Divorce reveals admissions of tax fraud, mortgage fraud, perjury and kickbacks | Squamish Chief

Divorce reveals admissions of tax fraud, mortgage fraud, perjury and kickbacks

At least $2.7 million in unreported cash income was found in a forensic audit of a busy Richmond restaurant meat supplier, court documents show

A divorce between a Richmond meat vendor and his wife has revealed instances of perjury, an admitted illegal, multimillion-dollar unreported business cash scheme utilizing kickbacks, a fraudulent mortgage application, controversial bare trust arrangements for property purchases and a court-ordered ban from casinos.

The Vancouver suburb of Richmond, where reported household incomes are well below regional and national levels yet housing prices are at feverish highs, provides the backdrop for this trial, as outlined in a BC Supreme Court judgment by Justice Mark McEwan on February 7.

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When Yi Meng (Sharon) Wang and Jun Cheng (John) Jiang separated in 2015, shortly after having a baby, it was time to divide the assets, which included three properties – one in Vancouver and two in Richmond – that had become intertwined with bare trust arrangements between family members, loans from John’s business and investments by Sharon’s father, Jian Guo Wang, a successful manufacturer from China who lives part-time in Canada, the court heard.

Also at stake was John’s Chinese meat processing and distribution business, which had prospered tremendously since launching in 2011, as it primarily serviced Richmond’s busy Asian restaurant scene, which, according to testimony during the trial, is alleged to be the subject of frequent tax audits by Canada Revenue Agency due to its preponderance for cash transactions.

 

Love and marriage and properties

The court heard how Jian Guo Wang immigrated to Canada in 2002 to provide his daughter with a good education. Whereas the Wangs were well off, the Jiangs, who came to Canada in 2003 from China as refugees, were not.

The couple met in 2010 and the following year John bought an apartment on Windsor Court in Richmond. At the time, John was driving a food delivery truck but had ambitions to start his own company in food service. In 2012 the couple got help from Wang to buy a home on West 20 Avenue in Vancouver, valued at just under $2.1 million.

In October 2012 the couple married and moved into the home. Through July 2013 Wang had loaned John $228,130 for his start-up business. The business picked up, and that year John was a nominee for the Young Entrepreneur award granted by the Richmond Chamber of Commerce. Around this time the two families became involved in an investment property on Sunnymede Crescent in Richmond.

Sharon gave birth to their daughter in October 2014 but the marriage fell apart when, as Sharon claimed that John had cheated on her.

The court heard how the family went through another emotional time when it was realized by Sharon, or admitted by John – depending on testimony – that John had a son from a previous relationship.

The divorce proceedings turned particularly sour by late 2015 after the couple reached another significant impasse: Sharon’s notice of family claim estimated John’s annual income at $1 million while John’s response to the claim stated his income was $60,000 per year.

Divorce-truck-Win-Sum
A truck is seen at the Wingsum International Trading Inc. operations on Gordon Way in Richmond on February 26. Wing Sum Produce is one of three related companies of Wingsum International Trading Inc. that a judge determined were “set up the way they are as a means of hiding income.” - Submitted

 

Concerted efforts to lie and mislead the court: judge

Sharon was successful in obtaining a court order (Anton Piller order) to search John’s business, Wingsum International Trading Inc. (WIT) on Gordon Way in Richmond on November 24, 2015.

McEwan heard how the order’s independent supervising solicitor alleged Jiang tossed his laptop out the window.

“When confronted with evidence that he threw documents, a key and a laptop out the window, [John] denied this, saying it felt stuffy and he opened the window to breathe better,” wrote McEwan.

A year later it was determined by the court that John had committed perjury for stating on his Form F8 financial statement that his income was only $50,000.

In November 2016 John was sentenced to six months in prison, with five months being suspended.

In his judgment, McEwan noted: “In the circumstances of this case, John made concerted efforts, also involving his mother and sister, to mislead the court. He lied continuously. After contempt proceedings he was jailed.”

