CIA Investigation: Spokane Spas Dodging Taxes? - Spokane, North Idaho News & Weather KHQ.com

CIA Investigation: Spokane Spas Dodging Taxes?

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SPOKANE, Wash. - In the business of day spas, looks can be deceiving. On the outside, the buildings are tattered and unassuming. But inside, Spokane spa owners ran lucrative businesses.

"They always said 'When you come here, you go to fantasy land and when you leave, you go back to reality,'" a former escort told KHQ. She remained anonymous for fear of retaliation.

A police investigation uncovered up to 250 prostitutes cycling through an underground economy. The year-long investigation came to a head on July 10 when local and federal agencies raided eight day spas, which police believe were front organizations for widespread prostitution rings.

On that day, law enforcement - led by Airway Heights Police - simultaneously raided Oriental Spa North at 827 E. Francis Ave., its sister location Oriental Spa South on 515 S. Maple St., Joe Jean's Oriental Health Spa at 2712 N. Division St, Asian Spa at 3130 N. Division St., Starlite Spa at 2829 N. Market St., Absolute Spa at 9315 E. Trent Ave., Montana Spa at 7413 E. Trent Ave., and Far East Spa on 213 E. Sprague.

The owners of these spas also had their homes raided and many were arrested including co-owners of Oriental Spa North Tony Day, 36, and his mother, Chin Day, 68. Police also arrested 62-year-old Joe Jean's owner Yong C. Kassim; 59-year-old Starlite owner Insuk Argo; and 27-year-old Absolute Spa owner Jessica Vargas. Vargas resides in Moses Lake. The suspects face charges of money laundering, criminal profiteering, and prostitution. They are on a 72-hour hold until prosecutors decide to press formal charges.

Airway Heights police investigators described the spas as cash-only businesses where women touted comfortable incomes thanks to tips.

"It was easy money, it was really easy money," the former escort continued.

Money flowed back to spa owners thanks to cover charges called "door fees" which ranged from $70 to as high as $500 depending on the sex act and the number of women involved.

Court records show William Westover, the owner of Asian and Far East Spas earned $216, 439 last year thanks to door fees from his spas, which police reiterated, were only open for the "sole purpose of prostitution."

Records show that Joe Jeans Spa owner Yong Kassim earned around $96,000 from her spa last year.

And yet, these business owners weren't exactly living lifestyles of the rich and famous. Certainly, most of their homes didn't reflect that. This way, tax experts believe, they wouldn't tip off the Internal Revenue Service (IRS) by living well beyond their means.

But a cash business had plenty of perks: spa owners had money to burn. Airway Heights Police believed all the spa owners laundered their earnings by spending it on everything from cars, boats, and mortgage payments to their utility bills.

Records show Tony day, the owner of Oriental Spa North on East Francis, bought a brand new boat, truck and trailer with cash from his alleged brothel. In a previous interview, Day denied any wrong doing. He now faces 117 counts of money laundering.

But that may not be their only problem.

Some tax experts believe the owners were committing tax fraud too: pocketing the cash instead of writing it down in the books and therefore under-reporting their earnings to the tax man.

How else did Day and his mother Chin Day, Oriental Spa's manager, only claim to have earned $37,534.52 last year combined?

What about the owner of Starlite Spa, Insuk Argo? State records show Argo only claimed $15,600 from her spa last year. Despite no other income, court records show she blew $160,000 on gambling at Northern Quest Casino.

Then there's Diana Welch, owner of Oriental Spa South on Maple Street. Court documents show Welch earned around $51,000 and yet, in the last two years, the same documents show she dropped $30,000 on two new cars. And guess how she paid for them? Cash.

While the IRS is not talking, KHQ confirmed that their investigators are involved in the case.

On July 10th, on the day of the raids, it all came crumbling down. Remember all those toys? Police seized every item believed to be purchased by prostitution. Plus, with the power of subpoenas, investigators went after all of the spa owners' financial holdings including stocks and bonds. In some cases, they liquidated all of their assets.

At this point, Airway Heights Police detectives are around the clock to prove the spa owners were selling more than just massages. But they might have more to fear than jail time. The owners could very well have a giant tax bill coming their way too.

Tax fraud or tax evasion is much more serious than prostitution cases alone when it comes to shutting down criminal enterprises. Some of the biggest criminals in the country were brought down this way. Notorious Hollywood madam Heidi Fleiss and mobster Al Capone were busted for tax evasion.

To be clear, none of the spa owners have been charged with any tax-related crime.

MORE INFORMATION:

The Airway Heights Police Department says it's gone through all the seized evidence since the raids happened on July 10. They're asking for anyone with information to come forward to help strengthen the investigation. 

If you have been to a spa, worked at a spa, or used the spa for any purpose, Airway Heights police officers want to speak to you.

Call the Airway Heights Police Department at (509) 244-3707.

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