Former U.S. defense contractor Douglas Edelman, 72, and his French wife, Delphine Le Dain, 58, have been charged in a decades-long scheme to defraud the United States and evade taxes on more than $350 million in income. A 30-count indictment against them was unsealed today in the U.S. District Court for the District of Columbia after Edelman was arrested in Ibiza, Spain. The United States will seek Edelman’s extradition to stand trial.
The Indictment
According to the indictment, between 2003 and 2020, Edelman allegedly owned 50% of Mina Corp. and Red Star Enterprises (Mina/Red Star), a business that received more than $7 billion from contracts with the U.S. Department of Defense to provide jet fuel to U.S. troops in Afghanistan and the Middle East.
Prosecutors allege that Edelman worked with his wife and several other co-conspirators to engage in a years-long scheme to conceal his profits from Mina/Red Star, including by hiding income in undisclosed foreign bank accounts, creating false documents, and making false statements that Le Dain, as a French citizen residing abroad, did not have U.S. tax obligations. Le Dain allegedly signed false documents, including those that purported to “gift” Edelman money for certain personal expenses.
The indictment further alleges that, as part of the scheme, Edelman conveyed this false story of Le Dain’s ownership to various arms of the U.S. government, including a subcommittee of the U.S. House of Representatives during a 2010 Congressional investigation, the Department of Defense during contract negotiations, the IRS in a 2015 application for the Offshore Voluntary Disclosure Program (OVDP), and the Department of Justice in a 2018 presentation.
Prosecutors allege that until approximately 2015, Edelman did not file any U.S. individual tax returns or pay any tax on money he made from Mina/Red Star. In 2015, he allegedly filed false back tax returns for 2007 to 2014, claiming that his business interests, income, and assets belonged to Le Dain during that period. Those filings appear to have been part of his effort to be accepted into the OVDP, which allowed those who had failed to report offshore income and accounts to come clean without facing criminal charges. From 2015 to 2020, Edelman allegedly filed false tax returns claiming that his only income was as a consultant and that he had no interests in any foreign businesses.
The indictment further alleges that Edelman directed Mina/Red Star profits into banks in secrecy-favored countries such as Switzerland, the Bahamas, Singapore, and the United Arab Emirates. To further conceal his identity, he allegedly held the accounts in the name of non-U.S. entities created in countries such as Panama, Belize, and the British Virgin Islands.
According to prosecutors, Edelman controlled the money in these accounts and used it to fund his other business ventures around the world, including a business selling internet services to U.S. troops and contractors at Kandahar Air Base in Afghanistan, a Mexican fuel infrastructure project, and a music television franchise in Eastern Europe. Edelman allegedly also used the money to buy a ski chalet in Austria, a house in Spain, a townhouse in London, and multiple yachts—purchased in the name of nominees.
As a result of the investigation, Edelman and Le Dain are charged with conspiring to defraud the United States and 15 counts of tax evasion. Edelman is also charged with two counts of making false statements to the United States and 12 counts of willfully violating his foreign bank account reporting obligations as part of a pattern of unlawful activity.
An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
It was not immediately clear whether Edelman was represented by an attorney or where Le Dain is.
At least four former executives who worked with Edelman’s companies have already pleaded guilty to tax evasion.
The Long Backstory
Edelman first came under public scrutiny in 2010 when the Washington Post reported that Mina Corp. and Red Star—both registered in tax-favored Gibraltar—had already won U.S. military contracts to supply nearly $2 billion in jet fuel, without the Pentagon questioning their identity for nearly eight years. (Pentagon contracting regulations did not require that contractors reveal their ownership.)
That same year, a subcommittee of the House Committee on Oversight and Government Reform held public hearings focused on the Department of Defense’s principal fuel contracting arm, which had, since 2002, awarded Mina and Red Star Enterprises contracts worth $2 billion for fuel at Manas Transit Center in Kyrgyzstan, a major U.S. refueling hub and waystation for U.S. troops going to Afghanistan. Several additional contracts were also awarded to Red Star for fuel supply to the Bagram Air Base in Afghanistan.
In its final report in December 2010, the subcommittee (which was not looking into tax issues) found no actual wrongdoing by Mina and Red Star but excoriated it for exhibiting “a troubling disdain for their responsibilities as a U.S. government contractor in the early stages of the investigation.” Among other things, the report said, “Mina and Red Star and their principals initially stonewalled the Subcommittee’s investigation,” stating “that they would rather walk away from their multi-billion dollar fuel contracting empire than publicly reveal their beneficial ownership,” asked for a congressional grant of use-immunity for their testimony and “flatly refused to cooperate.” They did, however, respond to congressional subpoenas eventually issued for corporate documents and individual testimony.
Investigators And The J5
IRS Criminal Investigation (CI) and the Special Inspector General for Afghanistan Reconstruction are investigating the case, with assistance from His Majesty’s Revenue & Customs of the United Kingdom. Assistance was also provided by 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. The Guardia Civil of Spain assisted with the arrest.
The J5 was organized in 2018 to combat crime on a global level by sharing resources. The J5 consists of criminal intelligence communities from Australia, Canada, the Netherlands, the United Kingdom, and the United States, committed to collaborating in the fight against international and transnational tax crime and money laundering. Membership of the J5 includes the heads of tax crime and senior officials in tax agencies, including the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Fiscale Inlichtingen-en Opsporingsdienst (FIOD), HM Revenue & Customs (HMRC) and Internal Revenue Service Criminal Investigation (IRS-CI).
You can read more about the J5 here.
“This case is a great example of exactly why the J5 exists. Through our collaboration over the course of several years and operational activity in each of our jurisdictions, a thorough investigation has now led to the arrest and indictment of Douglas Edelman,” said Guy Ficco, CI Chief.
“This is the largest J5 case to date and comes as the organization celebrates six years together – a true culmination of our capability and a resounding message to others in the world about our resolve.”
Spain and the United States have an extradition treaty, and by agreement, will typically extradite persons accused of crimes that are punishable with a sentence of more than a year in jail (some exceptions apply). The potential sentences in this case—up to five years in prison for the conspiracy count, five years in federal prison for each tax evasion count, up to five years in prison for each false statement count, and ten years in federal prison for each count of willfully violating foreign bank account reporting while engaged in a pattern of unlawful activity involving more than $100,000 per year—meet the extradition criteria.
Read the full article here