Restaurant owners, one restaurant charged in elaborate tax fraud scheme

Thursday,

The owners of two sushi and hibachi restaurants and one of the restaurants were charged with 46 counts of tax fraud in an elaborate scheme to underreport their sales and base their sales tax returns on those fraudulent numbers, the Hennepin County Attorney’s Office announced Thursday.

The two year investigation by the Minnesota Department of Revenue resulted in Su Qian, aka Audrey, 43, of Plymouth and Xu Sheng Wang, aka Jacky, 45, of Plymouth being charged with 16 counts and 14 counts of tax fraud, respectively. Their Raku Sushi & Lounge, at 5371 W. 16th St., St. Louis Park, was charged with 14 counts of failure to pay or collect sales taxes. Qian faces two additional counts of using an automated sales suppression device to commit tax fraud.

Their first appearances are scheduled for May 24 at 1:30 p.m.

“We intend to prove that this was a highly sophisticated scheme that ran for many years which cost the state more than a $200,000 in tax revenue,” Hennepin County Attorney Mike Freeman said. “The revenue department’s investigators did an excellent job of conducting a long, difficult investigation and these crimes occurred prior to the pandemic during robust economic times.”

“The use of sales suppression devices harms the vast majority of Minnesota restaurants that follow the law,” said Revenue Commissioner Robert Doty. “Sales tax is a trust tax and when a restaurant breaks that trust, the department will take action to make sure Minnesotans can have confidence that the tax laws are being applied and enforced fairly for all businesses.”

According to the criminal complaint, investigators began looking into Qian, Wang, and their St. Louis Park restaurant, as well as another Raku restaurant they owned in Edina, in March 2018, after an audit by the Department of Revenue uncovered signs of potential criminal sale suppression activity.

Investigators examined daily sales reports for the St. Louis Park restaurant that had been provided to auditors for January 2016 through May 2017. Investigators obtained and reviewed bank records for the two restaurants showing no cash deposits into the checking accounts but there were withdrawals including about $566,000 in 2016 and $500,000 in 2017. Most of the withdrawals were by Qian and Wang, the complaint stated.

Investigators also obtained records from the merchant services used by the two restaurants. Those records were compared to the businesses’ actual reported sales to determine estimated cash sales and percentages. When compared to the Minnesota audit standards for restaurant cash sales, the Raku numbers were much lower.

On July 17, 2018, search warrants were executed at the homes of Wang and Qian and the two restaurants. In Qian’s purse, investigators found two USB drives that contained a program called Happy World.exe, which can be used to delete and alter sales records. Investigators seized daily sales reports for both restaurants as well as a notebook that had “Happy World” written on one page followed by instructions to delete selected orders and rearrange order numbers, according to the complaint.

Investigators compared the records found in Qian’s home and restaurants to records provided to the department during an audit. The comparison revealed discrepancies between the two sets of financial records. From March 2016 to May 2017, each month (with the exception of January 2017) the company records showed an under reporting from between $658 to $25,500, the complaint states.

The point of sales systems in each of the restaurants provided more data on the scheme. Orders can legitimately be voided. For instance, if an order is placed through a food delivery service, it is entered into the point of service system so the kitchen can begin preparing the meal.  The orders are then voided because they are paid at a later date by the food delivery company.  Voiding a ticket cancels the ticket, but the order line item in the database remains.  However, through the use of a sales suppression device like Happy World, the user can delete whole line items and orders or reduce all sales by a specified percentage, as well as reorder tickets and line items to hide the appearance of deletion.

In a 15-month span, the records indicated that the restaurants underpaid sales taxes by nearly $240,000, the complaint states. Interviews with restaurant employees revealed that the point of sale machines were primarily handled by Qian and Wang, and Qian was responsible for the monthly reports.

Su Qian Criminal Complaint (PDF)

Xu Sheng Wang Criminal Complaint (PDF)

Raku Sushi & Lounge Inc. Criminal Complaint (PDF)