But in 2000, Congress Gave wall street an exemption thats turned out to be a very bad idea. Its legalized gambling. It was illegal gambling, and we made it legal gambling. With no regulatory controls. With absolutely no regulatory controls. Zero, as far as i can tell. I mean, it sounds a little like a bookie operation. Yes. [watch ticking] i dont to die. I shouldnt have to die. Helen sharp, suffering from lymphoma, just got the letter that says her county hospital is cutting charity care to Cancer Patients. Its a symptom of the recession Public Hospitals forced to cut Vital Services just when people need them the most. When you read this letter, what did you think it meant to you . A death sentence. Welcome to 60 minutes on cnbc. Im steve kroft. In this episode well meet some big winners and some big losers in the high stakes game of world finance. Up first, the secret vaults of geneva and zurich, which have served as repositories for the wealth of dictators and despots, mobsters and arms dealers, corrupt officials and tax cheats of all kinds. Its a world u. S. Law enforcement has rarely been able to penetrate. So the idea the ubs, one of switzerlands largest banks, would agree to turn over information on thousands of american tax cheats would have once been unthinkable. But it happened in part because of a whistleblower who i sat down with in 2010. For his efforts hes been rewarded with a federal prison term and the possibility of endless riches. Though he was born and raised in the boston area, Bradley Birkenfeld spent most of the last decade living in switzerland, helping wealthy americans hide their money. He was based in geneva, where he says there may be more moneycounting machines than parking meters, in a country that once bragged it had more banks than dentists. Its not swiss money in those banks. Its foreigners. You have a culture there that has been ingrained in society about managing peoples money, protected by swiss bank secrecy. And who has a right to that information under swiss law . Only the banker and the bank itself. How unusual is it for a swiss banker to come forward and say, this is how it works . Its never happened before in history. Im the first one. When birkenfeld, a midlevel banker with an undistinguished employment history, knocked on the door of the u. S. Justice department in the spring of 2007, he touched off an investigation that would threaten one of the Worlds Largest banks with extinction and shake 300 years of Swiss Banking secrecy to the foundations of its underground vaults. He did it by providing inside information and documentation that his former employer, banking giant ubs, was actively involved in helping its american clients defraud the u. S. Treasury out of billions of dollars in unpaid taxes. What do you think was most valuable thing that you gave to the u. S. Government . The amount of clients and the amount of assets managed by ubs in the United States out of switzerland. And that was how much . That was 19,000 clients and around 20 billion swiss francs, which is about 19 billion. Of the percentage of american accounts that you represented, how many would you say were trying to evade taxes . My own clients . Mmhmm. I would say about 90 . Did people tell you this was their intention when they opened an account . It was the unwritten rule. You didnt have to discuss it. People wouldnt fly all the way to switzerland to open accounts just because they wanted to declare their money. And as a private banker for ubs, birkenfeld would help his clients invest, spend, and move their money. One example he told us about involved withdrawing cash from a customers account, buying some diamonds in geneva, and then smuggling them into the u. S. For the client inside a toothpaste tube. Birkenfeld claimed it was legal, because the diamonds, he said, were worth less than 10,000 and didnt have to be declared at customs. If it was legal, why did you put them in a toothpaste tube . Thats why im having trouble with that. Oh, it was just a way of carrying them so i wouldnt lose them. Where would you put two diamonds . I think id put them in a money belt or i think id put them in a case. It was a onetime event. Thats not my business. I just put them in a toothpaste tube. You werent trying to hide them from customs . No, not at all. Buying diamonds and other valuables is just one way of hiding and transporting assets, and birkenfeld insists that he was just providing a service to his clients, which is what Swiss Banking is all about. People would ask you to make purchases for them, possibly maybe a car or a chalet, possibly a nice watch. So you would also cater to the client in that regard and then deliver it to them upon their choosing. And what would be their choosing . It could be in their hotel room. It could be in maybe another country. Could be there in geneva. So you were sort of not just a banker but also a personal shopper . If you will, at a concierge level. Birkenfeld claims his motives in going to the Justice Department were mostly altruistic. He offered to wear a wire to gather evidence against highlevel ubs executives in exchange for full immunity for his transgressions, but the negotiations broke down. And birkenfeld neglected to tell them about his dealings with this man, california Real Estate Developer igor olenicoff, who was his biggest client. Birkenfeld helped olenicoff hide 200 million by introducing him to a consultant who specialized in creating Shell Companies and sham entities that concealed the ownership of the ubs accounts. I dont sign peoples tax return, so what they do with their taxes is not my business. Im a banker. So you would steer them to somebody who would help them hide their money . I would them to these service providers. Thats correct. You must have known deep down that it was illegal. When you came into the u. S. You felt uncomfortable. Thats