Saturday, February 16, 2013

Another Plea Agreement and Sentencing for HSBC and Bank Woori Depositor (2/16/13)

On February 15, 2013, Bae Soo “Chris” Chon, age 49, was sentenced to one year and one day after pleading guilty to one count of tax evasion related to foreign accounts.  (The 1 year + one day is the trick to qualify the defendant for the good time credit that will make the actual sentence less than one year (see 18 USC 3624 here).) The plea agreement is here, and the Press Release for the sentencing is here.

The Key Facts:

Defendant:  Bae Soo "Chris" Chon
Age:  49
Conviction (by Plea):  Tax Evasion (1 count)
Sentence: 1 year and 1 day (see good time credit 18 USC 3624, here)
Restitution:  $412,404 to the IRS (to be used for civil assessment) and $172,884.43 to the Maryland Office of the Comptroller.
Banks:  Bank Woori, HSBC
Entities:  Yes (Giant Century Holdings Limited (GCHL) (a Hong Kong shell company).
FBAR Penalty: $441,482.50 (50% of high balance)
High Balance:  $882,965.00
Tax Loss: $812,581.03 (If 2010 is included and including State of Maryland tax as relevant conduct); Federal Tax for period is $640,696.60 (if 2010 is included); but if 2010 is not included will not affect the sentencing guideline which is in the $400,000 - $1,000,000 range.
Court:  D-MD
Judge:  William D. Quarles (Wikipedia Entry, here)

The following is from the plea agreement:
According to his plea agreement, Chon owned and operated Mirage Cosmetics, Inc., which manufactured cosmetics products at its facility on Tucker Street in Beltsville. Mirage marketed its products domestically through Walgreens, Target, Costco and other chain stores, as well as in Canada, Australia, United Kingdom, Australia, Estonia, Dubai, Kuwait, Lebanon, South Africa, Germany, Japan, New Zealand, China and Vietnam. As a subchapter S corporation, the net profits Mirage earned were required to be reported as taxable income by Chon. 
In the fall of 2008, Chon started a tax evasion scheme whereby he caused the proceeds from Mirage’s transactions with many of its foreign distributors to be diverted into foreign bank accounts in Hong Kong and Seoul, South Korea. The funds deposited into these foreign accounts were not reflected on Mirage’s official records. Accordingly, Chon substantially understated Mirage’s income on his 2008 and 2009 personal income tax returns. Chon continued making deposits into these undisclosed foreign accounts until November 2010, when IRS investigators learned of the accounts. 
On March 23, 2009, the IRS announced the agency’s Overseas Voluntary Disclosure Program, which offered taxpayers who maintained previously undisclosed foreign bank accounts incentives to disclose those accounts and bring themselves into compliance with the law. This highly-publicized program remained open until October 15, 2009, and nearly 15,000 taxpayers took advantage of it to make voluntary disclosures about foreign bank accounts in more than 60 foreign countries. Chon did not disclose the existence of his foreign bank accounts under this program. 
On November 16, 2010, IRS agents executed a search warrant at Mirage’s offices and seized a laptop computer on which the records of the foreign accounts were kept. Thereafter, Chon timely filed his 2010 federal and state personal and corporate tax returns, in which he reported the amounts that had been deposited in the overseas bank accounts during the 2010 tax year. Chon paid the tax due for the tax year 2010 in 2011, after he became aware of the investigation. 
As a result of the scheme, approximately $1,818,895 in revenues from Mirage’s foreign clients that were diverted into the overseas bank accounts resulted in understating Chon’s federal and state tax liability by $522,649.70 for the tax years 2008 and 2009.
I am out of town and have limited time to spend.  I probably will add some detail or comments next week when I return to Houston.

I do note, however, that the paragraph on the OVDP that the defendant did not join.  I think DOJ for the IRS is re-emphasizing its constant drum-beat that persons with offshore accounts should join the program.

The following are certain key features of the plea agreement:
  1. The agreed restitution is $412,404.00.  Presumably that was the tax loss.  It was stipulated that the tax loss was between $400,000 and $1,000,000 which is the range for the key sentencing offense level calculation.
  2. The defendant agrees that he is liable for the civil fraud penalty of 75% under Section 6663.  This presumably applies to the amount in paragraph 1.
  3. The FBAR penalty is: "fifty percent (50%) of the highest aggregate balance in the HSBC and the Bank Woori accounts for the calendar year 2009,"
From the Plea Agreement Attachment:
CHON was introduced to the idea of depositing corporate receipts into a foreign account and thereby evading income taxes on those funds by the owner and chief executive officer of one of the company's domestic American suppliers, Individual A. In November 2007, Kim, CHON, and Individual A were all attending the annual Cosmo Prof-Asia cosmetics trade show in Hong Kong. Individual A told CHON that by establishing an overseas bank account to receive the proceeds from Mirage's overseas transactions, CHON could save money on his taxes and also get some personal use from the money. CHON maintains that he did not initially act upon Individual A's suggestion, but that when Individual A again raised the issue at the next annual trade show in November 2008, he decided to follow Individual A's advice. Individual A directed CHON to a representative of a company in Hong Kong that created offshore shell entities and then offered those entities for sale, including to persons such as CHON who wanted to open foreign bank accounts. The Hong Kong company handled all aspects of the transaction - selection of the entity name, formation in the foreign jurisdiction (in this case, the Sultanate of Brunei), escorted CHON to the offices of HSBC to open the account and took the lead role in meeting with bank officials, as well as all related paperwork. All CHON was required to do was sign the necessary documents where indicated and pay the required fees. 
CHON told Kim that he was going to establish an account in the name of another company at a bank in Hong Kong. Subsequently, CHON confirmed to Kim that he had established an account at HSBC Bank in Hong Kong (account # xxx-xxxxx9-838) under the name of Giant Century Holdings Limited (GCHL). As noted, this was a shell entity previously created by the Hong Kong company that maintained an inventory of such entities. CHON became GCHL's sole director and stockholder in November 2008. 
CHON supplied Kim with the wire transfer information for the HSBC account, and Kim instructed many of Mirage's foreign distributors to start sending their payments to the HSBC account. (Mirage's remaining foreign distributors continued to wire their payments to the company's domestic account at Bank of America.) Among the foreign distributors who were directed to send their payments to the HSBC account· in Hong Kong were those in the United Kingdom, Australia, Estonia, Dubai, Kuwait, Lebanon, South Mrica, Germany, and Japan. Mirage's foreign distributors began transferring funds by wire into the GCHL account in March 2009, and continued to do so through November 2, 2010. These payments were not tracked in Mirage's main computer system and accordingly were not reflected on Mirage's books and records. Instead, Kim tracked these payments on spreadsheets that he maintained in his laptop computer.

1 comment:

  1. I take exception to the statement that the 2009 OVDP was "highly publicized." Many of those who have posted on this blog (including me) did not learn about this and the issues surrounding FBAR until 2010, 2011, 2012 and there are probably many who still don't know.


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