Citing the perjury ruling, McEwan wrote how “John repeatedly lied in several of his Affidavits about the unreported cash income, both to Sharon, and to Canada Revenue Agency, and only changed his evidence after the Anton Piller search of WIT revealed the lies.”

McEwan added that during the subsequent divorce proceedings, even after being imprisoned, “he [John] persisted in attempting to mislead the court.”

The perjury decision also included a ban on John from frequenting casinos, after he admitted to gambling without paying child and spousal support while living in the Vancouver home.

 

Unreported cash scheme revealed

The raid had shaken John, by his own admission, McEwan wrote. The laptop was John’s principal tool for organizing the invoices of cash payments he would not report to the  Canada Revenue Agency, the court heard.

As a result, “John made a voluntary declaration as to unpaid taxes,” resulting in a lien against the couple’s Vancouver home and John’s apartment.

Under cross-examination, during the divorce proceedings, John admitted that if he did not want to pay tax, he would print documents without the WIT business logo from the computer.

That WIT was running “an illegal unreported cash scheme from 2013 to at least 2015, whereby salespeople collected payments in cash, and John collected the cash without reporting it to CRA,” is “undisputed,” wrote McEwan.

And based on evidence submitted from the jointly appointed forensic auditor Shane Troyer, WIT had over $2.7 million in unreported cash income, which Sharon submitted to the court “is only the tip of the iceberg on the total missing cash.”

Troyer “confirmed that the company financial statements fraudulently excluded substantial undeclared cash,” wrote McEwan, however Troyer “had no way to confirm if this was all of the missing cash; given there are no source documents.”

McEwan accepted Troyer’s estimate that the company had earned about $24 million in gross sales in 2018 and John’s income “for guideline purposes” of child support was $1.6 million.

As well, McEwan determined that the evidence was “overwhelming” that John had created two additional related companies to act as shells that were “set up the way they are as a means of hiding income.”

 

Mother-in-law’s claim to Richmond property based on fraud

McEwan also addressed a claim by John’s mother, Xiao Ling Jiang, that she owned the Richmond house on Sunnymede, whereas Wang contended the home was his with Jiang, as would be determined by McEwan, holding title only as a “textbook definition of a bare trustee.”

There was an agreement between parties, as accepted by McEwan, whereby Jiang would receive 5% of the profits from the resale of the property for having the property in her name. There is little stated reason for this agreement other than, according to McEwan, “Mr. Wang told John that, if Ms. Jiang were to be involved, she would definitely need to be given a ‘reward.’”

Notably, Wang already owned a home in Vancouver, according to the judgment.

To do this, Jiang, who had few assets, would have to have the mortgage in her name. To achieve this, John gave his mom a loan from his business.

“At trial, John agreed that he gave his mother a temporary loan of the $450,000 so the bank could be fooled, and that he then took it right back again,” wrote McEwan.

“I accept that the evidence … that John and Ms. Jiang transferred various funds into Ms. Jiang’s own account, for the purpose of fraudulently representing Ms. Jiang’s net worth to Scotiabank,” stated McEwan.

The judge further elaborated how “Ms. Jiang was content for Scotiabank to rely on a clearly doctored document.”

Ultimately, after sifting through loans between Wang and John and determining how much money John actually put into the house, McEwan ordered the Sunnymede house (now valued at $2.24 million and being rented out for $4,000 monthly) to be sold and 87% of the proceeds be returned to Wang with the rest going to John and his mother.

The judge also granted Wang beneficial interest in the West 20 Avenue property since he provided the money to buy it while his daughter and John were paying the mortgage.

John, as ordered by McEwan, will need to clear any of his liens against the house. Following McEwan’s ruling, all the family members are also now respondents to a TD Canada Trust petition to the court in January, which claims WIT owes the bank by $1.15 million and by extension various mortgages tied to the company are in default. The Minister of National Revenue responded to the bank petition by claiming it is owed money by John, and by opposing parts of TD’s claim.

Glacier Media visited Wingsum’s warehouse on Gordon Way on Wednesday and learned from one employee that Jiang is rarely present. Wingsum has been subject to reprimands by Vancouver Coastal Health for unsanitary conditions, inspection records show.

