Tax suspect defends accounting move

By David Waite
Advertiser Staff Writer

The trial of Honolulu businessman Michael Boulware on tax evasion and bank fraud charges continued yesterday with Assistant U.S. Attorney Edward Groves poring over nearly a decade of personal and corporate tax returns filed by Boulware and his company, Hawaiian Isle Enterprises.

The prosecution contends that Boulware intentionally failed to report more than $10 million in personal income from 1989 to 1997 while his tobacco sales, vending machine, coffee service and bottled water operations had annual sales of as much as $88 million.

He is on trial in federal court on 14 criminal counts, including tax evasion, conspiracy and bank fraud.

His attorneys maintain, however, that Boulware believed he did not have to report the $10 million in personal income, believing it belonged to his company and was taxed through its corporate returns.

During portions of the trial yesterday, the defense portrayed Boulware as a savvy sales and marketing expert who knew next to nothing about tax matters and relied heavily on attorneys, accountants and tax preparers for advice.

In his opening statement Tuesday, Groves had said Boulware used the help of business associates including state Rep. Nathan Suzuki, D-31 (Salt Lake, Moanalua) — a former comptroller at Hawaiian Isles — to set up overseas operations in Tonga and elsewhere to try to mask the diversion of company revenues to himself.

Suzuki has denied any wrongdoing in the matter.

In November 2000, the lawmaker acknowledged that he had been called before a federal grand jury and questioned about accounting work he did for Boulware's attorneys.

In his testimony yesterday, Merwyn Manago, current Hawaiian Isle comptroller, said he had joined the company in 1988, filling the position vacated by Suzuki. He said Suzuki supplied information used to prepare Hawaiian Isle's corporate tax returns for several years in the mid-1990s, although he had left the firm in 1988, and made several bookkeeping journal amendments during that time.

Manago said Suzuki provided an accounting program for Hawaiian Isle to underreport the amounts paid for wholesale goods from 1989 to 1997. The company appeared to make greater profits than it actually did, resulting in higher corporate taxes, Manago said. But it avoided paying an estimated $20 million in state tobacco taxes during the nine-year period.

Manago said Boulware believed the company had overpaid state tobacco taxes from 1980 through 1988, and that the accounting change was a way to recoup lost revenues. He said state tax officials were not aware of the accounting change.

Suzuki and his attorney could not be reached yesterday for comment.

The corporate returns discussed in court yesterday showed that during the period in question, Boulware received an annual salary as president of Hawaiian Isle Enterprises ranging from nothing to more than $1 million. During the same period, his wife, listed as corporate secretary, was paid $100,000 to $300,000, the returns showed.

The trial before Judge Edward Rafeedie of Los Angeles is expected to last about three weeks.

Reach David Waite at dwaite@honoluluadvertiser.com or 525-8030.