The $104m Whistleblower - Something feels so very wrong with this!!!

In my current role I am looking at the implications of FATCA -Foreign Account Tax Compliance Act - which is the IRS (Internal Revenue Service)  move to prevent US citizens evading their US tax liabilities.

I am told that the US is one of only two countries (Somalio being the other) that looks to tax its citizens wherever they reside in the world; other countries look to tax those resident in the country. While US financial institutions report to the IRS, it has been down to the individual to declare any assets and income held outside the US, and of course not all do.

In fact UBS has in the past marketed tax evasion products to US citizens and it was the exposure of this that drove the creation of FATCA. This will requires foreign (ie non-US) financial institutions to identify any accounts held by actual or potential (ie it cannot be proved that they are not) US citizens and report the accounts and information on balances to the IRS.

The "incentive" is actually a big stick and that is where a financial instution does not play ball with the IRS, it will be subjected to 30% withholding tax on US payments made to it. This is on both principle and income payments so would be at least very disruptive to cash flow and potentially very penal.

Compliance with FATCA is expected to be costly.

So it was with some bemusement that I saw this news article in The Telegraph today

UBS whistleblower Bradley Birkenfeld paid $104m

Mr Birkenfeld, a former UBS banker who was released from prison last month after serving 30 months, was awarded the sum under legislation that encourages people to expose tax evasion. It is believed to be the largest-ever whistleblower payout to an individual.

 

The 47 year–old's disclosures to the Internal Revenue Service (IRS) and other US authorities helped force a $780m settlement between UBS and the US in early 2009. At the time, Peter Kurer, then chairman of UBS, said the bank accepted "full responsibility for these improper activities".

 

As part of the settlement, UBS handed over the details of 250 accounts Americans had – a figure that later climbed close to 5,000.

 

US authorities' insistence that account details be disclosed, alongside the hefty fine, was taken as evidence of a renewed determination from the government to target tax evasion.

 

Although Mr Birkenfeld acted as a whistleblower, he was also sent to prison for his own role in helping UBS clients evade tax after he pleaded guilty in 2008.

 

Now I am all for protecting "innocent" whistleblowers ie those who have done no wrong and have the courage to expose wrong doing around them, but for a man who was convicted and has served 2 1/2 years to then be set up for life - I expect $104m would do that - seems wrong. I am pretty sure that the sentence was substantially reduced as a result of his "co-operation" and frankly I think that should have been enough.

 

I am left wondering if he pays taxes on that $104m? I suspect not and that just compounds my feeling of ill-ease.

 

This seems to be blind bureaucracy without any exercising of judgement by the US authorities and as I said in the title it feels so very, very wrong.