What is the relationship between a bank and a customer?
Although Bradley Birkenfeld never became famous as a banker, he was a banker.
In most cases banks do NOT owe a fiduciary relationship to their customers. The duty owed by a banker to a customer now depends on the nature of the relationship. Some people are mere customers or creditors of banks. Those who have “private banking relationships” may be entitled to a higher standard of care. There are clear cases where a bank does owe a fiduciary duty to a client. A recent article in the Ottawa Law Review suggests that the nature of the relationship will now be determined by the specific facts. When a bank is giving investment advice, the easier it is to establish a fiduciary relationship.
What is a fiduciary relationship?
fiduciary relationship n. where one person places complete confidence in another in regard to a particular transaction or one’s general affairs or business. The relationship is not necessarily formally or legally established as in a declaration of trust, but can be one of moral or personal responsibility, due to the superior knowledge and training of the fiduciary as compared to the one whose affairs the fiduciary is handling.
What are the obligations of a fiduciary?
Ordinarily, fiduciaries cannot for personal gain avail themselves of opportunities arising from the discharge of their duties. There are demanding rules that prohibit both profit making and any conflict of interest that goes beyond that which is intrinsic to the relationship. Strictly prohibited are secret benefits in the form of undisclosed kickbacks, commissions, profits and discounts, as well as conflicts of interest that involve business and other personal advantages which may enure to the fiduciary. An improper benefit is usually financial, but can include virtually any form of improper personal gain.
Aspects of any fiduciary relationship owed by a banker to a client
Assuming the bank owed a fiduciary duty to a client, the bank had to consider how its behavior impacted on the client. Although they could not act illegally, or counsel illegal behavior they could not act in a way that harmed their clients. On the one hand, they certainly should not, could not, and (in most cases) would not act in a way to encourage illegal activity. On the other hand, they should not have proactively, on their initiative and for their own personal profit, contact government agencies to report on client activities. If a client was acting in an illegal manner, the proper course of action for a fiduciary would be to cease doing business with the client. Bradley Birkenfeld may well have stood in a fiduciary relationship to his clients. As a result, his contacting the IRS, may well have breached fiduciary obligations owed to the bank clients. As a result, the those clients compromised by Birkenfeld’s “whistle blowing”, may have the basis for a lawsuit against the bank.
Bradley Birkenfeld was not just any “whistle blower”. He was a “whistle blower” – who was a possible fiduciary – who specifically betrayed the trust of his clients for the purpose of profiting at their expense.
Bradley Birkenfeld – The Swiss Bank Fiduciary Who profited at the expense of his clients
https://twitter.com/FATCA_Fallout/status/245943832007544832
The news of Bradley Birkenfeld’s 104 million dollar payout for “ratting out” his clients has made headlines. Although he received a cool 104 million, he had to serve 40 months in jail. Technically this was not a “quid pro quo”. It was more likely a case of the “right hand not knowing what the left hand was doing”. At least one young person regarded this as as “very cool” – what a great way to get money. But, what this does do is, send the message that:
When it comes to ratting out your friends, family and neighbors, the U.S. government is open for business! What are the long term implications of this? What does this mean for our society as a whole? How might this change the social relationships (family, community) that are fundamental to what our society has been? I will admit, I had not been thinking about this until I cam across a post from Sovereign Man. I recommend the complete post to you. But, the following excerpt really stood out:
Naturally, US politicians are supportive, saying that Mr. Birkenfeld’s reward sends a warning message to tax cheats and dodgy bankers around the world.
Yeah, maybe. It also send a message to every bitter ex-wife, disgruntled employee, and suspicious neighbor out there: you too can become unimaginably wealthy by ratting out your friends, family, clients, and co-workers.
It’s really unfortunate, though not terribly surprising, that Uncle Sam would seek inspiration from Nazi Germany when it comes to taxes. Frankly, I think Singapore serves as a much more powerful example.
This particular comparison to Nazi Germany is unclear. (Although the late night way in which FATCA was adopted does bear similarities to the Midnight Knock on the Door. Interestingly Senator Schumer’s ExPatriot Act has invited comparisons to Nazi Germany. ) But, what about a comparison to East Germany, before the fall of the Berlin Wall? The East German Stasi was a Secret Police organization. The basic idea was that, everybody would spy on everybody. You never knew who would turn you in. The the following excerpt form an article in Der Spiegel shows how little was required to turn you in:
A West German pudding. That was all it took. Once the Stasi found out about it, a family breadwinner was fired from his army job and an East German household was plunged into destitution.
Even worse, the family later found out that they had been turned in by a close friend. “She was watering the plants and went through the cupboards to find a Dr. Oetker dessert,” Vera Iburg, who has worked with files kept by the East German secret police for the last 20 years, told SPIEGEL ONLINE, referring to the snoop. “What was she doing? She had no business there.
Who was a Stasi agent? The answer was: anybody and everybody. Even Humboldt University Vice Chancellor and Theologian Heinrich Fink was a Stasi informer.
It’s clear that if approached by the Stasi, one had little choice but to cooperate.
What does this have to do with Bradley Birkenfeld, the IRS and the 104 million payout? Well, at a minimum it means that the IRS will reward, people who report on the activities of others. The proof is that they are willing to pay. They even call them “whistle blowers”. As Sovereign Man points out, this surely will provide incentives to people to spy on each other. What does this mean about the future of American Society? Amazingly, I came across a brilliant analysis which begins as follows:
In 1787, philosopher and economist Jeremy Bentham proposed a new plan for a jail that would allow a very few officials to continuously monitor the inmates. He called his plan the panopticon.
“The essence of it consists, then, in the centrality of the inspector’s situation, combined with the well-known and most effectual contrivances for seeing without being seen,” he wrote in describing his plan. Under the plan, because the inspector — i.e., the jailer — could see without being seen, the inmates could never know whether they were being watched or not. As a result, they had to assume that they were under complete surveillance at all times, with the hoped-for result being that they would modify their behavior accordingly.
I commend the complete article to you.
Naomi Wolf recently opined that the US is sleepwalking into become a police state. Is the story of Bradley Birkenfeld evidence that she is right?
Epilogue …
For those who think that only the US is sleepwalking into becoming a police state consider this from the Associated Press:
London — The Associated Press Published on Wednesday, Aug. 11, 2010 5:45AM EDT Last updated on Wednesday, Aug. 11, 2010 7:22AM EDT
Britain’s advertising watchdog on Wednesday banned an anti-terrorism commercial that asked people to watch out for suspicious behavior by their neighbors, including keeping curtains closed and paying for things in cash.
The Advertising Standards Authority said the radio ad could cause “serious offense” to law-abiding citizens.
The ad was part of a campaign for a police anti-terrorist hotline. It described a man who “likes to keep himself to himself,” doesn’t have a bank card and keeps his curtains closed, before advising that “this may mean nothing, but together it could all add up to you having suspicions.”
The watchdog said innocent listeners who identified with the behavior described could be offended by the implication that it was suspicious.
“We also considered that some listeners might be offended by the suggestion that they report members of their community for acting in the way described,” it said, ruling that the ad should not run again.
The Association of Chief Police Officers, which sponsored the commercial, apologized to the “small number” of listeners who had been offended.
The Metropolitan Police force defended the campaign of which the ad formed a part, saying that “the behavior listed in the advert was based on trends identified by police and had been included in evidence given at recent terrorism trials.”
Here is the video:
U.S. Persons Abroad - Members of a Unique Tax, Form and Penalty Club 
Chilling.