Bradley C. Birkenfeld was, in the words of CNBC, “the most significant financial whistle-blower of all time.” In Lucifer’s Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy (Greenleaf Book Group Press, 2016) Birkenfeld, with the very able assistance of Steven Hartov, tells a harrowing tale, beginning with “All roads that lead to federal prisons are long.”
Birkenfeld got his start in the financial world with summer jobs and eventually a full-time stint at State Street Bank, working for international money managers. Within a year he was handling spot and forward currency trading on 90 institutional accounts with more than $30 billion in assets. He also started keeping track of “squirrelly transactions” and illegal activities at the bank. After he refused to record client calls without their knowledge, a criminal act in Massachusetts, his days at State Street were over. He did not go quietly. Among other things, he took his pile of documentation to FBI headquarters in Boston. The investigation, however, was soon dropped. State Street, he charges, had too many friends in the FBI. And Birkenfeld was blackballed in Boston. Where could “a sharp young banker … make his name and fortune? Why Switzerland, of course.
He started at Credit Suisse for four times what he’d been making at State Street, essentially just to learn the ropes. Once on the “Anglo” desk, he introduced the idea of schmoozing clients and using them to get more clients, a predictably successful endeavor. But he didn’t stay at Credit Suisse for long since his boss moved to Barclays in Geneva and took him along. Once again, he “feted existing clients, proposed more investments, and charmed them into turning over the names of their mega-rich friends.” Barclays, however, started to get nervous. It was 2000, and the Treasury Department and the IRS were targeting tax-evaders. So for a couple of weeks here and there Birkenfeld was sent to London, where tax regulations were lax, to find more rich folks in need of an offshore home for their money.
As Barclays started to divest itself of North American offshore clients, Birkenfeld’s client list was essentially frozen. He got a call one day from a manager at Barclays Bank Bahamas, who wanted to transfer the $200 million account of a real estate tycoon from California, Igor Olenicoff, to Geneva. The problem was that Olenicoff wouldn’t sign the Qualified Intermediary agreement that Barclays demanded. And so Birkenfeld, who had been wooed by UBS, decided to change banks and take Olenicoff’s money with him. With that move and his performance-based bonus (18% of any revenue UBS made from their lofty fees on Olenicoff’s $200 million), Birkenfeld became the highest-paid UBS private banker in Switzerland.
UBS knowingly played fast and loose with U.S. tax laws and Birkenfeld played right along with the bank, living the high life. Then a friend of his found a three-page memo outlining all the activities the bank was warning its employees not to do, “though they were everything we were being paid to do!” Birkenfeld knew who was responsible for this memo, the “bastard Bovay,” who was “like Satan. And what did that make me? A trusting, naïve dupe. Nothing more than Lucifer’s fucking banker.”
Birkenfeld could simply have left UBS quietly. But that wasn’t in his genes. He wrote a memo to the head of legal and head of compliance at UBS. No response. Eventually he resigned. And sued UBS to cough up his bonus, a suit he won. But he wasn’t satisfied. He decided to whistle-blow to the U.S. authorities.
To say that the Department of Justice didn’t welcome Birkenfeld with open arms would be a gross understatement. Birkenfeld spends the second half of Lucifer’s Banker describing his dealings with the American government and railing against some of its leading players. The upshot: Birkenfeld pleaded guilty to conspiring with a U.S. citizen, Olenicoff, to defraud the IRS of $7.2 million in taxes owed on assets hidden in secret accounts and was sentenced to 40 months in prison. While he was in prison, his lawyers worked on his behalf to get a whistle-blower’s award from the IRS. UBS had paid out $780 million, about $200 million to the SEC and $580 to the IRS. Once released, Birkenfeld, still on probation and forbidden from leaving New Hampshire (where he opted to go because it has no state income tax), received a check, with taxes already taken out, for $75,816,958.40!
Birkenfeld was no angel, but one couldn’t help cheering him on as he confronted slimy bankers and vindictive, sometimes corrupt bureaucrats. All in all, a riveting book.
Lucifer’s Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy