Convicted tax fraudster is unconvincing, says judge, but that doesn’t mean he should forfeit house or money in the bank

Authorities have failed to seize more than $500,000 from the family of an Auckland tax fraudster, in a rare rebuff for the boys in blue as they chase the proceeds of crime.

Mt Wellington resident Xiao Zhu admitted 89 charges in 2013 for tax offences and was sentenced to six months home detention.

As part of his scheme, he set up a swathe of IRD-registered companies and built up a facade of genuine business activity by opening bank accounts and post office boxes for the firms.

He got GST refunds for the companies between 2008 and 2011, the same year the IRD raided his home.

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Zhu later admitted charges of making $97,589 of fraudulent GST refund claims and admitted separate offending involving $20,000 worth of similar refunds.

The police Financial Intelligence Unit then began an investigation into Zhu, his wife, his mother and his now-deceased father.

Analysing more than 40 bank accounts associated with the quartet, the police claimed the family collectively had $525,357 of "unexplained deposits" in their bank accounts and sought profit forfeiture orders in the High Court.

In an alternative argument, the police claimed the Mt Wellington house where Zhu and his wife lived was "tainted property". But Zhu's mother, who initially held the title to the house in her name, said the funds to buy it had been remitted from China from her wages.

And Justice Alan Mackenzie found Zhu's mother to be a credible witness, saying that on the balance of probabilities, the money to purchase the property originated from her funds in China.

The house, the judge said, was not tainted property. Although he found Zhu unconvincing and said a large proportion of funds in the relevant accounts were unexplained, this alone was not enough to establish liability.

While IRD recovered most of the fraudulently claimed GST, the judge considered whether the "unexplained profits" came from offending that was not unearthed during the tax department's investigation.

"The number and amount of deposits into Mr Zhu's bank accounts, and indeed the number of accounts which he operated, are very suspicious. However, I do not consider that it is valid to reason backwards from the presence of suspicious deposits to the inference that those must have resulted from criminal offending of a type of which there is no evidence," Justice Mackenzie said, dismissing the police application.

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The loss is the exception rather than the rule in the asset seizure game, where police routinely come out on top.

The broadening arm of the law

Business Insider is pleased to see the authorities starting to cast a wider net to catch criminals' assets.

The police Asset Recovery Units have been chasing and seizing the proceeds of crime since the end of 2009 and have snared $60 million for the Government's coffers.

But they have a reputation for focusing on methamphetamine dealers and cannabis cultivators rather than more complex financial crime or crude tax schemes.

One notable exception was the police pursuit of assets associated with the jailed Capital+Merchant Finance fraudsters.

With colleagues like these ...

Convicted finance company chairman Jason Maywald has agreed to give evidence for the Financial Markets Authority in the trial of a former colleague.

The OPI Pacific Finance director's commitment to be a part of the Crown case was revealed during his sentencing yesterday, where he was ordered to complete 200 hours of community work and pay A$100,000 ($113,000) in reparation. Fellow director Mark Lacy, who like Maywald admitted making untrue statements in OPI offer documents, received the same sentence.

Maywald and Lacy will commute from Australia to New Zealand to perform the community service, in what sounds to Business Insider like something of a working holiday.

Justice Pamela Andrews, when sentencing the pair, said they must do the work in blocks of at least five days at a time.

Maywald will start his work no later than January 4, while Lacy must begin his by the end of November. They must have it done by July and May respectively.

Another OPI director, Craig White, yesterday pleaded guilty to misleading investors. The trial of the remaining director, David Anderson, is due to begin on October 5.

Maywald would not be the first convicted finance company director to give evidence in a case against his former colleagues.

John Hotchin, director of Nathans Finance, did so in the trial of that company's board members, who were all found guilty of Securities Act charges.

Dark web

Creditors of a collapsed New Zealand bitcoin trading platform are still in the dark about whether they will get back any of the $23 million worth of digital currency that was being held with a now-bankrupt Japanese exchange.

New Zealand limited partnership Bitcoinica owned and managed a digital currency trading platform but shut down in 2012 after bitcoins were stolen from it.

Local liquidators believed the partnership had 64,532 bitcoins and US$135,000 in the now defunct Mt Gox, and this year made a claim with its trustee in Japan.

Mt Gox was once the world's largest bitcoin exchange but collapsed into bankruptcy last year after the apparent theft of more than 700,000 bitcoins, worth more than $500 million at the time.

Its trustee, which is untangling the Mt Gox mess, was due to indicate last week whether or not creditor claims - including Bitcoinica's - would be accepted.

The trustee, however, is still investigating and has pushed the deadline for the acceptance or rejection of these claims until next February.