UBS Whistleblower Finds Himself in Federal Prison | Hacker News Reader

UBS Whistleblower Finds Himself in Federal Prison

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209 pointsrmah110 comments

I've got a perspective here that will likely run contrary to the dominant view, but I encourage you to think about for a moment -

I'm of the belief that the ability to keep your work, voluntary exchanges, and assets private contribute to a free society in the same way that attorney/client privilege, priest/community, and spousal privilege all exist.

Now, in the United States, we don't have that and people know that and live with that. But people doing business in Switzerland are under the impression that they have a very private, safe relationship with their banker, the same way you'd have with your lawyer, psychiatrist, priest, or spouse. This man breaching that is doing a very serious thing.

This goes beyond politics. When you have a private relationship with a professional, sanctioned by the local law, that says that you have private confidence and that's betrayed... that's serious. If you don't believe in the Swiss banking system, not working there is acceptable. Protesting it is acceptable. Taking on a fiduciary duty of loyalty and confidence, and then breaching it... that's serious.

The average American might not think this way, because they don't have a private relationship with their banker. But generalize this to all duty - this man pledged duty, people were under the impression that he had a duty of confidence to them, and he breached that. This doesn't get into right/wrong, but it's something worth thinking about.

>"When you have a private relationship with a professional, sanctioned by the local law"

This isn't about local Swiss law. The clients broke U.S. law.

> This isn't about local Swiss law. The clients broke U.S. law.

He was a banker in Geneva. He broke Swiss law to disclose to the U.S. government.

(Now the discussion becomes if it's okay to break Swiss law to protect American law, which I don't have a position on... hence, "this doesn't get into right/wrong, but is worth thinking about")

Why is he in a US prison then?

He turned the info over to the US govt. From my reading of this, either he didn't tell them everything he knew, or the US thought he was withholding info, or he's in prison because everything he was doing in Switzerland was considered withholding info in the first place. I didn't quite get that, but I think it was one of those areas that landed him in prison.

EDIT: Switzerland.

Switzerland.

Swaziland.

Makes no difference to us americans.

Nitpick: http://www.swedennotswitzerland.com/img/sweden_switzerland.p...

That's basically what a whistleblower is: he breaks laws (confidentiality, etc.) to report higher laws being broken.

When those laws exist within a single social and legal system, it's usually not too hard to decide which is the "higher" law. It gets tricky when the laws of one society come in to conflict with those of another. Within the US, tax evasion is likely considered more important than confidentiality. In Switzerland, the relative importance of those laws may be rather different.

Actually, the fact that a disgruntled tech can who exposes secret bank accounts to governments [1] gives me a lot of faith that secrecy will inevitably be broken where it actually matters.

It's this same reason that allows us to dismiss such laughable conspiracy theories as the faked Moon landings, aliens at Roswell and so on.

Let's not forget that many use these Swiss bank accounts for practices that vary from the questionable (eg evading taxes illegally) to the nefarious (eg hiding assets for the Nazis and various dictators).

[1]: http://abcnews.go.com/Blotter/t/story?id=5378080&page=1

Or hiding money from the Nazis... secrecy is agnostic, but the ability to keep your affairs private lends protection to people who get unfairly persecuted. When a benevolent government knows everything about you, that's fine until they start acting non-benevolently...

And having the Swiss hide behind secrecy rather than give the money to the descendants of those who died because concentration camps weren't in the habit of issuing death certificates.

So the net effect of that secrecy was that instead of the Nazis getting that money, the Swiss did.

Secrecy isn't agnostic. The lack of scrutiny enables--even encourages--people to do things they otherwise never would.

What's more the purported need for secrecy is often used to justify unethical behaviour from those providing secrecy to their clients: banks in Antigua taking 15-20% commissions on money transfers they all but know to be drug-related, keeping the assets of those that died in the Holocaust and so forth.

Those people now have a profit motive for such behaviour.

Now I'm not arguing there shouldn't be any secrecy but the fact that people with access to such information will feel morally compelled (or simply begrudged) to reveal information on those who are doing something shady behind the veil of secrecy gives me faith that the system will ultimately balance itself out.

Secrecy doesn't (and shouldn't) mean immunity from accountability.

Taxation is at the heart of what makes the state possible, and it's the state, as a guarantor of justice and peace, which makes creating and keeping wealth possible. The wealthy benefit more from this arrangement, and it's fair that they are taxed more as a result. I presume you're not arguing against the existence of the state, or the need for taxation for its upkeep.

Given the need for taxation, making taxation fair requires information about economic transactions. But there's a balance to be struck here: having the state be informed about the details of every transaction, tied to each individual, would probably be too dangerous for liberty. But on the other hand, lack of oversight will lead to evasion and free-riding. So it seems that it's best to put effort in investigation in proportion to detecting potential free-riders.

Large amounts of money held in opaque arrangements abroad would seem to me to have a high probability of abuse; and with the numbers of people involved being small, the instrumental loss of liberty in having these arrangements investigated seems to me small compared to the free-riding risk.