correct. But as a gesture of good will, birkenfeld did give the Justice Department, senate investigators, irs agents, and the s. E. C. Lots of information about ubs and its secret activities. Any transaction that happened on an account was held deep in the vault and sealed until the client came to pick it up personally. Then they would either take it with them, which was generally not the case, or they would tell you to shred it, which we would do on behalf of the client. People didnt have online accounts. It was forbidden. Ebanking was forbidden. They didnt get statements in the mail. No. So if somebody wanted to know how much money they had in the bank and how their investments were doing, they had to go to switzerland . Or maybe see their banker when they came to the u. S. It was those visits to the u. S. Which birkenfeld told the government about that ultimately got ubs in so much trouble. The bank would sponsor lavish events like yacht races in newport and the art basel modern art festival in miami beach to attract wealthy americans. Then it flew in its bankers from switzerland to mingle and to try and drum up new clients and conduct business with existing ones. Because the swiss bankers werent licensed to conduct business in the United States, it was a clear violation of American Banking laws on u. S. Soil, and birkenfeld provided internal documents that proved the length that ubs would go to in order to avoid detection. Call it a vacation rather than a business trip. Rather than saying, oh, yes, im coming to see my private clients here in the United States. And im coming in from zurich, switzerland. Did you bring records into the country with you when you came in . Generally, no. I did not. My colleagues brought in encrypted laptops. Encrypted laptops. Yes, so that even if they were discovered, you couldnt see what was inside the computers, which were portfolios of the clients, and they were Product Offerings for the clients. [watch ticking] up next, Bradley Birkenfeld pays a price after going to the government. I gave them the biggest tax fraud case in the world. I exposed 19,000 international criminals. And im going to jail for that . The day he walks into prison is the day you will lose a generation of tax whistleblowers. When 60 minutes on cnbc returns. [watch ticking] every day were working to be an Even Better Company and to keep our commitments. And weve made a big commitment to america. Bp supports nearly 250,000 jobs here. Through all of our energy operations, we invest more in the u. S. Than any other place in the world. In fact, weve invested over 55 billion here in the last five years making bp americas Largest Energy investor. Our commitment has never been stronger. Thomas perrelli, the associate attorney general of the United States, says Bradley Birkenfeld was not the only person who provided valuable information to the investigation of ubs. But he says his evidence that executives encouraged illegal behavior was the banks achilles heel. They were going out of their way to cover their tracks. They would bring checks or sometimes they would actually carry money from one client to the next, all with the purpose of disguising and avoiding detection of large transfers of money. What did that information tell you . It was certainly surprising that there would be a unit within a major bank that would be behaving in that way. And there was . And there was. And we subsequently learned that senior officials knew about this. They knew it was wrong. They called it toxic waste. But it was very profitable, and they didnt stop doing it. Based on information provided by birkenfeld, the Justice Department and the irs obtained a court order demanding that ubs turn over records on the 19,000 americans believed to have secret swiss accounts. Ubs then enlisted the help of the swiss government to try and negotiate a settlement, finally agreeing to pay a 780 million fine, cease its offshore banking activities with americans, and for the first time in history, turn over the names of more than 4,000 u. S. Citizens suspected of tax fraud. I think they knew we had a very strong case. Right, and they did that because the u. S. Government said that, if you dont cooperate, were going to take away your license to do business in the United States. Well, we certainly told them that we had a strong case for criminal prosecution, and that if we couldnt find another way to resolved that, that thats where this was headed. Ubs realized that the Justice Department was holding all the cards. It had a major presence in the u. S. And 30,000 employees here. And it could not survive as a Global Banking power without access to the u. S. Market. If you had such a strong case, why didnt you get the names and numbers of every american account holder in switzerland . We got the accounts that really are the core of the fraud, the largest accounts, the accounts that are most clearly, likely to be associated with fraud. After the scandal broke, nervous clients withdrew 160 billion from ubs Wealth Management operation. And 14,700 americans notified the irs that they had offshore bank accounts, taking advantage of a program that allows them to pay back taxes and penalties and escape prosecution, which should provide a windfall for the u. S. Treasury. How much in tax revenue do you think you will have gained from this . Ive heard, certainly, the commissioner of the irs say in the billions of dollars. Is it the end of the Swiss Banking system as it used to be . I dont think its the end of the Swiss Banking system. But i think we are moving into an era where countries will be able to get more information to enforce their tax laws, and it will be fair for all americans, because most americans know how to pay their taxes and do it every single year. And the unfairness is people who hide their money overseas and avoid paying taxes. With