ZURICH/NEW YORK (Reuters) - The chief whistleblower in the UBS AG tax secrecy probe entered prison to serve a sentence he considered unfair, hours after a Swiss court ruled the bank should not have been forced to turn over client files to government investigators.

An U.S. flag flies in front of a UBS building in New York November 17, 2009. REUTERS/Lucas Jackson

Bradley Birkenfeld, a former UBS banker, entered a Schuylkill County federal prison in Pennsylvania to serve a 40-month prison term, after attacking the government for the punishment in light of what he called his cooperation in helping expose thousands of U.S. tax cheats.

“The American taxpayer should be outraged,” the 44-year-old told reporters in a snowstorm as he prepared to surrender to prison authorities. He said he was “proud” to have come forward and “expose the largest tax fraud in the world.”

Last February, UBS accepted a $780 million penalty and admitted to criminal wrongdoing for helping U.S. taxpayers hide accounts from the Internal Revenue Service.

The Swiss bank later agreed to give the names of 4,450 American clients to investigators.

Several in the United States have already pleaded guilty to various tax crimes. On Friday, a federal judge sentenced retired Boeing Co sales manager Roberto Cittadini to one year probation and a $10,000 fine after the defendant admitted

to hiding $1.86 million in UBS accounts.

SWISS COURT FAULTS REGULATOR

Birkenfeld himself had sought probation in light of his cooperation with the government, which itself had requested a prison term of 30 months.

On Monday, U.S. District Judge William Zloch in Fort Lauderdale, Florida, who imposed the 40-month sentence, rejected Birkenfeld’s efforts to reduce and postpone the term.

Stephen Kohn, a lawyer for Birkenfeld, said the imprisonment would have a “chilling” effect on other bankers who might consider exposing tax fraud.

Earlier Friday, Switzerland’s Federal Administrative Court ruled that the country’s financial regulator, FINMA, broke bank secrecy laws last February in ordering UBS to give data on nearly 300 clients to U.S. authorities.

The court said FINMA’s unilateral action weakened Switzerland’s strict bank secrecy rules in an effort to end investigations into that nation’s biggest bank, which had prompted clients to withdraw huge sums from their accounts.

FINMA, the court said, should not have acted “outside of a proper process of a request for official assistance.”

UBS declined to comment and FINMA said it might appeal. The Swiss court said on Friday it was up to clients to decide what further action they take.

PROBATION

Cittadini, a 68-year-old resident of Bellevue, Washington resident pleaded guilty in October to one count of filing a false tax return, and admitted to failing to report income from his accounts, according to the Justice Department.

According to court documents, he set up a Hong Kong corporation in 2000 at the suggestion of a Swiss banker and with counsel of a Swiss lawyer, both of whom have also been indicted.

At his hearing, Cittadini told U.S. District Judge Ricardo Martinez that, while “tax evasion was never a consideration” in his thinking, he made a “grievous mistake of judgment” in opening his UBS accounts.

On Wednesday, Juergen Homann, a UBS client in New Jersey, was sentenced to five years probation and a $60,000 fine for failing to report $6.1 million he held in Swiss bank accounts.

The case is U.S. v. Cittadini, U.S. District Court, Western District of Washington, No. 09-0344.