I also object to the argument you've used; it gives me a slimy feeling reading it. You've tried to drag in this notion of privacy and respect by association with "professionals", attorneys, priests and spouses (!), to what amounts to hired thugs protecting a box of valuables. Banks spend a lot on appearances because they need to give their customers the impression that they're safe places for their customers' money, but at the end of the day, they're out to extract as much of that money as they can. Banking isn't a respectable business, particularly these days. They're a necessary part of the economic infrastructure, a bit like water supply and sewers are to cities.

Could a system such as a national sales tax, provide privacy _and_ revenue at the same time?

We need to collect data b/c the gov't has to know about your income, your investments, etc, etc. But how about a (hypothetical) system where you only pay taxes when you purchase goods. There wouldn't seem to be any fundamental reason to keep information on _who_ purchased what. Just the fact that the transaction occurred.

"Hypothetically", in Italy, lots of cash transactions with no receipts happen because of the VAT, which is something like a sales tax.

Brazil tried to move this into the banking system - all withdrawals were taxed. It was not very popular, but it was effective and devilishly hard to dodge.

OTOH, companies routinely exchange services and that kind of transaction is very hard to tax.

A lot of European countries have tax structures biased much more heavily towards "value-added taxes" (VATs), which are, in effect, sales taxes on steroids. (Also local governments in the US.)

One problem, though, is that in practice, sales taxes are generally regressive --- the poor spend a much larger fraction of their income than the rich, and so wind up getting (relatively) more heavily taxed.

http://en.wikipedia.org/wiki/FairTax

I thought this was a balanced and nuanced comment until you bring up "a slimy feeling" and "hired thugs", which is probably not conducive to clear and rational discussion.

That said, it's certainly possible to run an orderly taxation system with information that's publicly available - the more you require people to report their affairs to the authorities, the more chance of abuse you have. I'm personally of the belief that the sanest form of taxation is taxing assets held in a jurisdiction - then you're paying directly for what's protected. So tax property, and owned stocks and bonds perhaps. If you need someone to report all the money they have outside of your jurisdiction, everywhere, well I think that gets kind of scary.

Anyways, good discussion - armed thugs doesn't make for smart conversation, but good analysis overall.

I do not want to be dishonest when I comment. A large portion of the motivation for me replying was the emotional distaste I got from reading your argument, and I didn't want to deny it as a bias by pretending to some kind of intellectual distance and objectivity.

Fair enough, but both sides can play the "armed thugs" card, and then we wind up in a "screw the man!!!! the government is just thugs with guns!" "no dude screw the corporations!!! the banks is just thugs with guns!!!" discussion... which is bad.

You can characterize any political position you don't like with emotional language, but it makes it harder to get to truth. You did write some really good points, that's why I thought it was a shame that the emotional language comes in... it's possible to do without it.

Most people feel emotionally about their politics, but emotional language rallies your side at the expense of alienating the other side, and then discussion breaks down.

This subthread is unfortunately meta; I guess all I want to add is that I felt that your comment relied for much of its force on a rhetorical and psychological trick of associating the banking relationship with the relationship one might have with a doctor or one's spouse. I really do think banks gain a kind of veneer of respectability from their proximity to money, rather than an intrinsic worth in what they do. But scratch the surface, and atavistic greed oozes out.

I'm actually enjoying the meta discussion, learning from it. It feels like the ol' days a little bit, when people had nuanced civil disagreements on here commonly.

As for rhetoric, I didn't come up with the idea that your relationship with your banker should be private - that's actually how it worked in classical banking. Switzerland inherited it because they've had the longest continuous government in the world - it dates back to the Middle Ages.

The idea today that your banker and you don't have a relationship like your lawyer and you... honestly, I think classical banking is far more of an honest profession than modern law, but I'm not a huge fan of modern banking either.

Anyways, good discussing and best wishes.

This is why I like reading the comments. Nice discussion.

I don't understand the revulsion against banking.

I do understand resentment towards some of the financial engineering that occurred in the past fifteen years, especially in areas of exotic securitization in which systemic risks were made opaque.

But that has very little to do with classical banking. To say they have little intrinsic worth is essentially to claim that the industry that governs the allocation of credit in our economy -- that is, the credit line that finances my business's inventory and receivables, the loan that finances my new production equipment, the reasonable mortgage extended so a homeowner can buy a house, along with a substantial downpayment -- is of little use. That's an absurd position, and I don't know how one can reasonably claim that such an important function in our economy is not a respectable profession. My own company, which employs over 100 people, would immediately shut down without bank financing.

Are you confusing the practices of exotic finance, which arguably have a lesser or questionable value to society, with traditional banking?

> But that has very little to do with classical banking

I don't think anybody here is against that. I do recall that not too recently some not so classical banking organizations received billions upon billions of public funds to rescue them from their mistakes.

Perhaps that might be a cause for revulsion?

