According to a Department of Justice press release, Douglas Edelman—a 73-year-old former defense contractor—has pleaded guilty to ten felony counts for a decade-long scheme that hid his 50 percent stake in Mina Corp. and Red Star Enterprises, companies that earned more than $7 billion supplying jet fuel to U.S. forces after 9/11. The counts include conspiracy to defraud the United States, seven counts of tax evasion, and two counts of making false statements.
While taxes saved through lawful planning are one thing, taxes that are evaded through illegal means are quite another. If your business structure involves offshore entities, nominee owners, or undisclosed accounts and you are unsure whether it remains on the right side of the line, it is in your best interest to contact an experienced Los Angeles tax attorney immediately to protect yourself before a civil tax matter turns criminal.
Court Records Reveal a Sophisticated Concealment Web
Edelman founded Mina Corp. and Red Star in the early 2000s, securing multibillion-dollar contracts from the Defense Logistics Agency to deliver jet fuel throughout Afghanistan and the broader Middle East. By 2005 the venture was wildly profitable, and Edelman began routing distributions into Swiss accounts at Credit Suisse held by shell companies he controlled.
Nominee ownership: To cloak his interest, Edelman and co-conspirators drafted back-dated documents naming a French associate (someone with no U.S. tax obligations) as the 50 percent owner. This fiction was presented to Congress during a 2010 House Oversight investigation, to the Pentagon in contract negotiations, to the IRS in a 2016 Offshore Voluntary Disclosure Program (OVDP) submission, and to the Justice Department in a 2018 presentation.
Hidden foreign accounts: When Credit Suisse demanded U.S. disclosure in 2008, Edelman simply closed those accounts and reopened at Bank Julius Baer in Singapore under a trust ostensibly benefiting his daughters. Moving assets to a new undisclosed institution is an “affirmative act” required to prove criminality.
False voluntary disclosure: Edelman’s 2016 OVDP package reported only modest “consulting” fees and gift income, leaving off the nine-figure Mina/Red Star profits and yet another revenue stream from an internet-service venture at Kandahar Air Base. Submitting false returns under penalties of perjury can be an additional felony.
Investigators found emails instructing Swiss bankers to avoid U.S. scrutiny, drafts of sham share certificates, and payment instructions directing Pentagon money into offshore accounts, all of which demonstrated the willfulness element required for tax-evasion charges.
Planning Versus Tax Evasion
The Internal Revenue Code lets taxpayers arrange their affairs to pay the least tax legally possible; courts have long upheld that axiom—from Commissioner v. Newman, 159 F.2d 848 (2d Cir. 1947), to modern cases involving foreign deferral. Legitimate planning includes:
- Choosing a tax-efficient entity form (C-corp, S-corp, partnership, etc.).
- Locating subsidiaries abroad to take advantage of a territorial system or treaty benefits.
- Claiming deductions, credits, or incentives Congress explicitly provides (e.g., FDII, R&D credit).
But planning crosses into felony territory the moment a taxpayer:
- Omits income or files materially false returns,
- Uses nominees or shell entities to hide beneficial ownership or bank accounts, or
- Lies to the IRS, Congress, or other federal agencies about material facts.
The key legal phrase in the law defining tax evasion is “any affirmative act … to evade or defeat tax.” Courts routinely find “affirmative acts” in back-dated paperwork, undisclosed accounts, and false statements, all of which prosecutors say were present in Edelman’s conduct.
Practical Takeaways for Business Owners and High Net Worth Individuals
- Substance over form. If you control the cash, the IRS will treat you as the owner, even if title rests with an offshore entity or trust.
- Transparency beats secrecy. FBARs (FinCEN Form 114) and Form 8938 must be filed for foreign accounts; penalties can dwarf the underlying tax not to mention criminal foreign information reporting exposure.
- Voluntary disclosure must be complete. Partial truth equals felony exposure. A truthful OVDP submission often avoids prosecution; a false one compounds & invites it. Do not get caught cheating in an amnesty program that demands timely, complete and true tax filings in order to be granted a pass on criminal tax prosecution.
- Document legitimate purpose. A contemporaneous opinion letter or transfer-pricing study can rebut willfulness if challenged later.
- Retain counsel before you speak. Misstatements to Congress, DOD, or the IRS can trigger new charges.
This story exemplifies the severe repercussions that follow when business structuring slips from lawful avoidance into criminal tax evasion. If you have routed funds through offshore vehicles, filed incomplete returns, or made representations that might not withstand scrutiny, do not wait for an IRS letter or visit. Contact a seasoned dually-licensed tax attorney-CPA for a confidential consultation.
