Friday, October 21, 2016

A Devil’s Advocate Rings in a Bad Night for Bankers


-by Skip Kaltenheuser

It was a long hard slog to publish Lucifer's Banker. Had Brad Birkenfeld managed to get his book out say, a year or so earlier, we might not be staring at the political train wreck we are now. It might have changed the political landscape, perhaps the standard bearers. Maybe even elevated different issues for the last lap beyond the cursory checklist now fed us. But I’m glad it’s arrived. This book underscores every lament Bernie Sanders uttered about the gravity of the finance sector's black hole. There's ample material to make Washington insiders lose sleep, plenty to bring out loosely-defined authorities saying move along, nothing to see here. Above it all the central question floats like a banshee-- when a whistleblower revealed the largest systematic American tax fraud to surface, why was the only person to go to prison the whistleblower?

Birkenfeld is that whistleblower, logging long house arrest and thirty-one months of a forty-month sentence to a Federal penitentiary, with the added insult of a thirty-grand fine, never mind his legal expenses. His tale of DOJ's whistleblower smack-down, of its shooting the messenger, makes an entertaining read. But it ought to frighten the hell out of everyone. With dollops of irony, fright is likely the reason behind this whistleblower whacking, a warning to those who might raise curtains on the very rich and very powerful and very, very connected.

Birkenfeld worked for UBS in Switzerland as a private banker serving wealthy American clients. He went to jail on what seems a DOJ engineered Catch-22 that made him vulnerable to a charge of covering for a client, a Russian immigrant in California who hit it big in real estate. After Birkenfeld voluntarily approached the US government in 2007, DOJ sought to replace his whistle with a supersonic one no one could hear. It refused to give him the subpoena he requested that would protect him from prosecution under Swiss bank secrecy laws. Those laws once protected Germans from execution under the Third Reich for slipping money out of Germany. Now they serve darker purpose. Try to imagine the incredible weight of the money and power pushing out of Swiss vaults against DOJ's door.

Birkenfeld went to every other agency he could think of. He got the necessary subpoenas he needed and divulged accordingly, including on that client DOJ claimed he covered for. And he cued in the US Senate in a private hearing. But someone in DOJ couldn't take a joke, and they nabbed him as if what he'd already divulged was done in an alternate universe. Given the profile of the case, Birkenfeld has no doubts the hammer came down from on high.

If you'd like to hear the jaw-droppers from that Senate hearing-- most of which were his answers to Senators’ questions, join the club. The government sealed it and refuses to provide Birkenfeld with a transcript of his testimony.

Plenty of black eyes for plenty of politicians, and in particular for the Department of Justice-- let's just lump DOJ with the politicians. This book shreds that agency's credibility, laying bare once again Eric Holder's real legacy-- smooches to banks. Sadly, it's a legacy he's spreading around, including to his former boss.

I interviewed Birkenfeld awhile back as a component for an essay on the revolving door, (my apologies to the editor for my slow pace). The first thing that rides in on Birkenfeld's earnest, down-home Boston accent is that he isn't someone easily intimidated. He knows the territory, remembers who did what and won't quit shoving his boulders up the hill until credit is given where it's due. Gold stars are not in the offing.

That was underscored at Birkenfeld's book party Tuesday night at the National Press Club. He does have an advantage few of the royally screwed enjoy. After he was released a new law brought him an IRS whistleblower award, $104 million before the tax man's knock. Why not? His revelations enabled the US Treasury to recover $15 billion in back taxes, fines and penalties. They also put in motion international investigations of offshore banking's many misdeeds, and juiced up reformers seeking tougher oversight. Impacts on Swiss private banks-- there are scads of such banks, all shapes and sizes-- include a 2013 tax treaty facilitating the exchange of tax data between countries. This put a hitch in Switzerland's offshore tax haven status that vacuumed money. And plenty of dirt. Alas, though trickier, Birkenfeld says the multitude of nefarious practices requiring secret accounts still have plenty of global options.