The problems are wayyy older than 15 years ..

Watch this, it's awesome:

The Secret of Oz http://www.youtube.com/watch?v=7qIhDdST27g

Quotes:

"What can government do? The sad answer is -- under the current monetary system -- nothing. It's not going to get better until the root of the problem is understood and addressed. There isn't enough stimulus money in the entire world to get us out of this hole.

"Why? Debt. The national debt is just like our consumer debt -- it's the interest that's killing us.

"Though most people don't realize it the government can't just issue it's own money anymore. It used to be that way. The King could just issue stuff called money. Abraham Lincoln did it to win the Civil War.

"No, today, in our crazy money system, the government has to borrow our money into existence and then pay interest on it. That's why they call it the National Debt. All our money is created out of debt. Politicians who focus on reducing the National Debt as an answer probably don't know what the National Debt really is. To reduce the National Debt would be to reduce our money -- and there's already too little of that.

"No, you have to go deeper. You have to get at the root of this problem or we're never going to fix this. The solution isn't new or radical. America used to do it. Politicians used to fight with big bankers over it. It's all in our history -- now sadly -- in the distant past.

"But why can't we just do it again? Why can't we just issue our own money, debt free? That, my friends, is the answer. Talk about reform! That's the only reform that will make a huge difference to everyone's life -- even worldwide.

"The solution is the secret that's been hidden from us for just over 100 years -- ever since the time when author L. Frank Baum wrote "The Wonderful Wizard of Oz."

There's a simple solution to the tax problem: charge a flat tax rate on gains on "secret" assets, levied by the financial institutions to which they have been entrusted. Many countries do this (I'm fairly sure Switzerland is among them) [1]. A problem only arises when the home country gets greedy and wants a piece of that tax pie. I'm sure you could come up with some system by which the destination of the money is estimated and the aggregate taxes paid to that country, but that's probably not seen as enough.

[1] Austria uses a system like this - capital gains are flat-taxed at 25% unless you choose to declare them together with other income, falling under income tax (you'd be pretty stupid to do this considering the lowest income tax rate here is 36.5%, but that's another matter). This frequently causes the OECD and the US (the only country to tax its non-resident citizens, as far as I know) exert pressure on Austria (and Switzerland) to try to get them to drop banking confidentiality; they've had some success lately, privacy has been somewhat eroded.

Switzerland already does this. EU members were pressuring them to release bank information (they aren't part of the EU but are completed surrounded by it). So the new compromise is they don't release the bank records but the pool all the money each country is supposedley owed and forwards it to them.

The problem is the other countries don't trust the swiss. They are basically being handed a bag of money and being told trust us. Underreporting taxes benefits the 2 parties with all the information (the swiss and their account holders) and the 3rd is left totally in the dark.

That's the ESD (Europen Unions Saving) directive which Switzerland agreed to. So (I think 35%) now of interest related gains is anonymously delivered with a wink to the country where the secret account holder resides.

Here in Denmark tax authorities have used that anonymous amount transferred to estimate amount of money in Swiss banks which is supposedly enormous.

They've also gone further, like confiscate data about years of foreign credit card payments by Danish shops and search out anyone using a card from a foreign tax haven country based on e.g. shipping addresses for online shopping, or address supplied for hotels and airplane tickets. Except a few high-profile cases like a famous golf player, this had curiously limited criminal consequences, seems like 98% of those caught where just told to pay the tax and interest on the suspicious amounts.

The next step in the tax fraud battle is analysis of all bank payments from Danish bank to any bank in tax haven countries.

The credit card analysis was done in Sweden previously, so it wouldn't surprise me other countries started using that method as well.

I can't help but wonder in what relation the resources invested into tracking all of this down are vs. reclaimed tax (or lost tax revenue if they just simplified/reduced the domestic tax rate - don't forget there's a currency exchange rate risk associated with shipping your money out to Switzerland).

> don't forget there's a currency exchange rate risk associated with shipping your money out to Switzerland

Actually, there isn't. You can have accounts denominated in USD, JPY, EUR or any other sufficiently mainstream currency. It's even free if the amount is big enough, which is actually not that high (low five figures).

Don't worry about the banks though, they make it all back and more in their ludicrous transaction fees.

Well, you can say the same stuff about anything, really. You can say that, for example, the law is what makes the state possible, and creating and keeping wealth But this does not excuse a breach of attorney-client privilege. A lawyer who "blew the whistle" on a murderer would face severe penalties.

You can't just invoke the importance of the state here--you have to say why the situation is different for banking, but you only address this particular point with childish name-calling and complaints about injured feelings.

Actually, privileges are exceptions to the rule, and they each have their own justifications. The rule as stated is fine, and any privilege must be specifically justified on its own.

