James Lin, United International Corporation Under Investigation

March 21, 2010

Documents filed Friday, March 19, 2010 in the District Court of the NMI reveal that the now closed United International Corporation that was run by president James Lin has been under a federal investigation and an indictment may be forthcoming.

The court documents indicate that an investigation has been going on since February 2009. Most of the documents are sealed. The documents filed last Friday asked to take computers that were seized under a February 25, 2009 search warrant from the UIC offices by federal officials so digitial files could be inspected by forensic computer experts. The investigation revolves around tax evasion and related matters.

From the document:
26. Based on the information contained in this Affidavit, including information obtained since the execution ofthis court's Search and Seizure Warrant of February 24, 2009, in MC 09-00034, probable cause exists to believe that JAMES LIN willfully subscribed to and filed with the IRS, Forms 941-SS for UIC, that were false or fraudulent as to a material matter (i.e., gross wages paid) and that he did not believe to be true as to that matter, in violation of 26 U.S.C. § 7206(1).
27. Furthermore, probable cause exists to believe that JAMES LIN willfully devised scheme to evade or defeat the assessment of Social Security and Medicare taxes by paying employees' wages in cash, not recording those wages on employees' Forms W-2, and not reporting those wages on the Forms 941-SS for UIC, resulting in additional tax due and owing, in violation of 26 U.S.C. § 7201.
28. Finally, probable cause exists to believe that JAMES LIN willfully failed to collect, truthfully account for and pay over, Social Security and Medicare taxes from employees' wages, as required by law, in violation of 26 U.S.C. § 7202
In March, 2009 the CNMI government also filed a tax lien on Lin's property for unpaid taxes of $12.905.08.

The UIC was one of the largest garment factories in the CNMI employing thousands of workers from 1986 until its closure in September 2008.

A guard was interviewed by the Saipan Tribune in 2008 about the factory's closure:
The guard said many workers stayed with UIC for many years because its president, James Lin, is a very nice and supportive employer.

He said some Filipino workers had been in the factory for 17 years.

The guard said he started to work at UIC since 1996 and had held many jobs.

“Our salaries were never delayed even holidays. If you extended even 15 minutes of work, Mr. Lin and the management would pay your overtime,” he said.

He said most workers, particularly those who had been at UIC for more many years, were very sad when the engines in the factory finally stopped operating two weeks ago.

In 2000, workers at UIC reached over 1,000 mostly Chinese. At that time, 250 workers were Filipinos. Last year only 50 of the 250 Filipinos were left.
Apparently much of the payments received by workers were "under-the-table" and not reported to the IRS. Some managerial workers had contracts that stated that they worked as sewers or other factory positions making minimum wage of $3.05 when they actually earned much more and were paid cash for their earnings without deductions.

An affadavit in Support of an Application Under Rule 41 to Search and Seize revealed that Shaun Morita, a special agent with the Internal Revenue Services Criminal Investigation Division is investigating tax evasion, failure to collect or pay over tax and false tax returns dating back to 2001.

The document reveals that former employee, Yuehan Liu, worked from November 1997 until September 2008 at the United International Corporation. He stated that the signature on his contract was forged and it listed him as working as "pattern grader cutter"; however he was actually employed as a manager.

From 1987 to 1997, Liu worked for Lin's father-in-law, William Huang, at Tee Top of California, Inc., as at-shirt designer. Liu met Lin in California while employed at Tee Top of California, Inc. James Lin works under his father-in-law who owns Kuohwa Garment and Enamel Industry Co., LTD. It has operations in China, Cambodia, Mexico, Taiwan, and the United States according to documents.