 

Cash-centric restaurant industry in Richmond ‘rampant,’ court hears

The ruling alludes to the potential of a prevalent systemic structure of tax evasion in Richmond’s restaurant sector.

In order to better understand the meat processing business, Troyer, the forensic auditor, was assisted by another local meat processor named George Choy who said, according to McEwan’s ruling based on Troyer’s report, “cash payments from restaurants is common. Restaurant employees, chefs, and supplier employees, want to be partly paid in cash or they go elsewhere where they can get paid in cash.”

According to Sharon’s testimony, Troyer admitted to her that cash payment is “rampant in the industry” and Choy “has computer programs to do this split invoice scheme restaurant owners demand.” Furthermore, “CRA audits in this industry are common and many have been caught.”

However, McEwan deemed Troyer’s report as deficient in many respects, and Choy testified he never discussed split invoices with Troyer, an assertion that Sharon said Troyer corroborated.

McEwan did note John “admits restaurant owners knew he was not declaring the cash income” and some sort of “kickback scheme” with restaurants had been occurring, according to the judgment (no details on the kickback scheme are given in the judgment).

“The evidence showed John … committed further perjury by denying ever participating in any kickback scheme (which he only admitted at trial),” wrote McEwan.

Troyer’s report alludes to John’s employees being paid less on the books but receiving the difference in cash.

Ultimately, “Despite the limitations on his audit, Shane Troyer characterizes the scope of what he concluded was fraud as ‘large,’” stated McEwan.

 

Problematic testimony hampered judge

McEwan noted the difficulties presented to him in the case, such that his determinations were ultimately affected by poor testimony.

“This is a case of credibility. The defences, such as they are, are all steeped in lies that the Defendants stuck to with unreasonable persistence throughout this proceeding.

“At the end of the day, despite the involvement of a forensic auditor and business evaluator the court was left with only what it could infer from the evidence that had been assembled.”

John “is to blame for that,” wrote McEwan, “along with his mother, sister, and his father to some extent. They have perpetrated a protracted fraud not only on his family members, but also the public harm of tax fraud.”

 

Richmond’s questionable low household income

Richmond’s sales and service industry is by far the city’s largest sector for jobs at 30.3%. That its restaurant sector, including employee payments, may largely be operating in cash supports the city’s low reported household incomes.

Despite having nearly the highest housing costs in Canada, Richmond’s median total household income is only $65,241, whereas Metro Vancouver’s is $72,662. Canada’s household income sits at $70,336, based on the 2016 census.

When the data was released in 2017, urban planner Andy Yan told Glacier Media that the figures were likely skewed due to underreporting of income.

Yan described the income reporting in Richmond as “weird.”

“For the most part, you see [low incomes] in the Downtown Eastside. But then you also see what’s happening in Burnaby and Coquitlam…. And then comes Richmond. It really is that section on No. 3 Road, that’s just weird,” said Yan in 2017.

According to data from retired University of British Columbia geographer David Ley, Richmond has one of the highest rates of settlement by immigrant investors, who, up until last year, continued to come to B.C., via Quebec, after the national investor immigrant program was cancelled in 2014. Investor-class immigrants reported less income than refugees after 10 years in Canada, data shows.

Immigrants such as Wang, who use money earned oversees, have affected housing costs, decoupling them from local incomes, Ley’s research has shown.

The B.C. speculation and vacancy tax is aimed at addressing the taxation gap that Ley’s research exposed.

 

Tax evasion and avoidance in Vancouver real estate requires special CRA program

Tax evasion and avoidance in the Metro Vancouver real estate market has come under greater scrutiny by the CRA in the past five years.

In a six-month period, from March to September of 2019, the CRA issued $149.9 million in assessments as a result of 1,113 real estate audits in B.C. alone.

The special real estate audit program effectively targets Greater Vancouver and Greater Toronto properties. Since launching in 2015 the CRA has identified a total of $1.31 billion from its augmented real estate audit program, including $136.5 million from 2,188 penalties.

gwood@glaciermedia.ca

 

 

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