Attorney-client privilege and psychiatric privilege exist for different reasons. Attorney privilege comes from the necessary functioning of the judicial system, as you pointed out. Psychiatric privilege, in the opinion of the U.S. Supreme Court, "serves the public interest, since the mental health of the Nation's citizenry, no less than its physical health, is a public good of transcendent importance"

What is the reason that a banking privilege should exist? What "public good" is being served by protecting private transactions that outweighs the harm done by evasion of tax laws or other regulations? That's a difficult question to answer, and simply saying "it's the same as other privileges" is not sufficient.

Actually, a lawyer who fails to blow the whistle about a potential murder can face severe penalties. Privilege only extends to information or facts about past actions, it doesn't apply to future or ongoing circumstances, and definitely not if you're complicit in the crime.

The banking analogy would be a banker who can't reveal how much money you used to have. Current balance would not be privileged.

What if there is no way for government to control the money supply, see who use it, and implement regulation?

That mean the ability to tax fall down like a house of cards and we have to look for alternative ways of running society.

The state is hardly the "guarantor of justice and peace." Governments use deadly force and have created the greatest horrors of humanity. In the 20th century alone the state created the Holocaust, deliberately starved tens of millions to death from the Ukraine to China, and obliterated entire cities with nuclear and firebomb weapons. Indeed, around the world today, as many people are oppressed by state power as liberated by it.

The state's justification is as guarantor of justice and peace - even broken regimes have laws and courts. Certainly, some states are better at it than others, but I don't think the anarchy of a Somalia is better. I believe the statistics hold out that, in terms of proportion of human population suffering, modern times are better than all historical times, and are continuously improving.

If we had a mechanism that improved states, that worked reliably in changing oppressive governments, I'd support it. I don't think we have such a mechanism, though.

In short, I support improving states where possible, I deplore bad states, and I think the alternatives to states that we have thus far seen in history are worse than states.

I don't think the anarchy of a Somalia is better.

Somalia isn't anarchy. It's several states, some of which are very bad (Islamic theocracies and kleptocracies). That said, it's unclear that Somalia's current set of several competing governments is worse than the single government they had before, or worse than Somalia's neighbors.

http://namcub.accela-labs.com/pdf/Better_Off_Stateless.pdf

Somalia isn't anarchy.

even the link you provide begins with:

Could anarchy be good for Somalia’s development?

yet you still would argue to the contrary - that lawless warlords-dominated failed state isn't anarchy?

Anarchy is lack of a government. As you acknowledge, parts of Somalia are dominated by lawless warlords. They are the government.

You also seem unaware of Somaliland (one of the countries Somalia split into), which is closer to a republic (not a fully representative one) than a "warlord dominated" state. The Mujahadeen region (before they were conquered) was also rather far from a warlord dominated state (they were an Islamist theocracy).

Anarchy has many definitions. For me, the most important one is the absence of state-wide law. Whether the law is enforced by government, warlords (I don't think you can call them "government" by any stretch) or the people is secondary to the definition of anarchy in my opinion.

Now as far as I know there's absolutely no state-wide rule of law in Somalia - Somaliland might have something, some parts practice Sharia to some extent, but most of the country is ruled by arbitrary enforcement of will of whatever warlord happens to control that part of the country at any point.

oh BTW, actually I found out about Somaliland just recently, in January I think, but thanks for reminding me anyway.

There is a large distinction between anarchy and the lack of a state. While statelessness is necessary for anarchy, it is not sufficient.

That said, you can have whatever opinion you want, but when your opinion goes against hundreds of years of political thought and literature, people will be slightly confused.

There is a large distinction between anarchy and the lack of a state.

isn't this exactly what I said, or are you not able to distinguish between "lack of state" and "absence of state-wide law"?

I guess I focused in on you placing statelessness as the primary condition. Statelessness isn't the goal or an end; it's a natural consequence of building a society without hierarchy.

I guess I focused in on you placing statelessness as the primary condition. Statelessness isn't the goal or an end; it's a natural consequence of building a society without hierarchy.

Well, first of all I didn't place statelessness as the primary condition. By "state-wide" I meant "country-wide" or "land-wide", not "government-wide".

And secondly, I don't know of any other examples, but in my own country's history we had an anarchist society which had clearly defined hierarchy (that doesn't mean that people couldn't move between different levels of that hierarchy): http://en.wikipedia.org/wiki/Free_Territory_(Ukraine)

true, it wasn't probably a true anarchist society, but it is as close as it gets, again as I said, don't know any better.

> Well, first of all I didn't place statelessness as the primary condition.

I apologize for misrepresenting your position, then. I still don't fully understand, but this is getting way offtopic anyway.

> it is as close as it gets,

I'm not ultra-familliar with that particular example, but there is a big list here (It's one of them): http://en.wikipedia.org/wiki/History_of_anarchist_communitie...

With your definition, anarchy is mainly a function of where you draw your borders.

If you draw your border around North America you find anarchy (the law varies as you move from Mexico to the US). Even within the US, laws vary widely. But if you draw the border around Somaliland, you don't get anarchy (Somaliland has more or less consistent laws).

I'm also not sure why you don't consider a warlord to be the government. In what way does a warlord differ from a government?