The court document reveals an unconventional payment system at UIC:
16. Liu stated that there was no payment arrangement made between Liu and JAMES LIN before Liu arrived in Saipan. Liu did not receive compensation during the first three (3) months at UIC. Liu asked JAMES LIN why he had not received any pay during this time. JAMES LIN told Liu that Lin needed to first speak with his boss, Huang. Liu was later told by JAMES LIN to pick up his pay from the accounting department. When Liu went to pickup his pay at the accounting department, he received $3,000 in cash from a female that Liu knew as Malou (last name unknown). Subsequently, Liu received $1,500 in cash on the last day ofeach month from Malou. The final payment Liu received was on September 20,2008. Liu was always paid cash. UIC also paid for some ofLiu's personal living expenses. It paid Liu's rent, cable bills, telephone bills, utilities and gas. Liu was also provided with a company vehicle.
17. Liu stated that he and the Taiwanese managers at UIC received their pay on the last day ofeach month at 2:00 p.m. Liu believes there were approximately ten (10) Taiwanese managers. They all stood in line in front of Malou's desk to receive their pay. The pay was handed to them in an envelope which was kept under Malou's desk. They each signed a form acknowledging receipt of their pay, which Malou maintained in her desk drawer.
Lui also stated that he never punched a timecard while he worked at UIC, nor did he keep track of his hours. He stated that there were about 10 Taiwanese managers who received their pay in cash on the last day of the month. Lui provided the investigator with a list of the Chinese managers which totaled 140. Each of those managers also received their pay in cash.

Factory workers had their pay deposited into their bank accounts and were required to punch timecards. Overtime pay in excess of the allowed 120 hours per pay period (CNMI law) was paid to the employees in cash. Employees signed a receipt for the cash that they received.

I am assuming the case was revealed because Lui went to the social security office to receive benefits and learned that the earnings reported to the Social Security Administration were incorrect. The reported earnings are lower than what he earned, so the benefits are also lower. Lui asked Malou for pay stubs and documents and she reportedly was"reluctant" to hand them over to him.

Lui also stated that his income tax papers were not legitimate:
31. Liu stated that he never prepared or filed tax returns with the CNMI Division of Revenue and Taxation. After reviewing copies of Forms 1040A-CM, CNMI Territorial Individual Income Tax Returns, filed on Liu's behalf for the years 1998 through 2007, Liu stated that the signatures appearing on all but two (2) ofthe returns were not his signatures. Liu recalls signing two (2) blank returns. Liu was asked to sign the returns by an individual known by Liu as Wanna (last name unknown), Wanna worked in the payroll department at VIC. Wanna did not explain to Liu what he was signing. I reviewed Forms W-2CM, Wage and Tax Statement, filed with Liu's tax returns with the CNMI Division of Revenue and Taxation...

32.The UIC management staff were required to hand over their tax refund checks to UIC. For the first five (5) years at UIC, Liu endorsed his tax refund checks, but was never allowed to keep them. Liu asked Wacharee why he was not allowed to keep his refund checks and was told that it was company policy for UIC to keep them. During his remaining years at UIC, Liu never saw or signed his tax refund checks.
In September 2008 Lui filed a complaint with the CNMI Department of Labor. He alleged that the DOL ignored his complaint. Read the entire article, but here are some of Lui's allegations from the October 28, 2008 Saipan Tribune:
He said the investigator also did not allow him to speak out that UIC forged his recent CNMI tax refund checks and illegally took away his past 10 years' CNMI tax refund money.

Liu said the investigator forced him to surrender his original entry permit and that if he doesn't do so, an immigration officer would be called to arrest him.

Labor records show that the labor investigator's determination issued on Oct. 8, 2008, and approved by Labor Director Barry Hirshbein recommended the dismissal of Liu's complaint based on unfounded merits.

The investigator recommended that Liu's other claims should be addressed in a different venue with the proper agency.

The investigator determined that Liu and UIC filed their initial one-year nonresident worker's contract on Dec. 3, 1997, and continuously renewed such contract up until Oct. 31, 2007. The last contract's expiration date was Nov. 24, 2008.
The CNMI Department of Labor took his permit and threatened to have this man deported? Weren't CNMI labor laws also violated in this scheme?

The court document says this about the CNMI Department of Labor complaint:
33. On September 19, 2008, Liu filed a complaint against UIC with the CNMI Department of Labor, alleging a number of transgressions by UIC.
34. On December 19, 2008, an administrative hearing was held on this matter. Pursuant to the hearing, an administrative order was issued. According to the order, it was established during the hearing that Liu was in fact paid $1,500 per month and provided with a company vehicle. Additionally, Liu's fuel was company-provided, as were his rent and utilities. UIC Administrative assistant Vivian Xu testified that the only other UIC employee to receive equal benefits was the overall manager ofthe operation. According to the administrative order, it was UIC's position that everything over the contractual wage was a gift to Liu as a close relative ofthe owning family. Additionally, UIC willingly paid Liu $1,340.20 for his tax refund that had been withheld by UIC.
How many other foreign workers are owed tax refunds by UIC?

