Fraud Alleged in Rebel Funding

Yasith Chhun was hailed in the national media as the “strip mall revolutionary” whose scrappy band of immigrants conspired against Cambodia’s Communist government and raised money for their cause from his tax preparation business in Long Beach.

But a week after he was charged with masterminding attacks on government buildings in Phnom Penh, documents filed in federal court present a decidedly different view of the 48-year-old man.

Though supporters describe Chhun as a dynamic leader in Long Beach’s struggling Cambodian community, federal prosecutors allege that Chhun preyed on poor residents by encouraging them to lie on their tax returns and then pocketing some of the refunds.

Chhun and his organization, Cambodian Freedom Fighters, claimed to collect hundreds of thousands of dollars for their cause through fundraisers, but prosecutors now allege that some of the money used for the group’s rebel activities was acquired by defrauding the U.S. government in hundreds of tax returns Chhun and his wife prepared for Cambodian immigrants.

Court papers allege that Chhun and his wife, Sras Pech, 39, urged clients to claim income they did not receive.

Chhun advertised his tax services in Cambodian newspapers and used word of mouth at businesses and churches to lure low-income earners who had difficulty understanding tax procedures, said Assistant U.S. Atty. Brian Hershman.

“The word sort of spread through the Cambodian community ... that if you were on some form of government assistance, you could go to Chhun’s office and apply for this refund,” Hershman said. “He could get your money back.”

After authorities discovered the alleged fraud, some of the low-income clients were taken off federal assistance programs, he said.

Chhun was arrested June 1 after a federal grand jury accused him of traveling to Thailand to mastermind a coup attempt in November 2000 in the Cambodian capital. The strike on military buildings resulted in the deaths of three of Chhun’s foot soldiers and injuries to eight government officials.

Chhun had boasted for years that he orchestrated the attacks and vowed to topple the government of Prime Minister Hun Sen. His organization was listed by the U.S. State Department as a terrorist organization.

Chhun’s lawyer, Leonard Matsuk, said his client was innocent. He declined to elaborate because he had not yet read the details of the tax fraud charges.

“Mr. Chhun denies any wrongdoing,” Matsuk said.

Long Beach is home to an estimated 20,000 Cambodian Americans, many of whom fled their homeland during the oppressive reign of Pol Pot and the Khmer Rouge in the 1970s and ‘80s. Millions died from disease, starvation or execution during that period. Those scars remain evident today in Little Phnom Penh, the district north of downtown Long Beach lined with strip malls, restaurants and small businesses.

A U.S. census report released this year found that Cambodians lag far behind many other Asian Americans when it comes to income and education level. Median household income for Cambodian Americans was $35,621, according to the report, compared with $60,058 for Chinese Americans, $47,624 for Korean Americans and $65,189 for Filipino Americans.

The fraud allegations have prompted concerns among some in Long Beach, who say new immigrants are particularly vulnerable to such schemes.

“It saddens me greatly if it did in fact occur,” said Long Beach City Councilman Patrick O’Donnell. “I know a lot of people in the Cambodian community who are honest hardworking people, and, sadly, they don’t step forward and share with the authorities when they know illegal acts are going on. A lot of the people aren’t familiar with American law and the American system.”

James Dok, director of United Cambodian Community, a nonprofit organization, said both Chhun and his business were well-known in Little Phnom Penh. Many people supported his outspoken opposition to Cambodia’s Communist government, but some questioned his purported use of violence.

Immigrants felt comfortable going to Chhun for tax help, he said.

“I used him for the last two years because my tax preparer left the state,” said Dok, who added that he never experienced problems with Chhun nor was he ever promised large refunds.

According to the indictment, Chhun and Pech typically told Cambodian Americans on government assistance such as welfare to claim between $8,000 and $10,000 of income from sewing work on their tax forms.

They allegedly told clients “that the government was distributing money to the poor from its budget surplus and that the clients would receive a tax refund if they filed tax returns,” the indictment said.

The clients would typically receive $2,000 to $3,000 back as an Earned Income Credit refund, a tax break for the working poor. Chhun and Pech usually charged $300 per return.

Hershman said that Chhun and Pech prepared about 1,700 suspicious returns between 1999 and 2002, but said he did not have a total for the amount of money involved. He said evidence suggests that Chhun used at least some of the money he received from the returns to finance his trips to Thailand, where he allegedly organized the Cambodian rebels.

The indictment itself details 17 returns filed between March 2000 and April 2001, and about $38,000 in refunds. The tax returns claimed work at eight sewing companies. Hershman said he does not know what relationship, if any, Chhun had with those companies.

In one instance detailed in the indictment, Chhun and Pech prepared tax returns for a client identified only as “R.K.” and R.K.’s children in April 2000. The U.S. attorney’s office said it is protecting the tax filers’ identities because they are not suspects.

R.K. turned in a tax return claiming $9,669 in income from work at Chaya Fashion in 1998. He claimed an earned income credit of $2,224.

The indictment alleges that Pech, who charged $800 for preparing the forms, allayed R.K.’s fears about the filing by saying, “Everybody does it.”

Two years later, Chhun and Pech instructed R.K. to cover up the incident after IRS investigators contacted R.K., the indictment said.

Prosecutors say Chhun and Pech gave R.K. a yellow Post-it note stating, “Morning Fashion 97,” “A.T. Sangha Fashion 98” and “A.T. Fashion 99” to remind R.K. to tell the investigators where he was working in those years.

Chhun and Pech did that even though “they knew that R.K. was on welfare and did not receive income from sewing work during those years,” according to the indictment.

The IRS contacted the U.S. attorney’s office after officials noticed some suspicious individual tax returns and called in the filers, Hershman said.

“They would be called in to the office to find out if there was a contradiction between not making money -- because they were on government assistance -- and claiming they were doing $10,000 in sewing work,” Hershman said. “Some of them had no idea they were claiming to do $10,000. They either didn’t read it or didn’t fill it out.”

As for Chhun’s clients, many won’t face penalties.

“I think the IRS found that the individuals are not criminally liable because they didn’t know what was going on,” Hershman said.

“My understanding is [Chhun] recruited people within the community and spread the word, ‘If you want money, the government is handing out free money from a budget surplus.’ ”

Times staff writer Tonya Alanez contributed to this report.