With your definition, anarchy is mainly a function of where you draw your borders.

yes, if you draw the borders arbitrarily. But it wasn't me who drew Somalia on the World Map.

In what way does a warlord differ from a government?

in what way feudal lord differs from a government? well, for one he's more likely to be enforcing his will, than any widely recognized laws.

Not arguing with you, just some thoughts...

'Government' does not imply any particular form, nor does it imply consent or participation of the governed; the warlord model has had a pretty good run throughout history.

And yeah, none of us drew the border, but neither did the folks who live there...so there figuring it out now. Better late than never, right?

'Government' does not imply any particular form, nor does it imply consent or participation of the governed

I didn't claim it implies consent, but there is a pretty clear distinction between warlord or feudal lord and "the government", at least to me.

Genghis Khan was pretty powerful warlord, controlling much of Eurasia at one point, but he didn't have the government and he wasn't governing.

There's something else that you need to have in order to be considered The Government than just the ability to kill many and collect tax from many. But I'm too tired to elaborate any further right now. This thread is getting too long anyway.

And yeah, none of us drew the border, but neither did the folks who live there...so there figuring it out now. Better late than never, right?

actually it was largely us, the so-called "Western Civilization" that drew Somalia borders as they are recognized today. My point was that we already agree where that border is supposed to be (and nobody seriously recognizes Somaliland).

But it wasn't me who drew Somalia on the World Map

Depending on which world map you select, you'll find a single border which encompasses the UK, US, and India. Would you then declare that the British Empire now lives in anarchy?

If you go by official Chinese maps, China is also in a state of anarchy - the laws of China don't apply in Taiwan.

in what way feudal lord differs from a government? well, for one he's more likely to be enforcing his will, than any widely recognized laws.

This criticism applies to most dictatorships. Do dictatorships not qualify as governments?

jesus... I'm not talking about some historical situation, I'm talking about right here and right now.

AFAIR British Empire long ceased to exist. But when it existed it had quite unified law. That's why you have English law in the USA and that's what Law of India is largely based on too.

World map that shows PRC and Republic of China (and Hong Kong for that matter) as a single entity is simply wrong.

Much as the British Empire ceased to exist, Somalia ceased to exist as well. Any world map which shows Somalia as a single entity is simply wrong.

But of course, if world maps can be wrong, why are you appealing to their authority two posts up?

Somalia ceased to exist as well

indeed, Somalia the political entity ceased to exist. That's why Somalia the geographical entity is in anarchy. Which nobody besides you is disputing. But fine, let's finish this pointless thread, we're not getting anywhere :)

So we should abolish all forms of governmental power and go for anarchy / literal mob rule, because that's worked so well in the past?

Every form of government has downsides, has abuses / abusers. Making a statement like you did implies you think they're fundamentally wrong and should be replaced by... what?

The government can exist without taxation. Government provide services (security, healthcare, city planning, etc.) The problem is that Government is a monopolist. I have no problem to pay for the services, given I really need them and I have right to choose from which vendor to buy these services.

Right now peoples only choice is to emigrate to another country.

The other ugly face of tax system is that many, otherwise productive hours and resources, wasted for such a non-productive activity as accounting.

Right now peoples only choice is to emigrate to another country.

Even that choice doesn't work well.

The US government considers you an indentured servant. Even if you stop consuming the services they are providing with tax dollars, you are obligated to keep paying for them 10 years.

No, that's incorrect. Yes, the US is one of the few governments that will tax you for income earned outside of the united states or while living aboard as a US citizen, but if you renounce your citizenship, you're off the hook for taxes. You need to file a tax return and declare income, but you don't pay taxes.

P.L. 104-191 contains changes in the taxation of U.S. citizens who renounce or otherwise lose U.S. citizenship. In general, any person who lost U.S. citizenship within 10 years immediately preceding the close of the taxable year, whose principle purpose in losing citizenship was to avoid taxation, will be subject to continued taxation.

http://travel.state.gov/law/citizenship/citizenship_778.html

As an American living abroad, I've come across this several times. But how on earth do they enforce this?

If you live in Europe, (presumably) have EU citizenship, and have renounced your US citizenship, what jurisdiction does the US have over you?

Renounce your citizenship for something other than to avoid taxation. Like, you're suddenly in love with socialized medicine. Or to "protest the war" or "America's imperialism". Just don't mention taxes in your "exit interview" and there you go.

Some states are not pure guarantors of justice and peace. Some are downright kleptocracies. Many deposits in Swiss bank accounts are from people who need to secure their wealth from corrupt local officials.

The US is not a kleptocracy, but Olenicoff (the American who Birkenfeld smuggled diamonds for) has ample experience with them. A bio reads: Having escaped Stalin’s forced repatriation campaign [from Iran], the Olenicoffs sewed what little money they had into their coat linings and sailed for America. In that situation, a banker who helped them might be called a hero.