The court document also contains statements attributed to former office manager, Lorraine Pangelinan. She stated that when she worked as a secretary, she was required to punch a timecard and was paid according to the hours on the card. However, after she was promoted to office manager she was paid an additional $250 cash each pay period that James Lin called "incentive pay." After a while she received another pay raise, and received $500 cash on the side.

From the court document:
Pangelinan asked Malou what "incentive pay" was. Malou told Pangelinan that it was "money on the side" and that it was her raise. Malou is an accountant at UIC and is very close with JAMES LIN.
No taxes were withheld from the "incentive pay." Additionally, employees received cash bonuses at the holidays that were not included in their W-2 forms.

Pangelinan also stated that many of the managers' job descriptions on their contracts did not match their actual jobs. She stated that a person employed by UIC prepared tax returns for some of its employees. This service was offered free of charge.

A Little History
James Lin is close to Governor Fitial, and has served as president of the Saipan Garment Manufacturer's Association, which is also linked to the Horace Cooper indictment. (Look for much more on the Cooper-garment factory scandal in an upcoming post.)

In 2006 Governor Fitial appointed James Lin as a member of his "private sector think tank" that was tasked with preparing "radical solutions" to the CNMI's economic crisis. (I am not sure if they ever really did anything.)

In 2008, Lin was appointed by Governor Fitial to his "new economic commission." It was an 18-member group made up of Fitial supporters including: Richard A. Pierce, Howard Willens and Vicki Villagomez from the Office of the Governor; Marian Aldan-Pierce from the Strategic Economic Development Council; Norbert S. Sablan, Civil Service Commission; Dr. Carmen Fernandez, Northern Marianas College; Perry Tenorio, Marianas Visitors Authority; Lynn Knight, chairperson of the Hotel Association of the Northern Mariana islands; Jim Arenovski, Saipan Chamber of Commerce president; James C. Lin, Saipan Garment Manufacturers Association; Michael J. Ada, Department of Commerce; Mathew Masga, DOC Tinian; Joseph S. Inos, Mayor of Rota; Jose P. San Nicolas, Mayor of Tinian; Pete Sasamoto, CNMI Water Task Force; Rex Palacios, Commonwealth Ports Authority; Anthony C. Guerrero, CUC; and one member from the CNMI Legislature. His current lobbyist, Lynn Knight headed the commission.
(source: Governor's Office press release)

The factory, which manufactured clothing for such companies as The Gap, has had it's share of problems over the years. In 2000 UIC was raided by DOLI officials and nine people were arrested.

UIC has also had its share of federal visitors. In 2003 the United International Corp was visited by Christopher A. Foster, professional staff member, Office of Native American & Insular Affairs in the House Resources Committee, for Majority chairman Richard Pombo; and Anthony M. Babauta, Democratic legislative staff for Insular Areas with Minority House Rep. Nick Rahall, Washington Rep. Tenorio and Meredith Beaton of Podesta Mattoon, from Washington DC. According to the Saipan Tribune:
SGMA chairman James C. Lin and executive director Richard Pierce briefed the visiting delegation Wednesday night and Thursday during the tours on matters about the Saipan apparel manufacturing industry.
In 2004 Secretary of Interior Gale Norton and a congressional delegation headed by former California legislator Richard Pombo (R-Abramoff) toured the UIC factory while visiting the CNMI. In 2005 the factory was toured again by US Senate Energy Committee congressional staffer Josh Johnson, Jim Berne, former senior counsel for Energy Committee chairman Frank Murkowski, and then Washington Representative Pete Tenorio.

It is interesting that in 2004 Lin was quoted by the Saipan Tribune as saying that "The CNMI government should maintain wage and tax levels."

The court document also listed the penalities for the crimes that Lin may be charged for:
a. Attempt to Evade or Defeat Tax
Title 26, United States Code, Section 7201 states: Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution.
b. Willful Failure to Collect or Pay over Tax
Title 26, United States Code, Section 7202 states: Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty ofa felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than five years, or both, together with the costs of prosecution.
c. False Tax Return
Title 26, United States Code, Section 7206( I) states: Any person who [w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter ... shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case ofa corporation), or imprisoned not more than 3
years, or both, together with the costs of prosecution.
Will Other Businesses Be Investigated?
What happened with the payroll and taxes at UIC could have been happening or could be happening today in a number of companies or businesses in the CNMI. It was reported that the former accountant for Willie Tan claimed that she was ordered to maintain "two sets of books." I know that there are many foreign workers who have complained that they either never received W-2 forms for tax returns or never received the refunds. Some said that the refunds were sent to their companies and they never got them. This investigation could be the tip of the iceberg as more and more people go to collect social security and find that they were cheated.

