(MintPress) — The Internal Revenue Service (IRS) is increasingly relying upon the whistleblower program to investigate cases of tax evasion and fraud. While estimates vary, wealthy U.S. citizens could be hiding up to $5 trillion in offshore accounts, according to a Senate report published in 2008. By providing rewards for successful indictments, the government could significantly reduce the […]
(MintPress) — The Internal Revenue Service (IRS) is increasingly relying upon the whistleblower program to investigate cases of tax evasion and fraud. While estimates vary, wealthy U.S. citizens could be hiding up to $5 trillion in offshore accounts, according to a Senate report published in 2008. By providing rewards for successful indictments, the government could significantly reduce the multi trillion dollar deficit by recovering lost tax revenue.
While the program has netted more than $5 billion, critics believe the U.S. government is promoting an unfair double standard. Despite being financially compensated, those who expose tax fraud are still subject to prosecution despite bringing valuable information to the attention of authorities. This has occurred at a time when the Obama administration has cracked down on a record number of whistleblowers.
Bradley C. Birkenfeld, a former employee at UBS AG bank was awarded a $104 million “whistleblower award” earlier this week for reporting widespread tax fraud committed by his former employer. During his career at the financial services firm, Birkenfeld helped thousands of wealthy Americans move their money to Swiss banks in order to avoid taxation by the U.S. government.
UBS tax evasion
The UBS case is one of the biggest cases of tax fraud in U.S. history. In 2009, UBS was found to have helped 19,000 clients move more than $20 billion to Swiss bank accounts, tax shelters outside the purview of U.S. financial regulation and taxation. Birkenfeld an employee of UBS at the time, played an integral role in helping UBS clients move their money to these tax shelters.
Birkenfeld would later divulge the details of widespread UBS fraud. After his testimony, the bank was forced to pay more than $780 million in fines. UBS closed the division responsible for the tax evasion and also agreed to hand over account information for more than 4,500 clients. An additional 33,000 tax evaders chose to report offshore accounts on their own accord, generating an additional $5 billion.
Birkenfeld, who himself was complicit in the tax fraud as a UBS employee was tried and sentenced to 40 months in prison for his role. Earlier this week the IRS rewarded the 47-year-old for his efforts in the UBS case, a case that many tax experts believe could lead to investigations in other financial institutions.
Stephen Kohn, Birkenfeld’s co-counsel in the case commented on his client’s actions in a recent interview, saying:
“It’s the largest whistleblower award in history. But Birkenfeld turned in the largest financial fraud. He turned in 19,000 felons, and $20 billion in one unit. We also know that 33,000 people are turning themselves in. The total amount of U.S. dollars in illegal offshore accounts is over $5 trillion. That is the estimation by a Senate report.”
Although Birkenfeld was rewarded generously for his cooperation, Kohn believes that it was wrong of the Justice Department to prosecute his client, adding, “When the Justice Department prosecuted Bradley Birkenfeld in one of the most absurd and misguided efforts, they took an asset, a person who turned in the keys to the kingdom, the first whistleblower to expose exactly how illegal Swiss banking worked, and instead of using him, they persecuted him.”
However, Swiss authorities believe that the U.S. government has displayed “hypocrisy” for prosecuting Birkenfeld, then later rewarding him. Pirmin Bischof a member of the upper house in the Swiss Parliament commented, saying, “It’s the height of hypocrisy if the U.S. is one day sentencing the guy to 40 months in prison and the next give him the highest reward.”
Regardless of the duplicitous actions by the U.S. government, Kohn’s client is by no means the the only whistleblower to be prosecuted for exposing crimes, fraud and misdeeds.
Crackdown on whistleblowers
Other whistleblowers reporting crimes have similarly been prosecuted for their actions. Bradley Manning, a member of the U.S. army has been held in solitary confinement since 2010 on 22 charges, including conspiracy and “aiding the enemy.” Manning allegedly released a cache of documents exposing U.S. military corruption and the murder of innocent civilians in Iraq and Afghanistan.
A video titled, “Collateral Murder,” was released in the vast cache, implicating the U.S. military in the murder of innocent Iraqi civilians and members of the international press. Filmed in 2007, the video has gone viral, viewed more than 12 million times on YouTube. While the video has stirred controversy, there have been no arrests or prosecutions since the video’s release.
Similarly, WikiLeaks founder Julian Assange is currently involved in a diplomatic standoff, unable to leave the Ecuadorian Embassy in London. Assange’s WikiLeaks project has brought to light hundreds of thousands of diplomatic cables exposing corruption and war crimes committed by the U.S. armed forces and the U.S. government. U.S. authorities have sought his extradition for releasing classified information despite his being granted asylum in Ecuador last month.
The cases of Assange and Manning are, of course, different than that of Birkenfeld. However, all three are subject to a crackdown that occurs when the U.S. government has been found guilty of committing crimes, or has proven unwilling to prosecute crimes committed by its own citizens.
Unlike other whistleblowers, Birkenfeld received relative leniency for his crimes and was later compensated generously for his cooperation. While the case could lead to more investigations into offshore banking fraud, the unwillingness to properly tax major corporations remains a much larger, unaddressed issue.
Closing corporate tax loopholes
Major U.S. corporations are able to move their corporate headquarters outside the U.S. while maintaining production and sales inside U.S. borders. When headquarters are moved offshore, corporations can avoid taxation despite being subject to other government regulations.
Consumer advocacy groups believe that this major loophole has cost the U.S. government more than $100 billion in annual tax revenue. U.S. PIRG, a consumer advocacy group, has advocated for closing corporate tax loopholes, a necessary component of tax reform, saying on its website:
“No company should be able to game the tax system to avoid paying what it legitimately owes. And, yet, establishing shell companies in offshore havens for the purpose of tax avoidance is becoming more the rule than the exception for at least 83 of the nation’s top 100 publicly traded companies. GE, Google, Goldman Sachs and dozens of others have created hundreds of phantom entities with nothing more than a clever tax attorney and P.O. box.”
According to its website, U.S. PIRG is “a consumer group that stands up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society.”
General Electric, a company that boasted $14.2 billion profit in 2010 adeptly avoided taxation altogether despite earning over $5 billion from U.S. sales. The company moved its address outside the U.S. and continues to avoid the 35 percent corporate tax rate.
Instead of prosecuting GE, Goldman Sachs and others for tax evasion, the U.S. government has consistently raised taxes on the middle class in order to close budget deficits and fund social programs.
This issue has become a cause celebre of Occupy Wall Street and sympathetic tax reform advocates in Washington. However, few voices have emerged calling for comprehensive corporate tax reform. The main issue is because Washington policies are largely dominated by corporations and wealthy donors able to shape policy by financing costly elections.
Sen. Bernie Sanders (I-Va.), one of the few advocates for corporate tax reform, commented on the issue in a statement last year saying, “We have a deficit problem. It has to be addressed, but it cannot be addressed on the backs of the sick, the elderly, the poor, young people, the most vulnerable in this country. The wealthiest people and the largest corporations in this country have got to contribute. We’ve got to talk about shared sacrifice.”