Eurasia Press & News
A case that the Justice Department has described as one of the largest tax evasion prosecutions in U.S. history culminated on Wednesday with businessman Douglas Edelman pleading guilty in a Washington courtroom to conspiracy and making false statements to U.S. authorities, along with several other criminal charges.
For nearly two decades, the California-born businessman sat atop a near-invisible corporate empire that received more than $7 billion in defense contracts to supply fuel and services to the U.S. military. Edelman used his newfound wealth to fund investments across the globe — from Hollywood movies to an Iraqi newspaper to an MTV franchise in eastern Europe. He also maintained a veil of secrecy over his personal stake in two defense contracting firms and in his subsequent investments, saying at one point in a recorded conversation that he spent “all of my time trying to make sure my name isn’t [on] anything,” according to court documents.
In court on Wednesday, Edelman, 73, pleaded guilty to creating a fake paper trail and making false statements that his 50% stake in the defense firms instead belonged to his French wife, Delphine le Dain. Because le Dain is not a U.S. citizen and does not live in the U.S., she was not liable to pay U.S. taxes on what the indictment stated was over $350 million in income from the business. Edelman pleaded guilty to 10 counts of the 30-count indictment, and could still face prosecution on charges related to tax evasion from 2013 to 2020. The court will determine later this year the amount of income on which Edelman evaded taxes, which will play a key role in determining his prison sentence.
Described by a friend as a “happy bohemian” — someone who liked jazz, parties and the occasional puff of marijuana — Edelman went from a small-time fuel trader and bar owner in Kyrgyzstan’s capital of Bishkek to a fabulously wealthy defense contractor, profiting off the windfall that accompanied the U.S. military response to the Sept. 11, 2001, attacks. After the U.S. Air Force transformed Bishkek’s international airport into a critical hub for that year’s invasion of Afghanistan, Edelman and his Kyrgyz partner found themselves delivering 500,000 gallons per day of jet fuel to the U.S. military.
The Edelman affair has shed light on the Defense Department’s well-documented and chronic accounting failures. The Pentagon has never passed a comprehensive audit, failing for the last seven years to fully account for its trillions of dollars in assets and liabilities. It has also failed to implement a 2021 law that requires contractors to identify their beneficial ownership — a provision which, experts said, would have complicated Edelman’s efforts to obscure his ownership.
Leaked documents show that the prominent Panamanian law firm Alemán, Cordero, Galindo & Lee, known as Alcogal, sent letters to other law firms in 2010, just as a congressional investigation into Edelman’s business was heating up, identifying le Dain and her children as the ultimate beneficiaries of a trust that held his investments. The firm stressed in its letters that the information was “strictly personal and confidential” and should be kept separate from the company’s corporate records.
A few months after congressional investigators released their report in December 2010, which was prominently covered in The Washington Post and elsewhere, Alcogal dropped Edelman’s offshore network as a client. In response, another of Edelman’s representatives angrily wrote to the law firm that he was surprised “that you believe to [sic] what is written on the Internet” and that the entire episode was caused by “a journalist who did not have any evidence.”
The case was pursued by the Joint Chiefs of Global Tax Enforcement, or J5, an international body comprising the tax authorities of the United States, Australia, Canada, the United Kingdom and the Netherlands. The body was established following the revelations in the Panama and Paradise Papers, with the understanding that greater global coordination was necessary as tax evaders used global financial systems to conceal their income.
The investigation, which the J5 dubbed “Operation Jetsetter,” was its first signature success, said Robert Warren, a former Internal Revenue Service special agent and an assistant professor of accounting at Virginia’s Radford University. “They’re going to be crowing about this for years,” he said.
U.S. prosecutors drew on roughly two million documents about Edelman’s corporate empire, seized from jurisdictions around the world. In 2020, British police raided Edelman’s $43 million mansion in London’s Kensington neighborhood. In 2023, according to leaked documents, the Cypriot police demanded documents relating to Edelman’s businesses — including a company previously owned with a godson of King Charles — from a Nicosia-based law firm.
The Pentagon did not know who owned Edelman’s firms, Mina Corp. and Red Star Enterprises, until it was revealed by the congressional investigation. If it had been required to gather this information, Warren said, U.S. tax authorities would have been able to identify his tax evasion much sooner.