It should be pointed out that some countries such as the Philippines and South Korea have an agreement with the U.S. that their citizens do not have social security taxes deducted from their pay. In fact, no one can collect social security taxes unless they have a green card or are a U.S. citizens. Just one more reason to issue green cards to these long term foreign contract workers. Please see this previous post for more information on social security taxes and foreign nationals.

Access legal documents in this case: Request for Search Warrant, Attachments


Anonymous said...

When a US team came to inspect that factory in 1998, they put new water cooler there for the show and they were rentals, that were moved out after OSHA left. Prior to that girls either drank luke warm coolant water or brought here own and girls typically drank beer on the floor.

UIC made wage takeback for involentary class changes (ei I'm an R-12 seemstress, then downgraded on Tuesday to floor sweeper and back on Thursday = 2 classification changes at 175. per or 350. to girls who work 60 hrs for 180.). Our dipstick Governor then said under oath, that he thought everyone was happy at that factory.

When girls got in the family way, they were deported quick.

Anonymous said...

Yeah and this was happening under Juan Babauta's administration as well. The Babauta administration along with a supportive AGO was one of the most corrupt governments this side of the Fitial Administration. They fought long and hard to keep the Feds out of the CNMI and they did it. Remember La Fiesta, Sonya Artero, etc. etc. etc.

do you notice said...

Why are all of Fitial's pal crooks?

KathrynAnnStewart Mrs. Kathryn Coluzzi said...

I am Kathryn Ann Stewart-McDonald daughter of Ann and Bill Stewart. I am writing to see if someone will please ask Rex Palacious to telephone me concerning the teleconference. I have not heard from anyone in the US Navy concerning the petition said to be sent regarding my marriage to Captain Joseph Coluzzi, Merchant Vessel Lopez, AMSEA ship. My late husband was reported by fax to me signed John Mulderig,Captain that Joe was missing from his ship during a voyage to Guam Navy Base in late January 1998. Pacific Daily News around March 1998 reported Joe as AWOL. I later learned Joe was dead his remains were sent to Weisbotten without my permission. I am supposed to have a petition stating the community knew I was Joe's wife and we were married by Captain Harold Boltin aboard the Vessel Lopez after we voyaged beyond the 200 mile limit into international waters. I deeply loved Joe, he had been awarded Silver Stars in Vietnam and was a POW while serving in the US Marine Corps. I wrote to the company in Quincy, Mass. I wrote 100's of letters, I have contacted the US Sentate, traveled to New York to search for his family, visited the Pentagon three times, visited United Press District of Columbia offices where I am mutually acquainted with Sean, a former roommate of Joey Bollinger from boarding school in Switzerland, I also made contact with the company and have spoken with Father Hazel and prior to that Father Gary Bradley both of whom knew we were married and annonced our elopement at a New Year's Eve party home of the late Colonel Len Sine and his wife Gloria, many people knew Joe and I were married and looking for an apartment When in the USA after I left Saipan I continued to search for information about what happened to Joe. During the period of time I worked at the District of Columbia Government and for a lobbyist from Montana I continued to search for leads concerning Joe's whereabouts. Rex said he would send my petition to the Navy in Sacramento, I met w Major Murchinson from the Port of Huntington at a local hospital. I am harassed in Charleston by people I believe might be involved in obstruction of my cause to obtain a copy of the report, as my husband's remains must have gone through the Navy gates to arrive on land where he was flown, against our faith to Germany. I need help from Rex Palacious or Brother Juan Tudela. They can write me at either ColuzziKathryn@yahoo.com or KathrynAnnStewartsMcDonald@hotmail.com I use the same name which appeared on my US Passport before Joe died, because his mother was very sick in New York City, and I might have traveled to see her before a new passport with my new name was returned to me. It might have been necessary to meet Joe in South Korea to travel to New York or another of the MV Lopez Ports O'Call. Please deliver my message. I am uncertain to which office to send my documents. God Bless Everyone on Saipan, Kathryn Ann Stewart-McDonald