All Things Whistleblower: A GAP Blog

Bad Amendment Exempts Companies from Fraud Oversight

Yesterday, a House committee voted in favor of an amendment to exempt small public companies from a provision of a law designed to prevent financial fraud – despite heavy objections from regulators and key Democratic leaders. The House Financial Services Committee voted for the provision under pressure from Rahm Emanuel, President Obama’s chief of staff. Committee Chairman Barney Frank is so at odds with the amendment (which was passed by voice vote) that he is calling for another vote today on the matter.

The provision, part of the Sarbanes-Oxley law, is designed to prevent financial fraud, and requires that publicly traded companies hire auditors to examine their internal systems to ensure compliance with accounting reporting rules. These protections were put into place in the wake of the Enron scandal.

This is a step in the wrong direction by the Obama administration. It is wrong to allow businesses not to comply with anti-fraud measures, especially coming out of a deep financial recession and a climate of greed. The protections were put into place to defend investors and consumers, and if small companies make the choice to become public, extra legal measure should obviously be enacted to ensure that they do not defraud investors.

Ask Holder: Is DOJ Really Going to Put a Financial Whistleblower Behind Bars?

This post was written by GAP Homeland Security Director Jesselyn Radack for her Daily Kos Blog.

This morning, whistleblower advocacy groups called for Attorney General Holder to personally consider whether DOJ should be locking up whistleblower Brad Birkenfeld.  Birkenfeld took immense professional and personal risks to voluntarily disclose UBS's multi-billion dollar tax fraud conspiracy to law enforcement officials, handing DOJ its case against UBS on a silver platter.

What was Birkenfeld's reward for blowing the whistle? He is facing jail time while his colleagues who did nothing to cooperate have gotten off practically scot-free.  Holder should review this case and protect Birkenfeld, lest Holder plans to give up on any possible future financial whistleblowers who will learn that a "whistleblower reward" is a prison jumpsuit.

Today's letter from the National Whistleblower Center (NWC), the Government Accountability Project (GAP) and the Project on Government Oversight (POGO) points out the tragic consequences of DOJ punishing rather than protecting financial whistleblowers and should spur Holder to personally review Birkenfeld's case.

With $5-7 trillion U.S. dollars hidden in offshore accounts causing $100 billion in treasury revenue losses, the harm in sending Birkenfeld to jail is astronomical.  Holder ought to pay attention when he reads the consequences the letter points out:

Denying Mr. Birkenfeld whistleblower status, and sending him off to a long prison term, radically undermines the ability of the U.S. government to detect, prosecute and prevent illegal off-shore banking practices.  Without exaggeration, on the day Mr. Birkenfeld enters a federal penitentiary, every criminal using offshore secret banks to hide their ill-gotten gain will celebrate.  The Department of Justice will, unintentionally, be party to a well-publicized worldwide event that will send a chill down the spine of any international banker who, like Mr. Birkenfeld, feels guilty about the practices they participate in and wants to help stop these insidious practices that undermine the rule of law.

Due to the destructive impact of Mr. Birkenfeld’s sentencing, honest U.S. taxpayers will continue to bear the burden of the $100 billion lost to the Treasury annually because of secret banking. Victims of crimes funded by laundered funds, often funneled through secret banks, will shudder. These secret accounts are used to hide "blood money": money stolen from development projects designed for the most impoverished; bribe money obtained by crooked politicians, undermining the rule of law; profits from illegal arms deals to terrorist organizations.

 

At Birkenfeld's sentencing in August, DOJ itself fully acknowledged Birkenfeld's voluntary disclosures and made clear that DOJ would not have opened the UBS case without his information:

The United States opened an investigation based on information provided by Birkenfeld...This substantial assistance has been timely, significant, useful, truthful, complete and reliable.

Birkenfeld's information didn't just serve to expose thousands of illegal accounts; the case has yielded fines and penalties of $780 million. Yet, after taking and using all of the information he provided, DOJ still prosecuted Birkenfeld.  And, while Birkenfeld's reward is a jail sentence, Birkenfeld's criminal colleagues - like Martin Leichti, Birkenfeld's ex-boss, who was allowed to return to Switzerland - are enjoying the benefits of hiding their criminal behavior: freedom and wealth.

So, as the letter asks, so do I:

Will the Department of Justice imprison the international banker who had the courage to voluntarily step forward and blow the whistle on one of the world’s most powerful corporations?  Or will the Department of Justice use the Bradley Birkenfeld case as an historic opportunity to promote whistleblowing in the fight against corrupt international banks?  

