MIAMI — Wealthy American clients of Swiss bank UBS AG used sham corporations set up in havens from Hong Kong to the British Virgin Islands as part of their efforts to evade U.S. taxes, according to documents filed in Florida and California court cases.
The shell corporations, or “pass-through entities,” were key elements of the tax-evasion schemes, but they also helped federal investigators snare the UBS clients.
It’s cheap to set up the shell corporations in countries with little or no income tax and a lenient regulatory system, said Martin Press, a tax lawyer with the Gunster law firm in Fort Lauderdale, Fla.
The most recent UBS client to plead guilty to tax charges, John McCarthy of Malibu, Calif., used a Hong Kong-based entity called COGS Enterprises Ltd. to open a UBS account in 2003. A statement of facts signed by McCarthy shows that he had more than $1 million transferred from his U.S.-based businesses to the secret UBS account opened in the COGS name.
“It is absolutely typical. They usually use one or more pass- through entities,” Press said. “The common thread of all of them is that it is relatively inexpensive to create. If it wasn’t, you might was well pay the taxes.”
Hong Kong also figured in the scheme UBS ran for New York businessman Jeffrey Cherkin, who created corporations based there that federal prosecutors said were used to hide from the Internal Revenue Service commissions he was paid by Hong Kong and Chinese toymakers. Cherkin pleaded guilty to filing a false 2007 tax return and faces three years in prison.
Cherkin admitted to another wrinkle: When he needed money, he had bank checks made out to his U.S. company from offshore UBS accounts and would carry them by hand from Hong Kong to the U.S.
