The Justice Department’s Tax Division used a 2008 closed-door meeting with officials from Swiss banking giant UBS to crack open the bank’s secret vaults, according to a Reuters story published Friday.

On Oct. 17, 2008, one day after the Swiss government bailed out the bank, UBS executives and Swiss regulators met with U.S. officials to discuss a wide-ranging tax DOJ fraud investigation centered on the bank.

At the meeting, Kevin Downing, a Tax Division attorney, pressed UBS to disclose the names of U.S. tax evaders. According to persons who were at the meeting, Downing informed UBS that it would have to turn over the names in order to work out a settlement, Reuters reported.

UBS General Counsel Markus Diethelm, who had intended for the company to admit guilt and settle quickly, instead faced the prospect of choosing between violating coveted Swiss banking secrecy or an indictment from the U.S. Department of Justice.

The Securities and Exchange Commission had begun the investigation of UBS in early 2008, and the Justice Department jumped on board shortly thereafter. In May 2008, the investigation had a breakthrough when a former UBS banker pointed U.S. investigators to thousands of suspected American tax evaders allegedly concealing assets in UBS’ Swiss bank accounts.

The whistleblower, Bradley Birkenfeld, later pleaded guilty to charges stemming from his failure to report the tax evasion by his biggest client, California real estate developer Igor Olenicoff, who eventually paid $52 million in fines and back taxes. Birkenfeld was sentenced to three years and four months for his part in the scheme and began serving his time in January 2010.

In February 2009, UBS entered into a deferred prosecution agreement, admitting guilt on charges of conspiring to defraud the United States by impeding the IRS. As part of the agreement, the bank provided the United States with the identities and account information for about 4,450 U.S. customers of UBS. The bank also paid $780 million in fines, penalties, interest and restitution.

Citing “interviews with insiders and a review of documents,” the Reuters article described how the tax case was ultimately resolved, including direct involvement from Secretary of State Hillary Clinton.

According to Reuters, the Swiss Finance Ministry sent a letter to its U.S. counterparts meant to convey the message that Bern wanted to find a solution to the UBS case despite the obvious legal constraints.

U.S. officials saw the letter as political interference and never responded, the article said. Instead, DOJ officials contacted UBS on Nov. 12 to inform it that Raoul Weil, UBS’s global head of wealth management, was being indicted, sparking fear that Chief Executive Marcel Rohner and Chairman Peter Kurer would be next.

UBS is still feeling the effects of the settlement, but has managed to avoid disaster, thanks in part to Oswald Gruebel the bank’s new CEO, the story said.

Attorneys for former UBS AG banker Bradley Birkenfeld have filed a complaint with the Justice Department’s Office of Professional Responsibility, asking the internal department ethics watchdog to investigate the handling of his case.

Birkenfeld, who exposed alleged widespread tax evasion of Americans with accounts at the Swiss bank, has been on a PR offensive, arguing he should not serve a three-year prison sentence he’s been ordered to begin on Friday.

In a letter to Attorney General Eric Holder, Birkenfeld’s attorney’s attacked statements made by Associate Attorney General Tom Perrelli on “60 Minutes” Sunday and a federal judge as ”inaccurate, misleading and incomplete,” the New York Times reported.

“These statements had a material impact on Mr. Birkenfeld, and caused the Department of Justice to improperly seek jail time for one of the most important tax whistleblowers in American history,” Birkenfeld attorneys Stephen Kohn and Dean Zerbe said in the complaint, according to The Associated Press.

Despite a high-profile public relations blitz to argue for his freedom, the American banker-turned-informant who tipped prosecutors to alleged widespread tax evasion among clients of Swiss banking giant UBS AG must report to prison on Friday.

Bradley Birkenfeld, who faces a sentence of three years and four months after pleading guilty to a fraud conspiracy charge, had asked U.S. District Judge William Zloch to postpone his surrender date and to hold a hearing to consider a lower sentence. In an order Monday, Zloch refused both requests, The Associated Press reported.

The judge’s order came on the same day the New York Times reported that the Justice Department was considering asking the judge to reduce Birkenfeld’s sentence.

On “60 Minutes” Sunday, Birkenfeld said he didn’t think it is fair that he is the only person in the alleged tax evasion scheme to be sent to prison. ”I gave them the biggest tax fraud case in the world. I exposed 19,000 international criminals. And I’m going to jail for that?” Birkenfeld asked.