Thing is, what the US reaped was a fraction of what could have been garnered had the massive tax evasion been fully brought to heel. That failure only increases the debt load every American carries. Why the lack of DOJ prosecutorial enthusiasm against tax cheats and their enabler bankers?

I don't want to step on too many nuggets, but Secretary of State Clinton stepped in to do the negotiations with UBS. She required UBS to disclose only 4,700 out of 19,000 illegal account holders. Birkenfeld's curious, as we all might be, as to who made the selection and how, and why the names were never made public. Why was the fine so inadequate compared to long-term profits, and why did DOJ so carelessly offer undeclared account holders anonymity and repeated amnesties?

Who are these titans of favoritism? Will the real masters of the universe please stand up?

It brings to mind proposals for excessively reduced corporate taxes for repatriating money sloshing around abroad, but I digress.

In Washington's small world of startling coincidence, before the negotiated deal UBS only contributed sixty grand to the Clinton Foundation. Afterwards, notes Birkenfeld, it went up by a factor of ten. UBS also partnered with the Foundation providing a low-interest thirty-two million dollar loan for a Foundation program. And President Clinton, the First, earned over a million and a half dollars "for a series of fireside chats with the bank's Wealth Management Chief Executive, Bob McCann...Bill Clinton's biggest payday since leaving the office of the Presidency."

I’m not a finance guy, but I’m getting better at the smell test. Ah,well, what's to worry? A legion of editorialists, commentators and spinners assures us there's no quid pro quo. The Trump gun at our temple is a curiosity killer.

In Washington, “pay it forward” is a concept not fully embraced.

Birkenfeld reckons Americans are on the hook for a trillion dollars escaping off-shore, so they ought be making demands.

The book balances entertaining asides and stark realities. One notable is how big players like UBS distribute business and retainers to put major law firms on the shelf as they avoid conflicts of interest. And the inescapable revolving door-- lubricated by so-called public servants sugaring up those they're supposed to ride herd on, while anticipating wildly better compensated employment elsewhere. Birkenfeld expresses particular fondness for DOJ prosecutors who shepherded him through his adventure in criminal prosecution. The lead prosecutor negotiated Birkenfeld’s plea and signed off on his motion for a sentence reduction. Then he sat quietly while a judge nailed Birkenfeld with a much longer sentence than Birkenfeld was led to expect.

Later, Birkenfeld discovered his lead prosecutor signed a secret non-prosecution agreement for the UBS kingpin who oversaw the 19,000 US accounts (including all of the North and South American offshore business), the show-runner for approximately $20 billion in assets. That banker was quietly allowed to go back to Switzerland two weeks later while the US Senate committee was on summer recess.

Birkenfeld's lead prosecutor then left DOJ to partner with a law firm that's now defending a Credit Suisse private banker who also handled US accounts (which Birkenfeld told the DOJ prosecutor about in 2007). The Credit Suisse banker is being prosecuted by another prosecutor, still at DOJ, that also dealt with Birkenfeld. Before leaving DOJ, Birkenfeld's lead prosecutor supervised the indictment of the Credit Suisse banker, which was signed by both prosecutors. The former prosecutor now with the law firm isn’t listed as attorney of record on the case. He’s merely a partner in the firm.

In any case, here’s a September 6th letter Birkenfeld sent to the Federal judge hearing the case regarding the Credit Suisse banker.

No word on the future plans of the prosecutor still lingering at DOJ.

Speaking generally, the revolving door is powered by contacts left behind in government.

His book might not be on the White House wish list, but on Oct. 1st Birkenfeld dispatched Lucifer to President Obama, Attorney General Loretta Lynch and Secretary of State John Kerry. It went with this letter urging action and answers. All members of Congress can look forward to Lucifer coming their way.

Among the questions posed, why was a key UBS official allowed to return to Switzerland after he agreed to cooperate but instead pleaded the Fifth at a Congressional hearing? Why was what Birkenfeld characterizes as a sham prosecution conducted against another top UBS official, who was acquitted and returned home after DOJ refused to call Birkenfeld to testify?

