Sham firms led to tax evaders

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 US-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 as well pay the taxes.’’

Hong Kong also figured in the tax-evasion 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 US company from offshore UBS accounts and would carry them by hand from Hong Kong to the United States. On average, Cherkin brought to the United States about 12 checks a year totaling some $300,000, according to documents filed in Fort Lauderdale federal court.

Two other UBS clients who have pleaded guilty to US tax charges admitted opening accounts using entities in the British Virgin Islands and Panama, respectively, to conceal income from the IRS.

The offshore shell entities are the common element in all four criminal cases. The reason, tax attorneys say, is that the information disclosed by UBS earlier this year for about 300 clients focused on those with corporate bank accounts for apparent shell corporations.

“It is only those cases that are in the pipeline,’’ said George Clarke, attorney with the Miller & Chevalier law firm.

Those accounts were turned over to the IRS as part of a deferred prosecution agreement with US authorities in which UBS also agreed to pay a $780 million penalty.