Foreign students used as front to launder money

File photo / NZ Herald

A Wellington businessman was today sentenced to nine months' home detention for tax evasion, fraud and money-laundering using foreign students as a front and involving more than 350,000.

Walter Law, also known as Xu Liu, 45, had earlier pleaded guilty in Wellington District Court to five charges of tax evasion, six charges of providing false income tax returns, 21 charges of aiding a company to file false GST returns, one charge of aiding a company to file false income tax returns and five charges of aiding a company to evade tax.

Law also pleaded guilty to one charge of money laundering under the Crimes Act.

Tony Morris, Inland Revenue's assurance manager investigations, said Law conducted his activities using separate companies and unregistered entities which he owned or controlled.

"Our initial investigation into one of Mr Law's companies, Holiday KTV Entertainment Limited, revealed that significant amounts of cash were unaccounted for and the company had only reported its Eftpos transactions to Inland Revenue. Our subsequent analysis showed the company had evaded GST amounting to just over $68,000, PAYE of over $41,000 and Income Tax amounting to over $29,000," Mr Morris said in a statement.

Inland Revenue's investigation into Law's foreign exchange and travel businesses found he deposited $2.5 million into bank accounts in the name of two overseas home-stay students. The students said Law had control of these accounts and they had no knowledge that the funds were used to repay loans on properties owned or controlled by Law.

"Mr Law's foreign exchange and travel businesses made a surplus of $540,000 between 2004 and 2010," Mr Morris said.

"These entities not only failed to return around $170,000 in income tax to Inland Revenue but these funds were deposited into the students' bank accounts and recharacterised as loans from a private trust in China. This money was the undeclared income from the business transactions and this action amounted to money laundering," Mr Morris said.

Law's offending resulted in a loss to Inland Revenue of just over $350,000, which had since been recovered.

"Mr Laws deliberately tried to evade his tax obligations by not declaring his income and hiding cash in other people's bank accounts. This case is a further reminder that Inland Revenue is using increasingly sophisticated analysis to detect those trading in the hidden economy," Mr Morris said.

"Businesses and individuals doing the right thing can be confident that Inland Revenue will detect those evading their obligations and those cheating on their taxes should be aware that we will take action when we detect deliberate non-compliance."

Law was also sentenced to 200 hours' community service.