Other deposits in Swiss bank accounts are from the very kleptocrats who keep their citizens from having any money. Where do you think Kim Jong-il keeps his billions?

(Actually, he probably keeps it in a number of countries, like Switzerland, Luxembourg, and the Cayman Islands, just in case some of it gets siezed. But the point still stands.)

This might have something to do with America's schizophrenic view of banking. The founding fathers were very suspicious of banking. Throughout American history tension existed between most of America (up until recently heavily ag and industrial) and the "New York Money Interests".

The "New York Money Interests" were represented as early as pre-revolution America( see Alexander Hamilton). The anti-banking interests (epitomized by Thomas Jefferson) were mostly those indebted to the banks (like Jefferson).

So I theorized that much of the lack of privacy has to do with populist concern over wealthy colluding with "big money interests" (banks).

However, I'm just explaining why I think the law is like it is.

I whole-heartedly support more personal privacy especially in financial matters.

That's a position I could see someone taking, but in this case, he's being imprisoned on exactly the opposite legal theory: the court ruled that he had a legal duty to break his secrecy sooner and more comprehensively than he did.

He revealed tax fraud that was taking place, which he was partly involved in. The government alleged that he: 1) should have stepped forward sooner, and since he didn't, was guilty of willingly continuing to participate in tax fraud; and 2) had not revealed all the information in his possession, so was guilty of still partially covering up the fraud. Therefore, he was convicted of conspiracy to commit tax fraud.

Of course, that's the official story, and it's possible it's not the real reason he was prosecuted.

Taking on a fiduciary duty of loyalty and confidence, and then breaching it... that's serious.

Even when that fiduciary responsibility entails doing things that break the law in the jurisdiction in which you operate (the US) and in which your clients live (the US)?

I honestly am having a very hard time understanding your point here. You seem to be arguing that "duty" should trump legality. It does not.

Huh? I thought these were Swiss banks. As far as I know, he didn't break Swiss law.

Many organizations have a fiduciary duty which may break the law in some countries. For example, Tarsnap's fiduciary duty to protect secrecy almost certainly breaks the law in China, North Korea or Iran. Do you believe their duty to protect their client's data should not trump the laws of China?

UBS is a Swiss bank that also operates in the United States.

Birkenfeld is an American who, while in Geneva, participated in UBS activities which helped Americans hide money from the American government - which I think breaks the US law regardless of what jurisdiction the "help" happens in.

Note that Birkenfeld was arrested in the US after going to the US government with information - in your Tarsnap example, it would be like a Tarsnap employee traveling to China to tell the Chinese government that he/she helped circumvent Chinese laws. I don't think anyone would be surprised if the Chinese government then chose to prosecute that person.

As a business you can offer services to clients which may be illegal in some countries but fully legal in other countries - just don't go to the countries in which it is illegal and expect them to not prosecute you for helping their citizens get around their laws.

Also I think the term "fiduciary duty" is being misused in your Tarsnap example - correct me if I am wrong but Tarsnap is not managing or holding their user's funds for them (the "fiduciary" part of the term), but their data.

The broader definition of the word "fiduciary" (meaning guiding) doesn't require money to be involved, but any sort of responsibility with some expectation of duty. The root fiducial is used, for example, to refer to guide marks on a PCB design.

http://dictionary.reference.com/browse/fiduciary (definition 3)

Privacy with your banker is fine. Just pay your taxes.

Just like your medical records are private, but if you are HIV+ you must disclose that to unprotected sexual partners.

> Taking on a fiduciary duty of loyalty and confidence, and then breaching it... that's serious.

Lets imagine it's not about tax fraud, but, say, murder. You are a psychiatrist and your patient proves you he has murdered someone and states he intends to murder someone else.

What is more important? Your duty towards your patient or your duty towards society?

Three points -

1. He didn't report a specific crime, he dumped a bunch of data, some potentially criminal and some not.

2. The clients hadn't broken Swiss law, which is where he was employed and where he took his duty oaths.

3. Actually, your lawyer can't be compelled to testify against you even if you tell him you did commit murder. Swiss society believes that a man's relationship with his banker should be sacred. This guy agreed to that relationship in Switzerland. Then broke it.

I'm not even saying it's wrong. Just that it's worth thinking about, because it's not clear cut at all.

> because it's not clear cut at all.

Certainly not. But tax evasion is an offense more serious than people usually think.

Just to address point 3, your lawyer is compelled to break priveledge if you discuss a plan to commit murder (or another crime). The situation in this regard is similar, since his clients were committing on-going fraud.

Your privacy ends where the IRS' authority to tax you begins. Thank goodness.

>"I'm of the belief that the ability to keep your work, voluntary exchanges, and assets private contribute to a free society in the same way that attorney/client privilege, priest/community, and spousal privilege all exist."

The 19,000 US citizens were violating US tax law. Are you confident omerta for bankers is really a good idea?

http://en.wikipedia.org/wiki/Omertà

Do you actually know what the man's "pledged duty" was, that it was recognized by the applicable laws about privilege, and that he broke it?

