According to NTS tax assessment documents and Cash Cow’s internal financial records obtained exclusively by E-Daily on the 11th, there were a total of 55 transactions—amounting to 8.5 billion won based on supply value—in which Cash Cow is suspected of issuing and receiving false tax invoices from 2019 to 2022. Of these, a total of 54 tax invoices, amounting to 7.8 billion won, were identified as fraudulent following an investigation by the National Tax Service.
A total of 17 companies were included in the National Tax Service’s initial investigation, and 13 of them were subsequently named in the indictment. Cash Cow and its affiliates first determined the amount of sales and purchases to be recorded for specific companies before even discussing the actual details of the transactions or the scope of services. Evidence was found that they attached contractual pretexts to these transactions, issued tax invoices with backdated dates, or shuffled funds among multiple companies as needed to manipulate the books to make it appear as if actual transactions had taken place.
It was determined that a significant number of the companies used to generate Cash Cow’s fictitious revenue were introduced by Mr. Kim, the current CEO of Blueard (formerly ISTN). ISTN, which has since changed its name to Blueard following a merger, is an IT services company specializing in SAP ERP (Enterprise Resource Planning) consulting, system integration (SI), and operations, and maintains connections with various companies and tax invoice issuers. It appears that Mr. Kim was able to connect Cash Cow with companies willing to generate fake sales by leveraging the network he built through his position as CEO.
A prime example is Tiger Company, a developer of social software and B2B IT solutions. According to records of conversations between Cash Cow and its affiliates obtained by Edaily, CEO Kim specifically instructed, “Tiger (Company) just needs to generate 505 million won in revenue for Cash Cow. We’ll discuss the contract details, and the tax invoice should be issued dated December.” The amount and the invoice issuance date were set first, and the contract details were discussed afterward. The amount (505 million won) that CEO Kim specified for Tiger Company and Cash Cow was identified during the National Tax Service investigation as a fake tax invoice issued without any actual transaction.
Similar instructions for transactions were issued at “KS People,” a company specializing in big data EIS (Executive Information System) solution development and marketing consulting, and at “Good & Good Technology,” a software developer focused on AI and bio-big data. A review of their conversation records shows that when CEO Kim requested a supply contract worth 602 million won from Good & Good Technology, the CEO of Good & Good Technology accepted the request and then asked in return, “What should the contract be for?” Subsequently, a justification such as “AI software development” was hastily fabricated, and the National Tax Service determined that the entire amount of this transaction (602 million won out of a total of 1.4 billion won) was suspected to be a fictitious purchase. Similarly, during the transaction with KS People, when former CEO Kim specified, “Issue an invoice for 205 million won in sales,” the item “Development of a Big Data EIS Solution for Purchase Information” was added retroactively.
In the transaction with Hiidea Solutions, evidence that documents were fabricated out of concern over the lack of a contract became even more blatant. When former CEO Kim allocated the purchase amount to 310 million won, Hiidea insisted, “We absolutely need a contract to avoid problems later,” and belatedly demanded that documents be prepared. Additionally, evidence was found that a single transaction was split between Nexmos (300 million won) and the newly established corporation Hesseeg (200 million won) to issue invoices separately.A KOSDAQ-Listed Company Also Involved… After Tax Authorities Raised Concerns: “Let’s Coordinate Our Stories”BusinessOn Communications, which was a KOSDAQ-listed company at the time, also appeared in the process of issuing fake tax invoices. In 2019, a BusinessOn representative requested that CashCow issue a tax invoice, asking that the date be backdated to June 30—earlier than the actual date of the agreement. Subsequently, in July 2021, BusinessOn reportedly urged CashCow to sign a contract backdated to May 17, stating, “We are currently in the audit period, so the Management Support Team urgently needs this.” The National Tax Service included a total of 188 million won—170 million won from 2019 and 18 million won from 2021—related to BusinessOn in its investigation into allegations of fictitious tax invoices issued without actual transactions.
After the tax authorities began to suspect foul play, evidence of organized attempts to coordinate their stories was found in conversation records. In August 2019, when the National Tax Service showed signs of questioning the timing of tax invoice issuance for transactions related to Mainline, ISTN CEO Kim instructed, “It would be best to resolve this by amending the contract or reissuing the tax invoices. Make sure to coordinate your stories, citing reasons such as errors that occurred.” The 400 million won transaction with Mainline was also reported as a fictitious transaction.
