United States and South Korea Coordinate to Combat Monetary & Tax Crimes

To combat money and tax crimes, such as tax evasion and money laundering, the United States and Korean Governments have committed to a simultaneous criminal investigation program, SCIP. The arrangement allows the respective tax departments; the United States’ Internal Revenue Service (IRS) and South Korea’s National Tax Service (NTS), to share records for the purpose of comparing and verifying data submitted to both agencies by South Korean Americans.

The NTS is concentrating on South Korean businesses and individuals participating in the illegal practices of transferring funds out of country, avoiding taxes and engaging in money laundering, while the IRS is concerned with U.S. taxpayers participating in illegal and legal investing in or holding money/assets in South Korea. The SCIP requires Foreign Bank Account Holders (FBA) to properly report their assets. The United States requires the same under its Reporting Requirements. See 2012 Offshore Voluntary Disclosure Program; One Size Does Not Fit All, Criminal Tax Defense.

Previously, the NTS asked over 2000 individuals to voluntarily report their overseas assets. As of last June, assets worth over 39 billion won of assets previously not reported. S. Korea Investigates Cases of Offshore Tax Evasion, January 9, 2011, Lee Ji-yoon, The Korea Herald. We suspect that many of these individuals may have U.S. connections as well or may have been involved with pooling money with Korean-Americans who will be identified to the IRS because of the reporting. In December 2011, in light of the SCIP arrangement, the National Congress of South Korea and the NTS, invited Steve Moskowitz of Moskowitz LLP, A Tax Law Firm based out of San Francisco, California to explain how the program will affect South Koreans living and working in the United States and Korean – Americans who have family and assets in South Korea.

Moskowitz with the translation assistance of Shawn Kim, Fortis Law Group, P.C., spent 4 days addressing the Congress and Tax Officials and meeting with local bankers and individuals on specific considerations and avenues for compliance without criminal prosecution and minimizing or eliminating monetary penalties, on matters including, Offshore Disclosure Initiatives (ODI) of the U.S. Department of Justice, Report of Foreign Bank and Financial Accounts (FBAR), repatriation, exit tax matters, and other currency related regulations which, if previously undetected, are now detectable by both the United States and South Korean Justice Departments.

According to Steve Moskowitz:

The United States government is targeting South Koreans living in the United States, who are suspected of crimes. [It] has every right to request financial information from the South Korean government regarding Korean-Americans living in the United States.” He adds, “[Information requested] could include real estate records, bank account information, tax returns and other pertinent information. Many South Koreans living in the United States are nervous because they may have an inheritance from parents, they operate businesses in the U.S. and Korea, maintain assets in Korea and are unsure about reporting these assets, etc.

We have already seen an increase in monetary and tax crimes charged against individuals and corporations of Korean descent, which have included prison sentences and very large monetary fines.

For example:

Obstruction of Justice charges:

In May 2012, the U.S. Department of Justice filed felony charges in federal district court in Washington D.C., against a citizen and resident of Korea, Kyoungwon Pyo, for providing false documents to the U.S. Government in response to an inquiry. He was charged with obstruction of justice which carries a maximum penalty of 20 years in federal prison and a criminal fine of $250,000 for individuals. With the advice and counsel of qualified attorneys, Mr. Pyo pleaded guilty and will serve five months in federal prison.

Tax Evasion:

In January 2012, the U.S. Department of Justice filed felony tax evasion charges in federal district court in Maryland, against Chung K. Choi for felony tax evasion which carries a maximum penalty of 5 years in prison (per offense) and a $100,000 fine (per offense) in addition to remaining liable for the civil penalties, which remain available to the Internal Revenue Service and are substantial in nature. Mr. Choi, with the advice of an attorney, pled guilty and was sentenced to 18 months in prison, 3 years of supervised release, and ordered to pay $739,253 in restitution.

This case is particularly interesting to note because part of the plea agreement included a sealed information. Sometimes this means that the defendant agrees to provide additional information about others involved in similar or related conduct. We will continue to monitor the Court for subsequent indictments of Korean business owners who Choi may have implicated as part of a plea (if in fact, information was required under the terms of the plea).

False Tax Returns

In May 2012, a criminal judgment was issued against Insoo Kim, age 57, of Cupertino, California. He was charged with false tax returns, failing to collect employment taxes. Mr. Kim pled guilty to filing false tax returns and was sentenced to two months in prison and 4 months of electronic monitoring. What is interesting about this case is even though the total tax loss to the government was only $28,451, he still received prison time. We believe that Mr. Kim’s case was aggravated by the fact that he had hidden bank accounts that the government eventually discovered on their own.

Failure to Withhold Federal Taxes and Failure to Timely Pay:
The Government takes action to prevent her from operating her business

On March 20, 2012, the U.S. Attorney’s office filed a civil complaint against Jea-il, Inc, doing business as, NiteCap, owned by Lynn Kim. The complaint alleges that Ms. Kim filed to withhold and pay employment taxes in the amount of $165,332. The Internal Revenue Service has added over $65,000 to this amount in monetary penalties and now, through the U.S. Attorney’s office, seeks to stop Ms. Kim from operating her business. We are not the attorneys in this case but will continue to monitor it and provide you with any relevant updates.

Moskowitz LLP, A Tax Law Firm, Disclaimer: Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.