All of the other privileged relationships you mentioned have limits:

- The attorney-client privilege does not apply to communication in pursuit of committing a new crime.

- Psychiatrists are under ethical and legal obligations to break confidence when a patient reveals an intent to harm themselves or others.

- The actual level of confidence communications with priests carry is variable between states.

Do you think protesting would have ever gotten him anywhere? Probably not. The man was trying to do the right thing and change the world, sometimes it is necessary to go above and beyond. You're chastising him for that.

I agree that that's a legitimate issue, but professional confidentiality has to be suspended when you're talking about ongoing and/or future crimes. You can't use "I'm a lawyer" or "I'm a banker" as a shield to involve yourself in fraud or to help cover it up without repercussions.

Privilege with your attorney/doctor isn't absolute. For example, if your doctor has reason to believe that you may harm yourself or another, they have a duty to report that to the authorities for the protection of you and others. I'm not a lawyer, but I doubt that your lawyer would be allowed to help you actively break the law.

In this case, these individuals were using their Swiss bankers to help them break US law. This is a very different thing than having confidence in the privacy of your transactions. I'd argue that his breach wasn't to his clients, but to his employer. His employer was asking him to help others break US law, so he turned them in. I see nothing wrong with that.

If you tell your lawyer or doctor that you're planning on committing a crime, they have to report it. Attorney-client privilege ends once you're breaking the law in the present tense with the attorney's knowledge.

Similarly, here we have people who were allegedly breaking the law. Not telling the authorities would have made this guy complicit in the crime.

While this seems a strange way to encourage whistleblowers to come forward, for perspective -

http://www.nytimes.com/2008/06/20/business/20tax.html

Mr. Birkenfeld pleaded guilty to helping Mr. Olenicoff evade $7.2 million in taxes on $200 million in hidden offshore assets. Mr. Birkenfeld will be sentenced in August. Mr. Olenicoff pleaded guilty last year to filing a false 2002 tax return.

http://en.wikipedia.org/wiki/Brad_Birkenfeld

"With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early and give complete and truthful disclosures.... Mr. Birkenfeld did not come in and give complete and truthful disclosures. Therefore, he is not entitled to whistleblower status."

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...

Zloch, who didn’t explain his reasoning, could have given Birkenfeld a maximum five-year term. Prosecutors had noted that Birkenfeld didn’t initially reveal his role in the scheme when he first came forward as a whistleblower.

The earlier a whistleblower comes in, he will both be (a) less implicated in whatever dirty business was going on, and (b) he will have less valuable information.

In effect, such rules help conspirators, because they can use it against one another: if you break the conspiracy, the US govt will use your lateness in coming forward, and your compliance with the conspiracy up to date, against you.

To repeat the quote:

Late as he came forward, if it had been the truth, the whole truth and nothing but the truth, he would have been entitled to whistleblowing protection. It wasn't, which is why he's in prison, but was of value which is why he's doing less time than he could have been.

I'll repeat it again:

> With regard to whistleblowers: those who seek to be treated as true whistleblowers need to know they must come in early

> Late as he came forward, if it had been the truth, [...] he would have been entitled to whistleblowing protection

It seems you are drawing a conclusion that isn't warranted by the quote.

IMO, there is no way to give the whole truth about any situation. That edict is disingenuous and always has been; it's easy to elicit more details by drilling down, and it's similarly easy to interpret words in a way that they weren't meant to give the wrong impression - selective quoting is an art mastered by tabloids everywhere. And also, it's natural to be reticent about implicating oneself in a crime - in fact, there are laws permitting silence on risk of self-incrimination for very good reasons. It seems that you suggest whistleblowers should be denied this.

There are two criteria for protection in the quote:

* Come in early

* Give complete and truthful disclosures

Come in early is a clear problem, I agree, partly because as I recall the way penalties are structured means everyone has an incentive to let it happen for as long as they can be confident that no-one else will implicate them.

However, the information we have is that he didn't initially reveal that he was a part of the illegal scheme.

The whole point of whistleblowing legislation is to permit those involved with conspiracies to come forwards and expose their fellow conspirators in exchange for their own liberty. I apologise for inadvertent selective quotation but he was trying to have his cake and eat it; to gain the credit for exposing the wrongdoing of others while withholding details of his own wrongdoing, thus distorting the evidential picture. Whistleblowing law is designed to let people in his situation bring down others by breaking the devil's pact of mutual downfall that would otherwise result, and so by definition to gain this unusual protection requires candid self-incrimination.

Unrelated, but the case of http://en.wikipedia.org/wiki/Mark_Whitacre is also interesting.

I thought this story was fascinating, so I did a little bit of background digging, since this article is pretty thin.

There are a bunch of relevant legal documents and news stories up at http://www.pogo.org/pogo-files/alerts/whistleblower-issues/w... Note that this is very much a pro-whistleblower site, and so is slanted towards the idea that Birkenfeld shouldn't be in prison. I'm not so sure, though.