But Birkenfeld didn’t tell the government about tax evasion by his biggest client, California real estate developer Igor Olenicoff, who eventually paid $52 million in fines and back taxes. Olenicoff, however, didn’t serve any prision time.

Associate Attorney General Tom Perrelli on 60 Minutes Sunday said of Birkenfeld: “If he had come in with everything he knew, including his own conduct, we think there’s a very good chance he wouldn’t have been prosecuted at all.”

Birkenfeld’s lawyer, Stephen Kohn, said on the same program that “putting Bradley Birkenfeld in jail will be one of the biggest mistakes the United States can make, and it will hurt every taxpayer because you will lose access to other Bradley Birkenfeld’s who will bring to our treasury billions and billions of dollars both immediately and in the future.”

Birkenfeld is seeking a multi-million dollar award for his assistance in the UBS case. Under a 2006 law meant to encourage tax informants to come forward, whistleblowers can reap rewards of 15 to 30 percent of the taxes, fines, penalties and interest ultimately collected by the IRS.

The reward, Kohn said, was a necessary incentive. ”How are you going to get other international bankers, particpants, to come forawrd and tell us about these schemes?” he said.

Prosecutors credited Birkenfeld, who was based in Switzerland, with pointing investigators to thousands of suspected American tax evaders who allegedly concealed assets in UBS’s Swiss bank accounts. More than 14,700 offshore tax evaders have come forward under an I.R.S. amnesty program, and the names and account details of about 4,450 UBS clients were turned over to U.S. authorities under a settlement with the bank.

Below are video clips of Birkenfeld and Perrelli on 60 Minutes:

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A former UBS employee who blew the whistle on the Swiss banking giant is seeking a multi-billion dollar reward, and legal experts say odds are good he’ll collect, The New York Times reports.

Bradley Birkenfeld was sentenced to 40 months in prison for helping wealthy Americans dodge their taxes. Whistleblower advocates say the sentence was disproportionate given his assistance — he shared tax evasion secrets of UBS and its rich American clients — and worry that it could have a chilling effect on others considering coming forward.

A coalition of groups, including the National Whistleblowers Center, wrote Attorney General Eric Holder last week, asking him to push for a lesser sentence.

Regardless of the duration of his sentence, the ex-banker could exit prison a rich man.

More than 14,700 offshore tax evaders have come forward under an I.R.S. amnesty program, and the names and account details of about 4,450 UBS clients are being turned over to U.S. authorities under a settlement with the bank.

Birkenfeld’s lawyer, Stephen Kohn, said his client is entitled to a portion of the billions of dollars the federal government stands to recover. Under a 2006 law meant to encourage tax informants to come forward, whistle blowers can reap rewards of 15 to 30 percent of the taxes, fines, penalties and interest ultimately collected by the I.R.S.

Kohn, executive director of the NWC, told the Times he was seeking “at least several billion dollars.”

Erika Kelton, a partner at Phillips & Cohen, a law firm that specializes in large whistle-blower claims, said Birkenfeld has a serious claim.

“It was very credible, very useful information from inside UBS that he provided. The law is pretty clean on this,” she told the Times.

Birkenfeld pleaded guilty in June 2008 to conspiring to defraud the United States government. He admitted to, among other things, helping to smuggle diamonds in a tube of toothpaste.

Justice Department prosecutors have said they doubt whether the fraud scheme would have been uncovered without Birkenfeld’s help, but they consider him more of an informant than a formal whistle-blower because he provided few details on actual clients, according to the Times.

Birkenfeld could begin his prison term as soon as January.

The former UBS banker who blew the whistle the Swiss bank that helped Americans evade taxes, Bradley Birkenfeld, 44, is profiled in the Washington Post today. A son of a Massachusetts neurosurgeon, Birkenfeld had homes in Switzerland, drove a BMW, and once smuggled diamonds for a client in a toothpaste tube. Read the Post story here.

Birkenfeld first contacted his superiors at the bank in 2006 about discrepancies between UBS’s written and actual policies in marketing its bank accounts to wealthy Americans. After the bank didn’t pay a promised bonus, Birkenfeld invoked official “whistleblower” status because he he believed he was being retaliated against, the Post reported. Before he’d settled his bonus dispute, Birkenfeld in 2007 contacted the Internal Revenue Service, the Justice Department, Securites and Exchange Commission, and a Senate investigative panel, the Post said.