Congress adopted a provision in 2021 requiring the collection of this information. In the months following the passage of the law, the U.S. government bodies in charge of establishing federal acquisitions rules ordered two reports on how to implement the 2021 law. However, both reports have been languishing unfinished for more than four years.
Even as the U.S. military funneled billions of dollars in contracts their way, Mina and Red Star obscured their operations in secrecy. The addresses they listed in correspondence with the Pentagon were virtual offices or shared office spaces. And in Kyrgyzstan, opposition politicians claimed that the firms were siphoning money into the pockets of the country’s corrupt president — helping to stoke public anger that eventually boiled over into revolution.
“It’s kind of Due Diligence 101,” Scott Lindsay, former counsel to the House subcommittee that investigated Mina and Red Star, told the International Consortium of Investigative Journalists. “When you go to a company for a multibillion-dollar contract and they do not have a website and are nothing more than a PO Box in Gibraltar, you need to ask more questions.”
German beer, American burgers and Russian fuel
Kyrgyzstan, which offered minimal infrastructure and few natural resources, was an unlikely place to seek a fortune when Douglas Edelman moved there in the mid-1990s. And Edelman, a trader with only two years of college and no great wealth behind him, was an unlikely figure to strike it rich. But he had two things going for him: an in-depth knowledge of Russia’s fuel business, and a bar.
Edelman had arrived from Russia, where he exploited the chaos caused by the collapse of the Soviet Union to establish himself as an intermediary for Russian refineries. The relationships that he developed in Moscow would prove crucial: Mina and Red Star transported massive amounts of fuel from Russia to Kyrgyzstan, despite a perceived Russian ban on the export of fuel for military use. The congressional investigation quoted from internal documents in which Red Star said it had “cracked the code” on exporting Russian fuel, in part by developing relationships with Russian fuel producers, railway authorities and government officials “to make sure there is no intervention” that would interrupt the supply of fuel.
In 1998, Edelman also opened one of the first Western-style bars in downtown Bishkek: The American Pub. It served German beer, American burgers and — in a concession to Kyrgyz culinary tastes — caviar.
The pub quickly became a popular destination for the city’s small community of expats. And Edelman would draw on its clientele, including former U.S. military officers, to help navigate the Pentagon’s complex military contracting process. Most notably, Chuck Squires, a former U.S. Army lieutenant colonel who served as defense attaché at the U.S. embassy in Bishkek, and rose to become CEO of one of the defense contractors in 2015.
Mina and Red Star served as contractors for the Defense Department from 2003 until the Taliban takeover of Afghanistan in 2021, according to public records. Edelman sold his stake in the firms in 2020.
As the war raged in Afghanistan, Edelman accomplished an incredible logistical feat: Every morning, according to an individual who served as a consultant for the firms, the companies produced a document that tracked the location of every single railway car along the journey the fuel would take. Mina and Red Star employed 1,200 people at this time, the consultant remembers Edelman saying, to fill the U.S. military’s insatiable need for fuel.
But even as Mina and Red Star reaped enormous profits from the Pentagon, law enforcement agencies began to investigate Edelman and his associates. The inquiry was led by the IRS and the Office of the Special Inspector General for Afghanistan Reconstruction, which had long investigated crimes connected to the country’s lucrative fuel business.
In a statement to ICIJ, SIGAR acting Inspector General Gene Aloise said that Edelman’s guilty plea was the result of “seven years of tireless and thorough investigative work” that had ultimately “uncovered a fraud scheme that spanned many years and crossed international borders.”
‘It was madness’
Edelman became richer with every U.S. cargo plane and fighter jet that lifted off from Kyrgyzstan. But at the height of his success, according to people close to him, he steadily isolated himself from old friends and business acquaintances. One acquaintance remembers Edelman grabbing their address book in a bar, flipping through it until finding his name, and asking the acquaintance to throw away his contact information.
Edelman also worked diligently to conceal his wealth. A leaked document from 2013 provides a snapshot of the corporate structure Edelman used to conceal his business interests: the network contained a maze of 10 British Virgin Islands and Belize-based corporations, some with whimsical names like Joseph Schmo Investment Ltd. These companies were owned by a U.K.-based corporation, which was in turn owned by a Panama-based firm, whose profits were then directed into a Panama-based foundation for the benefit of Edelman’s wife and their children.
Edelman’s name was nowhere to be found as the director or owner of these companies. It only appeared on a separate internal document that granted him power of attorney over the foundation.
