Canadian tax-evasion software triggers major U.S. probe and leaves salesman facing up to 25 years
Tucked into a strip mall in suburban Bellevue, Wash., Facing East Restaurant is known for its authentic Taiwanese food, homey decor and frequently “insane” waits for a table.
It is also ground zero for investigations that this month revealed millions of dollars in alleged tax evasion across numerous businesses — all made possible by a Canadian computer company’s devious export.
A salesman who distributed “sales-suppression” software allegedly made by British Columbia’s Profitek — enabling Facing East and other restaurants to electronically reduce revenue figures and thus pay far less tax — is to be sentenced in February on fraud and other charges.
After pleading guilty last week, John Yin, 66, faces up to 25 years in prison. The products he sold — also called “zappers” — allegedly enabled eight Seattle-area restaurants to evade $3.4 million in taxes.
But Yin’s lawyer says his client was a small fish, and wants the U.S. Attorney’s office that charged him to look north of the border, too.
I would hope that they’re going after the folks who profited from this — the restaurant owners and the company that actually made the software
“I would hope that they’re going after the folks who profited from this — the restaurant owners and the company that actually made the software,” Kirk Davis said. “Extradition is certainly possible, if they wanted to prepare the proper indictment … They’re the ones that are sending this stuff out.”
The U.S. Attorney’s office in Seattle says other charges are likely in the U.S., noting that Profitek has developed a “growing distribution system” across North America. But a spokeswoman for the office said Friday she could not comment further.
Profitek’s main business is selling legal point-of-sale systems that record restaurant and retail sales electronically for tax and accounting purposes. American authorities allege that it also marketed zappers — USB devices that let businesses make their cash sales appear smaller to tax collectors.
Pius Chan, the Richmond, B.C. firm’s president, could not be reached for comment.
The company was found guilty of fraud here in 2013 over its distribution of the software. But the conviction was overturned, the B.C. Court of Appeal saying there was nothing in the law that prevented the business from simply selling the devices. That loophole was seemingly eliminated in 2014, when new federal legislation made it illegal to use, develop or sell sales-suppression programs.
Canada was one of the first countries to grapple with the issue, and provincial officials in B.C. and Quebec have helped Washington as it pursues “dozens of leads” on zapper software, said Kim Schmanke, spokeswoman for the state revenue department.
But the problem is believed to extend worldwide. A 2013 OECD report suggested such software has led to “massive tax loss globally,” depriving governments of billions of tax dollars a year.
Washington officials carrying out a routine audit of Facing East at first just noticed strange anomalies in the restaurant’s bookkeeping.
Owner Yu-Ling Wong finally admitted to having used a Profitek zapper for years, and showed the auditors how it worked, according to an affidavit filed by investigator Lisa Gilman.
Wong inserted a USB thumb drive with the suppression software into the point-of-sales computer at the end of each month — sometimes calling on Yin to help, the document said.
“After insertion, a pop-up window prompted her to select how much in cash sales were to be reported for each day,” said the affidavit. “When completed, another pop-up box appeared … which advised Wong how much cash to remove from the register to reconcile the books.”
The state alleges that Facing East managed to dodge close to $400,000 in taxes and “My guess is it has declined considerably,” he said.charged Wong in February with first-degree theft and other charges. That probe in turn led officials to Yin.
How much of an issue is electronic sales-suppression still in Canada?
Paul Hewitt, a Toronto-based chartered accountant who specializes in tax work for restaurants, said he’s had clients he suspects were using zappers. But he believes tamper-free sales-recording devices required now in Quebec, plus the Canada Revenue Agency’s practice of having computer experts take part in restaurant audits, has made it too risky for most.
“My guess is it has declined considerably,” he said.
[Source:-Calgary Herald]
