US pays $104 mln to whistleblower who reported employer

Birkenfeld walks to his car before surrendering to authorities at the Schuylkill County Federal Correctional Institution in Minersville Pennsylvania (Reuters/Tim Shaffer)
The US government is bribing Americans to spy and report on fellow citizens' finances. By giving financial rewards to whistleblowers who report on tax misconduct, the IRS hopes to catch those who don’t report all their earnings.

Bradley Birkenfeld, a convicted criminal who smuggled and sold diamonds that he carried in a toothpaste tube, was awarded record $104 million from the US government for spilling secrets about the Swiss bank UBS AG – his former employer. In 2009, UBS was caught helping 17,000 US clients hide $20 billion on their Swiss accounts. With Birkenfeld’s information, the bank was caught and required to pay $780 million in fines, penalties, interest and restitution.

Birkenfeld’s attorney said his client’s information has led to payments of $5 billion in taxes from banks and wealthy individuals who tried to evade them.

As the government struggles with its $1 trillion budget deficit, Senator Chuck Grassley said “billions of dollars in taxes owed will be collected that otherwise would not have been paid” were it not for the whistleblower program. The government is increasingly relying on US citizens to report any misconduct they may have noticed in their workplaces or committed by friends or family.

But last year, the program collected only $48 million in tax revenues, which was down from $464 the year before – and the IRS has taken years to settle cases like the Birkenfeld’s.

Still, the $104 million reward given to Birkenfeld is the largest ever given to an individual.

“The IRS believes that the whistleblower statue provides a valuable tool to combat tax non-compliance, and this award reflects our commitment to the law,” IRS spokeswoman Michelle Eldridge told Reuters.

By promising Americans money in exchange for information, the government is increasingly tempting citizens to spy on their neighbors. Whistleblowers are guaranteed an award if the company or individual in question owes at least $2 million in unpaid taxes, interest and penalties. The IRS does not disclose information about most awarded whistleblowers, but Birkenfeld signed a disclosure waiver to let the agency publicize his large award, thus bringing the temptation to the forefront.

“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,” said Birkenfeld’s lawyers Stephen Kohn and Dean Zerbe, in a statement for the Los Angeles Times. “The IRS also sent 104 million messages to banks around the world – stop enabling tax cheats or you will get caught.”

Convicted criminal or law-abiding American citizen, the IRS is promising money to anyone who digs up evidence to help catch those evading taxes.