Former Defense Contractor Pleads Guilty to Tax Crimes

A former defense contractor pleaded guilty today to tax crimes related to his scheme to defraud the United States and evade taxes on income that he earned from his contracts with the U.S. Department of Defense.

The following is according to court documents and statements made in court: Douglas Edelman founded and owned 50% of Mina Corp. and Red Star Enterprises (Mina/Red Star), a defense contracting business that received more than $7 billion from contracts with the U.S. Department of Defense to provide jet fuel in the United States’ post-9/11 military efforts in Afghanistan and the Middle East.

Working with others, Edelman engaged in a lengthy scheme to hide his Mina/Red Star profits to evade U.S. taxes, including by concealing his income in undisclosed foreign bank accounts, creating false documents and making false statements that one of his co-conspirators — a French citizen residing abroad and without U.S. tax obligations — founded and owned Mina/Red Star.

For example, when the company became profitable in 2005, Edelman began taking distributions which he deposited into Swiss bank accounts, primarily at Credit Suisse, in the name of other companies he owned. In 2008, Credit Suisse informed Edelman that he had to either close his accounts or disclose them to U.S. authorities. Rather than come into compliance with his tax and reporting obligations, Edelman closed his accounts and opened new ones at Bank Julius Baer in Singapore in the name of a nominee entity, the beneficiaries of which were purportedly Edelman’s daughters. He then directed the subject income he earned from Mina/Red Star to those bank accounts.

In 2010 the U.S. House of Representatives Committee on Oversight and Government Reform’s Subcommittee on National Security and Foreign Affairs began investigating allegations of corruption in connection with Mina/Red Star’s contracts with the Department of Defense. As part of this inquiry, the subcommittee became interested in the identity of Mina/Red Star’s owners. At this time, Edelman had not filed U.S. tax returns to report the millions of dollars he had earned from Mina/Red Star and had not paid U.S. taxes on his income.

Rather than disclose his ownership, Edelman caused his attorneys to tell Congress a false story that a French co-conspirator who had no U.S. tax or reporting obligations founded and co-owed Mina/Red Star with another individual. To corroborate the false story, Edelman and a co-conspirator caused false and backdated paperwork to be created.

To continue the scheme, Edelman conveyed the false story about Mina/Red Star’s ownership to other arms of the U.S. government, including to the Department of Defense during contract negotiations in 2010 and 2011, to the IRS in a 2016 application to the Offshore Voluntary Disclosure Program, and to the Justice Department in a 2018 presentation.

In conjunction with his 2016 application to the IRS’s Voluntary Disclosure Program, Edelman filed false tax returns for several prior years that only reported income from gifts or purported consulting payments, continuing to conceal the millions he had earned from his company. On the returns, he  also concealed profits he had earned from a separate business to provide internet service to members of the armed forces at Kandahar Air Base in Afghanistan.

Instead of paying the taxes that he knew he owed, Edelman used the money to fund his lifestyle and additional investments. He invested in a music television franchise in Eastern Europe, a land venture in Tulum, Mexico, and a farm in Kenya, and purchased property around Europe, including a home in Ibiza, Spain, and a townhouse in London.

Edelman faces a maximum penalty of five years in prison for each count to which he has pleaded. He also faces a period of supervised release, restitution, and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Acting Deputy Assistant Attorney General Karen E. Kelly of the Justice Department’s Tax Division, U.S. Attorney Jeanine Ferris Pirro for the District of Columbia, and Executive Special Agent in Charge Kareem Carter of the Criminal Investigation (IRS-CI) Washington, D.C., Field Office made the announcement.

Special agents from IRS-CI’s International Tax & Financial Crimes specialty group, a team based out of Washington, D.C., that is dedicated to uncovering international tax crimes, along with the Special Inspector General for Afghanistan Reconstruction are investigating the case. The Justice Department’s Office of International Affairs assisted in the investigation. Also providing assistance were His Majesty’s Revenue & Customs of the United Kingdom; the Joint Chiefs of Global Tax Enforcement (J5), which brings together the taxing authorities of Australia, Canada, the Netherlands, the United Kingdom, and the United States; and authorities from Belize, Israel, and Cyprus.

The Government of the Kingdom of Spain arrested and extradited Edelman to the United States. The Justice Department’s Office of International Affairs also provided substantial assistance in securing Edelman’s arrest and extradition.

Assistant Chief Sarah Ranney and Trial Attorney Ezra Spiro of the Tax Division and Assistant U.S. Attorney Joshua Gold for the District of Columbia are prosecuting the case.