the government claiming victory and ubs breathing a sigh of relief, the only person with grounds to be really unhappy is Bradley Birkenfeld, who the last time we saw him, was wearing an electronic ankle bracelet. And the federal government had restricted his movements to the commonwealth of massachusetts. I gave them the biggest tax fraud case in the world. I exposed 19,000 international criminals. And im going to jail for that . As it turns out, while the u. S. Government was using birkenfelds information to go after ubs, the Justice Department was closing in on his biggest client, igor olenicoff, for tax evasion. Olenicoff cooperated with the investigation and paid 52 million in fines and back taxes and got off with no jail time. But because birkenfeld hadnt prosecutors told about his relationship with olenicoff, birkenfeld was arrested and charged with conspiracy to commit tax fraud. He pled guilty and was sentenced to 40 months in prison. And he was not happy about it. And you think that you should not be going to jail . I think i shouldnt. Even though you violated the law, and you were an enabler. I mean, you were the person who were implementing these policies. And im the only one going to prison out of 19,000 accounts, and no swiss bankers. Did your investigators believe that birkenfeld was telling them everything he knew . We were certain that he wasnt telling us everything that he knew. In fact, he told us that it wasnt everything that he knew. And at his sentencing hearing, his lawyer admitted that he wasnt forthcoming with us. And in particular, he didnt tell us about his own involvement at all. If he had come forward and told us everything he knew, a complete and accurate picture, in the summer of 2007, we think its likely he wouldnt have been prosecuted. Mr. Birkenfeld says the federal government admits that the prosecution would not have been successful without his participation in this. And yet, he is the only one that is going to jail. Is that fair . It is not uncommon for someone to engage in criminal activity and to provide us information, but to also go to jail. The day he walks into prison is the day you will lose a generation of tax whistleblowers. Why do you say that . Because no one will blow the whistle. Steven kohn is one of birkenfelds civil attorneys and the head of the National Whistleblowers center. He believes there may be one final twist in the case that could give his client the last laugh. Thats because birkenfeld may well be entitled to collect tens of millions of dollars under a federal law that rewards whistle blowers with up to 30 percent of the money that is recovered as a result of the information they provide, even if they end up going to jail. Mr. Birkenfeld has saved the taxpayers billions of dollars, brought thousands of people to justice. They should blow up his check. The attorney general should shake his hand and look into the camera. And he should say, i want a message to every International Banker that works to money launder against america. You come here to america. Youll be protected, and youll be rewarded. Get 20, get 30 birkenfelds. Lets fix this problem. Lets lower everybodys taxes. The irs will ultimately decide whether birkenfeld qualifies for the reward. If he does, they may have to mail the check to federal prison, where birkenfeld is now serving time. But it couldnt be worse than returning to switzerland, where he is regarded by as a criminal and a traitor. Do you think youll ever return to switzerland again . I dont believe i will. In 2011, federal officials had more than 150 people under criminal investigation in connection with the ubs case. But as of early 2011, no one had received more prison time than Bradley Birkenfeld, who has petitioned president obama for clemency. When we return, american banks get legal permission to enter a high stakes, highly risky form of gambling, one that helped push the nation to the brink of financial collapse. [watch ticking] huh. Fifteen minutes could save you fifteen percent or more on car insurance. Mmmhmmm. Everybody knows that. Well, did you know that old macdonald was a really bad speller . Your word is. Cow. Cow. Cow. C. O. W. E. I. E. I. O. [buzzer] dangnabbit. Geico. Fifteen minutes could save you. Well, you know. Vo traveling you definitely end up meeting a lot more people but a friend under water is something completely different. I met a turtle friend today so, you dont get that very often. It seemed like it was more than happy to have us in his home. So beautiful. Avo more travel. More options. More personal. Whatever youre looking for expedia has more ways to help you find yours. [watch ticking] the Great Recession was in part ignited by the collapse of the Housing Market in the u. S. And intensified worldwide by the sale of complicated investments that warren buffet once labeled financial weapons of mass destruction. Theyre called Credit Derivatives or credit default swaps, and as we first reported in 2008, theyre essentially side bets on the performance of u. S. Mortgage markets and some of the biggest Financial Institutions in the world, a form of legalized gambling that allows you to wager on financial outcomes without ever having to actually buy the stocks and the bonds and the mortgages. It would have been illegal during most of the 20th century under the gaming laws. But in 2000, Congress Gave wall street an exemption, and it turned out to be a very bad idea. The term derivative is almost becoming a household word. The cats kind of out the bag here. This is not the american dream. Its an american nightmare. While congress and the rest of the country scratched their heads trying to figure out how we got into this mess, we decided to go to frank partnoy, a law professor at the university of san diego who has written a couple of books on the subject. Can you explain to me what a deriva