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Some restaurants keep sales tax, using illegal 'zappers'

McClatchy Washington Bureau on

Published in Business News

Wong's arrest led U.S. prosecutors to indict John Yin, a resident of Everett, Washington who worked with Chan to distribute Profitek software and zappers to the restaurants. Yin pleaded guilty to wire fraud and conspiracy in late 2016, after investigators established that he, two years earlier, had directed a customer to email a Profitek supplier in China to obtain the sales-suppression software.

According to Yin's lawyer, Kirk C. Davis, Yin offered to help the government make a case against Pius Chan and his wife, Cindy Chan. But prosecutors rejected that offer after Yin balked in arranging a meeting between the Chans and an undercover agent. In April, he was sentenced to 18 months in prison and shares responsibility with the eight restaurants to make restitution of $3.4 million.

Davis, Yin's lawyer in Seattle, said he is incredulous that U.S. prosecutors didn't seek his client's help in investigating the Chans.

"Why squander the opportunity?" said Davis. "Why are they not using the opportunity to get at the most guilty party in the case? They could have had him (Yin) wear a wire. They didn't have to rely on him except for an introduction or a meeting across the border."

Emilie Langlie, a spokeswoman for U.S. Attorney Annette Hayes, declined to comment on her office's handling of the case and whether it may be pursuing other leads. But records filed in the Yin case suggest that further prosecutions could be difficult. After 2014, Profitek "moved the zapper software production out of Canada and relocated it to China," prosecutors said in one filing. "A Chinese email account is nearly untouchable by law enforcement and its records are unobtainable by the United States or Canada."

Numerous attempts by McClatchy to find Pius Chan were unsuccessful. Photographs posted on the website of the Chinese Federation of Commerce Canada show that he has remained active this year with the British Columbia-based group, but his relationship with Profitek is unclear.

Compared with U.S. states, Quebec has moved aggressively to increase the security of computerized cash registers. The province has been phasing in installation of "secure recording modules" at thousands of restaurants and retail businesses. The modules can't be tampered with, and the government subsidizes their installation. Revenue Quebec, the province's tax authority, estimates that the program will have recovered more than $2 billion in taxes by 2019 that otherwise would have been lost.

 

In New York state, Democratic State Sen. Liz Krueger has held hearings on sales tax fraud, and has concluded that there are simpler and less costly approaches than the Quebec solution. Yet just getting a law passed in New York is difficult, she said. Credit card companies have raised red flags about installing systems to ensure better tracking of sales transactions, and Gov. Andrew Cuomo has questioned whether a new law is necessary.

Kruger said she is frustrated. "The bottom line is people go to stores, pay the sales tax and think it is being transferred to the government," she said. "But that is not always happening."

(c)2017 McClatchy Washington Bureau

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