IRS Amnesty Program for the Super-Rich Inflates Its Numbers

This post was written by GAP Homeland Security Director Jesselyn Radack for her Daily Kos Blog.

The Justice Department sued UBS, Switzerland's largest bank, seeking the names of 52,000 customers using Swiss bank accounts to evade taxes.  In its lame settlement of the case (it's a joke to call this plea a "bargain"), Switzerland agreed to turn over 4,500 names (fewer than 10% of those the U.S. sought.)

The IRS, which obviously misunderstands basic game theory, set up an Amnesty Program for the Super-Rich, through which offshore account-holders can come forward and avoid criminal liability.  This is an insult to those of us who obey the law and pay our taxes . . . but to up the yuck factor, the IRS is now inflating its numbers to make its flaccid program look "robust."  Sounds like the IRS office should be bombarded with Freedom of Information Act requests to IRS, Whistleblower Office, 1111 Constitution Avenue, N.W., Washington, D.C.  20224.

The deadline for the IRS Voluntary Disclosure Program (a.k.a. the "Amnesty Program for the Super-Rich") was yesterday.  Under the program, which started in March, the IRS said that 3000 people came forward as of September 21.  The IRS extended the program until yesterday, and if we are to believe the IRS numbers, another 4000 tax dodgers came in.  

This is far-fetched.  I can believe that during the first 6 months, 3000 tax cheats come forward.  But I'm supposed t believe that during the past 3 weeks, 4000 come forward?  You can't chalk it up to a bunch of last-minute guilty consciences, or else you would have seen the same confessional influx right before the program originally expired in late September.

I wish I could take the IRS at its word, but the UBS scandal has been so fraught with government lies, that I can't believe anything it says these days.  The United States had UBS kingpin Martin Leichti in custody, let him plead the 5th, and return to Switzerland--a free man.  It also did a show indictment of Leichti's deputy, Raoul Weil, who is now galavanting around Switzerland and Lichtenstein.

Meanwhile, the whistleblower who made the whole case possible, Brad Birkenfeld, is the only one to be sentenced to jail. http://abcnews.go.com/...  In the government's own words,

Without Mr. Birkenfeld walking into the door of the Department of Justice, I doubt as of today that this massive fraud scheme would have been discovered by the U.S. Government.

 (Sentencing Transcript, p.12).

But the government has been all over the map on whether Birkenfeld is a whistleblower.  In 2007, when he initially came forward, the Justice Department told him,

[T]he Department of Justice does not, in any way, participate in the Whistleblower Reward Program.

But then, contradicting this, during a 2009 Senate hearing, Senator McCaskill asked IRS Commissioner Doug Shulman,

Was there a whistleblower in this case?

Shulman deferred the question to Justice Department senior tax attorney John DiCicco, who answered,

Brad Birkenfeld . . .

Then a few weeks ago, DiCicco told TIME magazine that Birkenfeld "is not entitled to whistleblower status," supposedly because he "did not give full an accurate disclosures during his proffer."  This is contradicted by the Justice Department’s own Motion for Sentence Reduction in which it said:

Birkenfeld provided substantial assistance . . . This substantial assistance has been timely, significant, useful, truthful complete, and reliable.

So, was the government lying then, or is it lying now?  The fact of the matter is that, to quote Dean Zerbe, author of the IRS Whistleblower law, the government couldn't spell "UBS" before it met Brad Birkenfeld.

And as for the Amnesty Program for the Super-Rich, the IRS needs to double-check its returns.

 

Media-Shield Law in Trouble

In a somewhat unexpected and eye-raising move, the Obama administration has communicated its opposition to draft language of “media-shield” legislation to relevant Congressional committees. Specifically, the administration has stated that reporters should not be shielded from prison if they refuse to name sources that provide information “deemed to cause “significant” harm to national security.”

This action is problematic in numerous ways. Forget for a moment the fact that national security employees still find their work product mired in a complex, undeserving web of over-classification levels, as abused by the Bush administration (although the Obama administration is addressing this). The chief problem here is the lack of judicial review. From the article:

The bill includes safeguards that would require prosecutors to exhaust other methods for finding the source of the information before subpoenaing a reporter, and would balance investigators’ interests with “the public interest in gathering news and maintaining the free flow of information.”