Birkenfeld’s contacts with the government led to his guilty plea last year to a criminal charge for aiding UBS’s cross-border business. He coooperated with the government, which has recommended his potential 5-year prison sentence be cut in half. He is scheduled to be sentenced Friday in Fort Lauderdale, Fla.

Stuart D. Gibson and Richard D. Euliss – I have no idea what you Tax Division guys look like. But the brief you filed Tuesday in the UBS AG tax case is so muscular, so righteous, so full of passion …. so, dare we say, sexy?

Sure, you gave the filing in Miami federal court a demure title, Memorandum of Law In Support of Petition to Enforce “John Doe” Summons. But it’s really a big extended middle finger from the Tax Division to the Swiss government and whomever (note: probably the State Department) leaked to the New York Times that the U.S. was considering dropping one of its most important tax-evasion cases ever. The table of contents comes out blasting:

•  UBS BROKE THE LAW AND HELPED U.S. TAXPAYERS EVADE THEIR TAXES
•  UBS KNOWINGLY HELPED ITS U.S. CUSTOMERS COMMIT TAX EVASION
•  UBS PRIVATE BANKER USED STEALTH TO AVOID DETECTION

And so on.

The confrontational language sure suggests the U.S. won’t settle this civil suit without getting what it demands: the names of 52,000 Americans suspected of hiding assets from the IRS in Swiss-based UBS accounts. Jack Blum, a Washington lawyer who specializes in tax evasion investigations, said UBS is “the best case on the facts the U.S. government will ever have.”

Blum added: “The precedent is essential. UBS subjected itself to U.S. jurisdiction through its conduct. Give up here, and it’s Game Over for IRS.”

Indeed, the brief by Gibson, a senior litigation counsel, and Euliss, a trial attorney, states: “The United States has a vital national interest in maintaining the integrity of its system of taxation.”

The brief paints a portrait of arrogance on the part of UBS. Its bankers “lied on Customs forms – claiming to be in the United States for pleasure … and conducted their business under the radar.”

The bank “openly and notoriously” helped U.S. citizens evade taxes and “secretly and consistently violated with impunity” a Qualified Intermediary agreement to disclose foreign and U.S. beneficial owners of its accounts.

UBS trained its bankers in “spycraft” and “illegally” sent them into the U.S. to “troll” for customers, the brief says.

You can read the 55-page filing here.

To step back for a moment: The U.S. is cracking down on tax havens. In February, UBS admitted under a deferred prosecution agreement that it routinely violated U.S. law by recruiting U.S. clients to put assets in offshore accounts, and by filing paperwork to hide its crimes. The bank disclosed as many as 300 U.S. clients identities to the government and agreed to pay a $780 million fine.

A former UBS executive, Bradley Birkenfeld, earlier pleaded guilty to defrauding the U.S. and is reported to be cooperating with federal investigators.

The U.S. pursuit of UBS has ignited a diplomatic uproar in Switzerland, whose whole economy revolves around being a tax haven for the world’s wealthy. The Swiss cited a tax treaty with the U.S. to argue it could not breach its stringent bank secrecy laws.

The brief drips with contempt for UBS’s argument that by signing the tax treaty, the U.S. was essentially saying it was in America’s national interest not to press the Swiss in such delicate matters.

“It is, to put in mildly, presumptuous for a foreign bank that has engaged in serious criminal conduct in the United States to suggest what is in the best interests of the United States,” the brief said in footnote 49.

Then there’s UBS’s argument that the IRS should only get information on customers the bank has acknowledged were engaged in criminal conduct. The brief says that “would be tantamount to the convicted bank robber arguing that he should be given credit for all the times he walked into a bank and didn’t rob it.”

And to UBS’s argument it always acted in “good faith” to comply with U.S. law, the brief bellows: It “bears all the hallmarks of an eleventh-hour confession, made in the hopes the sinner will be absolved from the full consequences of his wrongdoing.”

 “It is time for UBS to face … the consequences it has brought on itself,” the government said.

Acting Assistant Attorney General John A. Dicicco of the Tax Division was also on the brief. U.S. District Judge Alan S. Gold has scheduled a July 13 hearing on the U.S. request for the UBS client names. For UBS’s response read this Associated Press story.