And with these concealed assets, he lived a life of luxury. In addition to his London mansion, he purchased an Austrian ski chalet, placing his stake in the property in the name of his wife’s unemployed brother, according to court filings in a different case. Over the next few years, he bought two yachts, the Divinity and the Princess Juliet.
“It was madness,” said one friend. “There was this arrogance to Doug at that time. He just thought he could get away with it.”
Photos from the indictment against Douglas Edelman showing assets he allegedly purchased using offshore companies, including a London mansion (top left), an Austrian ski chalet (bottom left) and two yachts, right.
Edelman launched a startling array of businesses with his newfound wealth. He invested in a company that provided internet access to U.S. troops in Afghanistan, a real estate project in the Mexican tourist destination of Tulum and an advertising company in South Sudan. He held a stake in a fuel infrastructure project in Mexico and sold the use of a piece of heavy machinery used in oil exploration to the U.S. Department of Energy. He owned a production company that invested in a biopic of evangelist Billy Graham, a film about sex and murder in an Italian castle, and a “gritty thriller” about a teenage girl involved in a sexting scandal.
Some of Edelman’s closest associates attempted to use similar methods to evade taxes — a development that eventually contributed to his downfall.
“I think they just jumped on the bandwagon with Doug,” said the friend. “It was a kind of sport.”
Squires, the former U.S. military officer, set up a Seychelles company where he parked his income from Mina and Red Star, using an email address whose handle was “intconman.” The website of a restaurant run by his family members also included cryptic references to his work: “Chuck is doing dangerous things in Zagreb.”
In a letter to ICIJ, Squires wrote that Edelman never discussed his income or taxes with him, and that he didn’t believe Edelman counseled his friends on how to evade taxes.
Over the past three years, six of his former employees — including Squires — all pleaded guilty to evading taxes. The plea agreements struck by Edelman’s associates with federal prosecutors in Washington required them to provide evidence in Edelman’s case. U.S. prosecutors also stated in court filings that they expected Edelman’s Kyrgyz business partner and his longtime accountant to confirm key aspects of their case. Edelman’s attorneys began negotiating a plea agreement soon after the accountant, Graham Collett, was deposed by prosecutors in February.
Edelman himself was arrested in Ibiza last July and subsequently extradited to the United States. He was initially released under house arrest on a $12.9 million unsecured bail while waiting trial.
Within days of the beginning of his house arrest, Edelman violated its terms by contacting one of the unindicted co-conspirators in his case, Robert Dooner, offering him help in gaining access to millions of dollars of stock from a Bahamas-based bank account held by one of Edelman’s companies. The violation landed Edelman in jail in December.
Edelman explained his actions to the judge by saying that he was lonely. His own lawyer referred to his client’s actions as “extremely stupid.”
Edelman’s guilty plea represents an increasingly rare success for the United States, where resources devoted to catching tax cheats have fallen precipitously. The IRS’s Criminal Investigations division, which spearheaded the Edelman case, has experienced a 16% decrease in the number of special agents it employs since 2010. The number of criminal indictments and charges it has brought on tax evasion of legally earned income also dropped over 40% through 2023. By the IRS’s own calculations, it currently fails to collect more than $600 billion in taxes per year.
The Trump administration’s plans for massive layoffs at the IRS, which could see up to 25% of the agency’s workforce lose their jobs, could worsen these trends. Trump’s nominee to serve as IRS director is a former congressman who sponsored legislation to abolish the agency. The administration has already lost 38% of the IRS unit tasked with auditing ultra-wealthy individuals. “It’s the end of tax administration as we know it,” said Warren, the former IRS agent.
For Edelman, the Wednesday court hearing marked a spectacular fall after enjoying two decades of extraordinary wealth. He appeared in the courtroom escorted by members of the U.S. Marshal Service and wearing a wrinkled orange jumpsuit, standard issue for inmates held at a Washington, D.C., jail. He spoke little during the hearing, repeatedly saying “Yes, your honor” when asked by the judge to confirm details of his guilty plea.
The only glimpse that court proceedings provided into Edelman’s state of mind came during the December hearing, which led to the revocation of his house arrest. At that hearing, the judge told Edelman that he should have understood that contacting one of his co-conspirators violated the conditions of his release, as he was an intelligent person.
To that point, Edelman briefly interjected: “I’m not so sure.”