According to Birkenfeld's own request for clemency, the sequence of events that led to him going to the IRS was: after ~4 years of working with wealthy clients at UBS, in June 2005, he found an internal legal document prohibiting many of the actual practices of the bank. He wrote an internal memo to his superiors about the discrepancy, and then resigned in October 2005. When UBS didn't pay him a bonus he thought he was entitled to, in early 2006, he invoked whistleblower protection claiming that UBS was retaliating against him, in an effort to recover that bonus.

He didn't approach the IRS and DOJ, though, until early 2007, and didn't actually talk until June 2007. And while he described UBS's practices, he didn't go into specific details about clients except for one, Igor Olenicoff, for whom he had, among other things, smuggled diamonds in a toothpaste tube. It's his activity dealing with Olenicoff that he's in prison for, and he pleaded guilty to those charges.

Tellingly, though, Olenicoff was already under IRS investigation in - drumroll - 2006 (http://www.forbes.com/forbes/2006/1009/042.html), and he eventually pleaded guilty to tax evasion in December 2007 and paid $52M in back taxes and fines (http://www.irs.gov/newsroom/article/0,,id=212163,00.html).

To me, Birkenfeld's actions look a lot more like CYA than principled whistleblowing.

This kind of analysis is why I read HN. Thanks for doing the legwork jfager!

It's somewhat fanciful to think the government, upon receiving this windfall of 'reappropriations' will turn around and put them toward paying the national debt (or at least reducing the deficits). More tax income doesn't reduce the individual 'working man' tax burden, spending just increases to cover the windfalls.

BTW, this is very revealing:

"I'm going out of my way,” he said in a prison interview. “Risking my career. Risking my reputation. Risking my life. And trying to unfold the largest fraud in US history."

versus

Birkenfeld's attorneys argue that he's entitled to a percentage of all the tax revenue recouped as a result of his whistleblowing.

Why is that a "versus"?

He's not entirely a disinterested party, concerned for the public good etc...

Still not a versus. You can try to solve a crime expecting personal gain. For example, many detectives probably wouldn't work for free. They solve crimes w/ the expectation that they will be paid for their results as agreed to by some contract.

When the upside is you get $100M and the downside may be having to quit your job?

The downside is prison or maybe your life. You start taking millions from influential people, and my job is the last thing I'm worried about.

In hindsight, it was not worth it, but he didn't know that.

Sure, but there's a major incentives issue when people start demanding a percentage of the proceeds for uncovering frauds they initially helped to commit...

I also don't think it's appropriate that he's in prison whilst those he tried to unmask aren't, of course.

At the same time, wasteful thoigh it might be government spending presumably doesn't just go down a black hole. The working man receives a service or at least the fringe benefit of that money being circulated back into the economy.

Either way, any use is more beneficial to ordinary americans than having the rich horde billions of taxable dollars in offshore accounts.

Hoarding money isn't actually bad for ordinary Americans. It removes money from circulation, which the Fed can make up for as necessary to regulate inflation.

Birkenfeld, a US citizen, was helping US citizens commit tax fraud. He now expects the IRS to pay him a percentage of the money he helped steal from the US goverment/citizens?

He is crazy.

It's important to remember tha whistleblower statutes protect you from retaliation by the company when you expose illegal behavior.

They do not protect you from prosecution for any illegal activity you've done.

That being said, often the DA or US Attorney (as appropriate) will offer lighter sentences and/or immunity to secure a prosecution.

A lot of people seem to be saying that "he broke the law" and "he was a part of the scheme" , so he deserves a prison term.

But this is ridiculous.

Think about it: all of his activities are a subset of the activities that UBS is accused of. He is being accused of helping 1 person hide his assets; but UBS helped 19000! So how can he be sent to prison, but no one from UBS? Shouldn't there be other UBS executives being charged?

Some countries have adopted exceptionally sane methods for fighting antitrusts where the first company that comes forward with proof that law was broken will be pardoned from the law. Although the company itself was in the ring of bad guys and broke law, it still will not be facing any penalties.

I can not really see why this practice couldn't be applied to elsewhere.

Interesting article and interview from CBS 60 Minutes

http://www.cbsnews.com/stories/2010/08/05/business/main67456...

deal with cash, digital one - http://bitcoin.org: - no central issuing center - all transactions are open, but no information about ownership by particular person is shown - almost no fees for money transfers - and transfer itself takes as little as 10 minutes (if you trust another person - instantly) - limited supply of bitcoins - meaning you will not loose value over time and inflation.

Government asks you to spy on your neighbors all the time.

But report on big money doing something wrong and you are screwed.

Oh and the IRS just waived sanctions for offshore accounts recently too.

I find it interesting that he never actually denies the allegations of tax fraud

A lot of well written exchanges in this thread. Too bad much of it is an apologetic for the wealthy evading their civic obligations, yet again.

Meanwhile the average working American is lectured daily on the values of "personal responsibility."

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