But under the administration’s proposal, such procedures would not apply to leaks of a matter deemed to cause “significant” harm to national security. Moreover, judges would be instructed to be deferential to executive branch assertions about whether a leak caused or was likely to cause such harm, according to officials familiar with the proposal.

Therefore, whatever the Obama administration itself deems as being potentially harmful to national security, it can hold reporters to jail time for writing on (if they don’t give up their sources). In the interest of better transparency and justice, a third-party judicial review really should be instituted here. If only this would have been present during the Bush administration…

UBS Tax Cheats Get Big Break

This post was written by GAP Homeland Security Director Jesselyn Radack for her Daily Kos Blog.

The U.S. settled a civil suit against UBS, the largest bank in Switzerland, on the condition that UBS turn over the names of 4,500 Americans using Swiss bank accounts to hide money from the IRS.  The U.S. has turned this into a game of Tax Haven Roulette by giving Americans a chance to enter the IRS's "Voluntary Disclosure Program," before their names might be revealed, and get a lesser penalty for coming forward.

Now there's a Swiss fly in the ointment of what was already a weak plea "bargain" on behalf of the U.S. (it settled for 4,500 names out of 52,000 sought--less than 10% of those it had been seeking.)  A Swiss judge has just ruled that UBS must inform clients if they are going to reveal their identities.  So much for the U.S. wearing the giant hat of cleverness...

Swiss financial giant UBS systematically and deliberately violated U.S. law by helping tens of thousands of U.S. clients dodge U.S. taxes via offshore bank accounts.  The U.S. filed suit demanding that UBS hand over the identities of the clients and their account details, presumably so the government can pursue tax evasion cases against them.  In a lame plea deal, Switzerland agreed to turn over 4,500 of the 52,000 names sought.  

The IRS established a clever "Voluntary Disclosure Program" for tax cheats who are worried that they might be on the list to come forward in exchange for lesser penalties and the avoidance of criminal charges (meanwhile, only the whistleblower who made this all possible, Brad Birkenfeld, is going to jail).  

The U.S. thought it had quite the mind-game going until Judge Francesco Trezzini of Lugano, Switzerland ruled yesterday on behalf of two of UBS's American tax cheats, ordering the bank to immediately notify them if their identities have been forwarded to the IRS (or if they might be).  In other words, the judge in Switzerland is now forcing UBS to tell these 2 clients and the rest of UBS's American clients with Swiss bank accounts if their names will be given to the IRS.  

This is a major setback for the Department of Justice, which only handles up to a maximum of 1,000 tax cases a year.  The Voluntary Disclosure Program--now unashamedly being referred to as the "Amnesty Program" by the government--is nothing but a system to allow the IRS and DOJ to do nothing and collect monies they never would have seen.  So much for Doug Shulman (IRS Commissioner) promoting his "robust" whistleblowing program--it was Congress that established this, not this Bush-appointed flunky.  

The Voluntary Disclosure Program was extended to scare more people to come in, but it is obvious the IRS cannot even handle the flow of over 3,000 clients (hence the recent extension).  This program ends on October 15 and might be extended a third time because the IRS is so incompetent.  The most important fact is, if clients are told before the Voluntary Disclosure deadline (as the Swiss judge has demanded), then the clients will know if there names are not on the list they and they can remain silent and slip away forever.  Good job Justice Department - another bungled investigation thanks to Kevin Downing (the same guy who screwed up the KPMG prosecution).

Food Safety & Tobacco

In this piece, Gardiner Harris of the NYT details specific cases of several Americans almost dying due to contaminated food products. The article compares today’s food illness statistics to those of prior years.

Also in the public health world, the Senate is expected to approve legislation this week granting the FDA the power to regulate tobacco. The measure has already passed the House by a wide margin.

-- Dylan Blaylock

'Bout Time

In a decades-overdue move, federal regulators have announced that they will ask medical device producers to show evidence that such products made before 1976, and still on the market are “safe and effective” for long term use. From the NYT:

In January, the Government Accountability Office issued a report scolding the Food and Drug Administration for failing for decades to fix its system for reviewing categories of devices that have been on the market since before the enactment of the medical device law in 1976.

Such legacy devices, as they are known, were originally allowed on the market with minimal testing. But in the 1976 law Congress told the F.D.A. to gradually reclassify these older devices and decide which ones needed extensive testing before approval of new versions and which ones did not.

The agency never finished that process, leaving 27 different types of devices unexamined — products that include artificial lung membranes, external defibrillators and various pacemaker components.

-- Dylan Blaylock