John McKay, United States Attorney for the Western District of Washington, and Steven Pasholk, Special Agent in Charge of the Seattle Field Office of Internal Revenue Service Criminal Investigations, announced today that a federal grand jury in Seattle returned a 13-count indictment against STEVEN N. S. CHEUNG, a prominent economist with residences in Seattle and Hong Kong.  His wife, LINDA SU CHEUNG, is named in one count of conspiracy. The indictment charges that the CHEUNGs conspired to defraud the Internal Revenue Service beginning as early as August 5, 1989, and continuing through the present.  Further, STEVEN N. S. CHEUNG is charged with six counts of filing false U.S. Individual Income Tax Returns (Forms 1040) with the Internal Revenue Service for the tax years 1993 through 1998, and he is charged with six counts of filing false foreign bank account reports for the years 1995 through 2000.

The indictment alleges the following:

During most of the time in which the conspiracy existed, STEVEN N.S. CHEUNG was employed at the University of Hong Kong as a Professor of Economics.  LINDA SU CHEUNG primarily lived in the United States at her and her husband’s residence in Seattle, Washington.

STEVEN N.S. CHEUNG was also the actual and beneficial owner of profitable businesses in Hong Kong.  Some of these businesses operated public parking lots throughout Hong Kong.  As such, these commercial parking lots, which numbered in excess of fifty at any one time, generated tens of millions of dollars in gross receipts annually.  These businesses included, among others, WEST COAST INTERNATIONAL (a sole proprietorship), and WEST COAST INTERNATIONAL (PARKING) LIMITED and its parent, WEST COAST INTERNATIONAL LIMITED.  United States citizens are required to report on their U.S. Individual Income Tax Returns (Forms 1040) all income, including their worldwide income, from whatever source derived, to include:  wages, salaries, interest, dividends, bonuses, rental income, gross income from a business, and compensation for services rendered, such as fees, commissions, fringe benefits, and similar items.

From at least 1989 through 1998, STEVEN N.S. CHEUNG derived millions of dollars of income from and through his parking lot operations and other business sources in Hong Kong.  As his wife, LINDA SU CHEUNG derived part of this income as her one-half share of the marital assets in the State of Washington, a community property state.  Although a significant portion of their income remained in Hong Kong, the Defendants transferred a substantial amount of this income to the United States which was utilized by them, and by others on their behalf, to acquire valuable assets, properties, and investments in Western Washington and elsewhere, and to support the Defendants’ living expenses and lifestyles here and abroad.

To this end, the CHEUNGS took corporate funds from the Hong Kong parking lots and other business operations for themselves and their nominees.  The disbursement of corporate funds in this manner conferred an economic value and benefit to the Defendants and produced an accession to wealth, which gain they never reported or included as income on their federal tax returns in the United States.

The objectives of the conspiracy were to conceal, and attempt to conceal, from the CHEUNGS’ American tax advisors and the Internal Revenue Service the actual or beneficial ownership by STEVEN N.S. CHEUNG of the parking lot operations and other businesses in Hong Kong and, thus, to disguise taxable income derived by the Defendants and not report this income on their tax returns in the United States.

The CHEUNGS, and others on their behalf, utilized a web of corporations and other entities in Hong Kong, the Marshall Islands, the British Virgin Islands, and the United States, including the following:  WEST COAST INTERNATIONAL (PARKING) LIMITED; WEST COAST INTERNATIONAL LIMITED; CELINAL LIMITED MARSHALL ISLANDS; CELINAL LIMITED BRITISH VIRGIN ISLANDS; IMPERIAL WEST INC.; YINKAY HERITAGE INC.; STEVEN N.S. CHEUNG, INC.; WEST COAST LAND INVESTMENTS INC.; IMPERIAL GARDEN INC.; DOW ELCO INC., and; THESAURUS FINE ARTS INC.

Further, the indictment alleges that STEVEN N.S. CHEUNG filed false Reports of Foreign Bank and Financial Accounts (FBARs) for the years 1995 through 2000.  The forms were false in that he reported only one foreign bank account, and that he failed to report his financial interest in and signature authority over several additional foreign bank and financial accounts, located in Hong Kong, which had a total maximum value exceeding $10,000 during the calendar year.

Finally, the indictment alleges STEVEN N.S. CHEUNG filed false income tax returns by understating his total income during each of the years charged.  It is alleged that STEVEN N.S. CHEUNG omitted millions of dollars of income, as derived from and through the profitable parking lot operations in Hong Kong,  from his income tax returns from 1993 through 1998.

“This is another example of how the IRS is actively pursuing the use of offshore financial arrangements in order to avoid tax,” said Special Agent in Charge of the Seattle Field Office Steven Pasholk.  “All Americans have a duty to pay their fair share.”

United States Attorney John McKay extends his utmost appreciation to the Hong Kong authorities at the Hong Kong Department of Justice, International Law Division, and the Hong Kong Police Force, Commercial Criminal Bureau, for their remarkable assistance to the United States authorities in the investigation of this matter and for their exceptional professionalism in the performance of their law enforcement duties.  Mr. McKay added that United States citizenship provides privileges and advantages to all Americans, here and abroad, of which all Americans share a responsibility to pay for such benefits.

The maximum statutory penalties for each of the counts upon conviction are:

Conspiracy to Defraud the Internal Revenue Service: five years imprisonment and a $250,000 fine;

Filing False Income Tax Returns: three years imprisonment and a $250,000 fine, plus the costs of prosecution;
Filing False Foreign Bank Account Reports: ten years imprisonment and a $500,000 fine.

The public is reminded that an indictment contains only allegations, and that both Defendants are presumed innocent and must be proven guilty beyond a reasonable doubt in a court of law.

Copies of the indictment, which is a public document, may be obtained at the American Consulate in Hong Kong.

For further information, please contact Executive Assistant U.S. Attorney John Hartingh at (206) 553-4110 or Assistant U.S. Attorney Janet Freeman at (206) 553-7970.