Husband-wife duo accused of bilking Pa. out of $10M by faking 20 companies in tax credit scheme

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A husband-and-wife team is accused of bilking Pennsylvania out of more than $10 million by obtaining tax incentives for 20 sham companies, then selling the state-issued tax credits for cash, a grand jury found.

“Christopher” Wing-Tat Chiu, 47, and Ivy Li — former Bucks County residents whom prosecutors say have fled to Hong Kong — were deemed the masterminds of an elaborate scheme to defraud two of the state’s largest business tax incentive programs in a 21-page grand jury report made public Thursday following an 18-month investigation.

From 2012 to 2017, the couple received 89 state tax credits totaling a collective $10.6 million awarded under false pretenses to 20 fake companies they concocted — at least four of which were purported to be operating in Western Pennsylvania, the grand jury said.

“None of the money was ever used to bolster Pennsylvania’s economy,” the grand jury’s report said.

Chiu and Li are accused of selling 64 of the fraudulently obtained credits to third parties for $6.366 million, nearly $5 million of which was wired to their bank accounts overseas. State officials halted several more similar transactions in the works linked to the couple amid the grand jury’s probe.

AG Shapiro calls for stricter oversight

Pennsylvania Attorney General Josh Shapiro said the pair’s scheme exploited glaring weaknesses and insufficient oversight in two of the state’s largest tax incentive programs for businesses: the Keystone Innovation Zone and Research & Development. He called for stronger controls and reforms to thwart such fraud.

“These programs are designed to help Pennsylvania businesses grow and create jobs, ultimately benefiting the communities of our commonwealth,” Shapiro said in a statement. “None of the sham companies legitimately met the requirements for receiving tax credits, and the only revenue that could be traced to the fake establishments were the gains from the sale of the tax credits.”

The statewide grand jury’s investigation examined the pair’s alleged illegal activity across Allegheny, Chester, Dauphin, Delaware, Philadelphia and Lancaster counties.

To avoid getting caught, Chiu and Li made up fake Social Security numbers, phone numbers and addresses, the grand jury said.

They created false identities so they could “be the ‘faces’ of the sham companies in order to secure more tax credits,” the grand jury’s report said.

None of the 20 sham companies cited in the grand jury’s report showed any evidence of being legitimate over the five-year period leading up to mid-2017, the grand jury said. When investigators tried to find them, they learned none of the business had physical presences in Pennsylvania.

Some had merely a rented mailbox at the listed address, and several were “virtual office” spaces hosted by an online vendor, the grand jury said. In two instances, no such address existed. A business called Online Store Builder Inc. linked to an address on Forbes Avenue in Pittsburgh turned out to be a UPS Store.

Among other sham businesses supposedly active in the Pittsburgh region: American High Frequency Trading Co. and Edigital on Grant Street in Downtown Pittsburgh; Cherry Pick Inc. on North Shore Drive; and Swapformore Inc., with listed addresses on Dirthridge Street in Pittsburgh and Ansys Drive in Canonsburg.

Both Li and Chiu fled to Hong Kong and have not returned since 2016, investigators said.

Each faces a litany of felony charges, including corruption, theft by deception, receiving stolen property, misapplication of entrusted funds, tampering with public records and conspiracy, Dauphin County court records filed Tuesday show.

Revenue official: We’re ‘better equipped’ to detect fraud

Gov. Tom Wolf referred comment to officials with the state’s departments of revenue and community and economic development (DCED), whose leaders they support the grand jury’s recommendations.

“Once our staff identified the inconsistencies in the tax credit applications submitted by the business entities associated with Mr. Chiu and Ms. Li, we acted as quickly as possible to refer the matter to the Office of Attorney General (in fall 2017),” Revenue Secretary Dan Hassell said in a statement.

“Since that time, we have taken many steps to improve our review process and create a system that is better equipped to detect fraudulent applications,” Hassell said. “We agree with the Grand Jury’s recommendations and we are willing to meet with lawmakers to discuss legislation that would address weaknesses in the current law.”

KIZ tax credits are supposed to help new businesses trying to grow in fields such as health care, science, technology, advanced manufacturing, IT, security, new media and finance. An annual pool of $15 million worth of KIZ credits get awarded annually, capped at $100,000 per company. They can be used over four years, or sold by fledgling companies in need of capital.

The R&D credit offers credits totaling a combined $55 million, with up to $11 million earmarked for research and development underway by small businesses. Unused credits can carry over for up to 15 years.

Shapiro said the next step is “to work together to implement the real change needed to prevent this from happening again.”

Among changes the grand jury advocated be made to the programs:

• Require independent audits to receive KIZ or R&D tax credits;

• Interview applicants face to face and require photo identification, receipts, account statements and financial records;

• Verify that IP addresses to ensure applications are submitted from businessees operating in Pennsylvania;

• Conduct surprise visits for each applicant;

• Require tax credit brokers get licensed by Pennsylvania authorities; and

• Require annual proof be submitted by applicants of how tax credits were used and if they were sold.

Natasha Lindstrom is a Tribune-Review staff writer. You can contact Natasha at 412-380-8514, [email protected] or via Twitter .

Published at Fri, 06 Dec 2019 05:25:07 +0000

Source: Husband-wife duo accused of bilking Pa. out of $10M by faking 20 companies in tax credit scheme.

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