That’s high contrast with the French, Greeks, Canadians and others now eager for Birkenfeld’s assistance, which he’s giving, in government actions against the bank.

Note that UBS US employees have long poured money throughout America’s political system, including considerable largess to President Obama since he was a US Senator.

There's been press on Birkenfeld before, much of it sympathetic, when he blew the whistle, when he went to the hoosegow in 2010 and on his record IRS whistleblower award. He's since had plenty of time to ponder life. His book weaves together new threads connecting what happened and why. The resulting fabric is a brilliant lesson on how the fix is in. Read more at Birkenfeld's site. Can a movie be far behind?

Back to Washington's small world of coincidence. The first Sunday after Birkenfeld was sentenced, President Obama went golfing at Martha's Vineyard. His golfing partner was Robert Wolf, Chairman of UBS Americas.

Cue the Church Lady.


A quick aside and a disclosure. Not all the levers of power, the finance villains and their aiders and abettors, are on Wall Street or in mega-banks. This writer has regrettable first-hand knowledge of the impacts on individual families from government indifference to, if not complicity with, people who in my view were financial predators on my mom, at the so-called community bank level. In my view, there was even a well-wired US Attorney-- with a conflicted background - running interference against my efforts to get government to focus on what in my view was glaring bad faith and deception. Confronted, that US Attorney refused multiple opportunities to comment.

In my opinion, we were also treated to a self-serving "trustee" in the DOJ administered bankruptcy system. When I spoke with the top supervisor in the region she asked if I was going to the FBI or planned to try and have him disbarred, warned about liability if I went public with what happened, and was basically told resistance is futile. But she refuses to put in writing that everything the trustee did was hunky-dory.

The saga ultimately cost my 99 year old mom her Iowa family farm and much more, most of it avoidable if, in my view, the trustee had not primarily been self-serving his interests at our expense, in my view to keep his gravy train rolling even if it meant destroying asset value. No matter how high I push it, the FBI won't even acknowledge my complaint. Nor will DOJ’s Office of Professional Responsibility, famed as a burnout system. I have a legal background and once served as an asst. AG for the state of Kansas. I can't begin to describe my disillusionment with what has happened to justice, and about what I believe to be happening to people across the country who are theoretically less armored.

After reading Birkenfeld's book, and speaking with an FBI whistleblower at the launch party, I have to laugh at my quaint notion that government waits eager to ride to the rescue of the little guy, to champion even those dwelling far beneath potential headlines with political mileage. Nothing to do now but to try and tell the story. No payouts in cases like mine. But if Birkenfeld's book inspires the aggrieved to find voice, to tell their own stories of injustice at the ground level, they may awake others to the peril slack government places us in. That alone would make the book worth its ink.


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At 12:17 AM, Anonymous Anonymous said...

Re: HRC "required UBS to disclose only 4,700 out of 19,000 illegal account holders." ...
"Who are these titans of favoritism?"

As gleeful and merciless flogger of the obvious, I need to ask: does the Clinton Foundation have at least 14,300 (19k-4.7k) donors?

And, one question apparently not asked by the article's author or Birkenfeld: why was the Sec. of State doing the negotiation as opposed to Holder, IRS, FBI etc?

Great article, thanks. Regrettably no surprises, just further confirmation of terminal corruption.

John Puma

At 12:54 PM, Anonymous Anonymous said...

Hi Skip!

I found your account of Birkenfeld's whistleblowing experience very interesting account. And very sorry to hear about your mom's victimization by what sounds like an amoral trustee. That deserves its own post.

BTW, the blogger dot com link doesn't take you to Birkenfeld's blog. Try searching for him at whistleblowersblog dot com.

Good to hear your "voice" again.

Jim O'Leary

At 9:11 AM, Anonymous Devil's advocate said...

I just Love to read this post.

Freya, UK


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