Beyond document tampering, evidence of “money shuffling”—circulating funds through actual bank accounts to disguise them as legitimate transactions—was also discovered. In December 2019, ISTN CEO Kim instructed, “Generate 300 million won in sales at Good & Good that were omitted from Cash Cow, and I’ll send 100 million won of that today. Cash Cow should transfer the funds to Good & Good on January 2, and Good & Good should deposit them into Business On (BOC) on the same day,” giving specific instructions on the fund transfer route. Records of conversations among those involved also show evidence of artificially circulating deposit and withdrawal amounts to match the fake ledgers, such as splitting funds and transferring them to multiple companies.
Cash Cow is currently pursuing tax appeal proceedings in response to the National Tax Service’s ruling. It is expected to take a considerable amount of time before a final determination is made regarding the fictitious transactions and a final disposition is reached.
Experts point out that accounting fraud, such as the issuance and receipt of false tax invoices, must be treated severely, as it goes beyond mere tax issues for individual companies and can undermine the normal order of transactions and public trust in the tax system. Under the current Act on the Punishment of Tax Crimes, issuing or receiving false tax invoices without an actual transaction of goods or services is punishable by up to three years in prison or a fine of up to three times the relevant tax amount; furthermore, if the total supply value for profit-making purposes exceeds a certain threshold, harsher penalties may apply under the Act on the Aggravated Punishment of Specific Crimes.
Kim Woo-cheol, a professor in the Department of Taxation at the University of Seoul, stated, “The act of issuing false tax invoices undermines the very foundation of the transaction system and is therefore treated strictly,” adding, “Even if one did not directly participate in tax evasion, if they were aware of it and cooperated, the question of whether they aided and abetted the crime may arise.”
He further pointed out, “The electronic tax invoice system was established to create a transparent transaction order,” adding, “If such acts are repeated, they will inevitably have a negative impact on tax discipline and the normal order of transactions.”
Cash Cow Files Appeal Against National Tax Service Decision... ISTN Draws a Line, Calling It “Misconduct by the CEO”
ISTN CEO Kim said, “I deeply regret my role in the conspiracy to fabricate sales, and I will accept the investigation and punishment for my wrongdoing.” However, he drew a clear line, stating, “That has absolutely nothing to do with ISTN. The ISTN corporation was not involved in any fictitious transactions and has never been subject to any related tax audits or investigations.”
He went on to argue, “It is true that (between the companies I introduced) we drew up contracts, issued tax invoices, received payments, and then forwarded the funds, but there is absolutely no basis for tax evasion.”
On the other hand, CashCow maintains that the transactions flagged by the National Tax Service were legitimate business transactions involving actual software development, data processing and analysis, and platform construction. They argue that the discrepancy between the timing of tax invoice issuance and payment was due to business reasons, such as credit sales.
In a phone call with E-Daily, CashCow CEO Seol Mo said, “We do not admit that the National Tax Service’s ruling is false. There are only some issues related to VAT; there was no tax evasion. “There are various outsourced services and solutions that startups need to adopt,” he explained. “Since we couldn’t make purchases without funds, the structure was such that we would sell solutions we had already developed to generate revenue, and then use that revenue to pay for the purchases.”
CEO Seol also argued that the tax authorities did not fully understand the nature of software and IT services, leading them to classify legitimate transactions as fictitious ones. He said, “Since it involves the development of intangible software, they don’t understand it once I start explaining,” and asked, “If these were fake transactions, who would have created the various systems still in use at the company?” However, according to Cash Cow’s tax appeal documents, the company admitted to some of the allegations of fictitious transactions during the appeal process. It appears the company argued that, with the exception of transactions involving two specific companies among the suspicious ones, most of the transactions were genuine.
Meanwhile, among the companies included in the National Tax Service’s sanctions and criminal complaints, Nexmos stated, “We explained to the National Tax Service that the transactions were genuine, and we are unaware of any subsequent (legal) proceedings.” BusinessOn, Mainline, and Tiger Company did not issue any statements. Some companies, including EpicKen, BSG Trias, and Future Techwin, were found to have ceased operations.
Related Article☞ Through its ongoing series, “Tracking Allegations of Accounting Manipulation and Chain Fraud: The Trap of Fake Ledgers,” E-Daily is covering suspicions that disputes related to Cash Cow have extended to As We Make.
