In “Protecting Whistleblowers from Criminal Prosecution,” we expressed our amazement at how UBS “whistleblower” Brad Birkenfeld got himself prosecuted for a federal felony while attempting to set himself up for rewards through the new IRS Whistleblower Program. Birkenfeld’s case is highlighted in recent articles by Lynnley Browning in Friday’s New York Times and by Martha Brannigan in Saturday’s Miami Herald.
To attorneys with prosecution experience who represent whistleblowers, it is shocking that Birkenfeld apparently missed a clear opportunity to avoid prosecution altogether by simply “coming clean” and telling the whole truth about his own actions at the outset.
We have a much different take on Birkenfeld’s case than those who suggest it should scare away potential IRS whistleblowers. Whistleblowers who are willing to tell the truth from the start can easily avoid Birkenfeld’s fate, so long as they follow the law and counsel’s advice to disclose all. At the same time, we take issue with critics who say Birkenfeld should not even be considered for an IRS Whistleblower reward, since the “rule of law” should determine the answer to that question.
First, Birkenfeld’s case should make other potential IRS whistleblowers careful about pursuing IRS whistleblower claims, but not fearful. Most IRS whistleblowers face no realistic chance of prosecution, especially since the government often must depend on whistleblower information to make cases.
Even those relatively few whistleblowers with possible exposure such as Birkenfeld (who admitted to engaging in a tax fraud scheme) can often negotiate protection from prosecution, but only if they tell the whole truth from the start, and follow the rules for obtaining protection. This was a topic in the “IRS Whistleblower Boot Camp” panel discussion that I led this past March, with panelists including IRS Whistleblower Office Director Steve Whitlock–how to protect the whistleblower who has potential exposure.
Why Birkenfeld apparently thought he could get away with withholding information from the government about his own wrongdoing–a foolish move to us–remains a mystery, even after we reviewed his sentencing transcript. That horrendous judgment call distinguishes Birkenfeld’s case from all other whistleblower cases we have seen.
At Birkenfeld’s sentencing, prosecutor Kevin Downing explained that Birkenfeld’s information was extremely valuable to the IRS, and that Birkenfeld probably would not have been prosecuted had he simply been forthcoming by disclosing his own misconduct in assisting tax evasion:
“BUT FOR MR. BIRKENFELD FAILING TO DISCLOSE HIS INVOLVEMENT WITH THE FRAUD AND THE U.S. CLIENTS THAT HE AIDED AND ASSISTED IN TAX EVASION, I BELIEVE WE WELL WOULD HAVE NONPROSECUTED MR. BIRKENFELD. BUT GIVEN THE FACT THAT HE REFUSED TO PROVIDE THAT INFORMATION AND LED US DOWN A COURSE WHERE WE HAD TO START [TO] INVESTIGATE MR. BIRKENFELD AND HIS ACTIVITIES, THAT IS WHY WE ARE HERE TODAY, THAT IS WHY HE WAS INDICTED, AND THAT’S WHY HE PLED.” (Birkenfeld Sentencing Tr. 12-13)(emphasis supplied).
Interestingly, in the sentencing transcript, I did not see that Birkenfeld’s lawyer disagreed with the prosecutor’s description above of why Birkenfeld was prosecuted. At a prior hearing, before accepting Birkenfeld’s guilty plea, the court also made sure Birkenfeld acknowledged that he could receive an even longer sentence (up to five years) than the one he ultimately received.
As former prosecutors, we fully expect someone who fails to be truthful with the government about his own crimes to be prosecuted, since complete truthfulness is required. Birkenfeld apparently “blew” the opportunity to escape prosecution by disclosing all. Even so, the government made a motion to reduce his sentence, and informed the court that depending on his continued cooperation, the government may seek to reduce his sentence further.
So Lesson No. 1 for potential whistleblowers is to follow the rules, including by “telling all” truthfully when your counsel is evaluating and negotiating with the government any protection needed. Whistleblowers willing to tell the full truth can usually obtain any protection needed. We have previously discussed how this can be a delicate “dance” even for experienced counsel, but is done all of the time.
Birkenfeld’s self-inflicted prosecution is unique to him, and does not mean that the “sky is falling” for IRS whistleblowers generally. Other IRS whistleblowers in banking and other segments of the financial services industry may still come forward and receive protection, if they are willing to be truthful about their own conduct.
More broadly, by trying to portray Birkenfeld as a “victim” of something other than his own apparent bad judgment, those working to help this one whistleblower risk damaging the cause of whistleblowers generally. The promising new IRS Whistleblower Program offers tremendous opportunities to whistleblowers who are willing to be truthful, even if those whistleblowers had some role in the violations in question.
Ignoring Birkenfeld’s wrongdoing and his failure to disclose it as the reasons for Birkenfeld’s prosecution sends the wrong message to other would-be whistleblowers who are willing to tell all and follow the advice of counsel. Allowing Birkenfeld to escape without prosecution also would undermine the “rule of law.”
Even though Birkenfeld squandered a golden opportunity to avoid prosecution and perhaps also to enjoy the anonymity and confidentiality that the IRS Whistleblower Program endeavors to provide whistleblowers, other IRS whistleblowers willing to tell the truth may still come forward and receive protection. We do not understand why whistleblower advocates would claim the contrary, such as in the recent request for Attorney General Eric Holder to review the case as reported by the Miami Herald.
A second lesson for potential IRS whistleblowers is that, under the IRS whistleblower rewards statute, the “rule of law” applies to protect all IRS Whistleblowers’ claims to rewards, even those claims of Mr. Birkenfeld. As this past week’s New York Times piece by Lynnley Browning (who has written often on the UBS case, offshore accounts, and the IRS “voluntary disclosure” program) correctly notes, to many it may seem “outlandish” that Birkenfeld would seek any reward, since he pleaded guilty to conspiracy to defraud the United States.
Nonetheless, by all accounts Birkenfeld’s information has been extremely valuable to the IRS in piercing the veil of secrecy that has allowed offshore account holders to evade tax liability. Birkenfeld is fortunate that IRS Whistleblower Office Director Steve Whitlock seems to be an extremely straight shooter, based on his past comments about the IRS Whistleblower program. If Director Whitlock determines that Birkenfeld’s information meets the statutory criteria for a reward, Birkenfeld will be rewarded appropriately under the statute.
For the first time, this statute contains objective criteria that must be met to reduce or deny an award because of the whistleblower’s misconduct:
(3) Reduction in or denial of award.–If the Whistleblower Office determines that the claim for an award under paragraph (1) or (2) is brought by an individual who planned and initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2), then the Whistleblower Office may appropriately reduce such award. If such individual is convicted of criminal conduct arising from the role described in the preceding sentence, the Whistleblower Office shall deny any award.
Birkenfeld may very well be punished by the criminal justice system, and yet still be rewarded under the IRS Whistleblower Program if he meets the criteria for a reward. There seems no question that he has made an extremely valuable contribution to tax enforcement efforts involving abuse of offshore accounts.
If the information Birkenfeld furnished allows the IRS to collect additional billions from tax cheats, the decision whether to reward him for his contributions to that effort should be made according to the rule of law–not according to political pressure or public opinion. And if Birkenfeld disagrees with the reward decision, he (like other whistleblowers) has a right to appeal the decision to U.S. Tax Court, where the rule of law again will apply.
Our friends at the IRS Whistleblower Office have their work cut out for them on this one.