Former Defense Contractor And His Wife Indicted For Evading U.S. Taxes On Profits From Selling Jet Fuel To U.S. Military

 The U.S. Justice Department released the below information:

An indictment was unsealed on July 3^rd charging Douglas Edelman, a former defense contractor, and Delphine Le Dain, his wife, with a decades-long scheme to defraud the United States and evade taxes on more than $350 million in income Edelman made as a defense contractor during the United States’ post-9/11 military efforts in Afghanistan and the Middle East. Edelman was arrested on July 3 in Spain based on the U.S. criminal charges. The United States will seek Edelman’s extradition to stand trial in the United States.

According to the indictment, between 2003 and 2020, Edelman allegedly was the 50% owner of Mina Corp. and Red Star Enterprises (Mina/Red Star), a defense contracting business that received more than $7 billion from contracts with the Department of Defense to provide jet fuel to U.S. troops in Afghanistan and the Middle East. Working with Le Dain and several other co-conspirators, Edelman allegedly engaged in a lengthy scheme to hide his profits from Mina/Red Star, including by concealing his income in undisclosed foreign bank accounts, creating false documents and making false statements that Le Dain — who, as a French citizen residing abroad, did not have U.S. tax obligations — founded and owned Mina/Red Star. Le Dain allegedly signed some of the false documents, including those that purported to “gift” Edelman money for certain personal expenses.   

The indictment further alleges that to carry out his scheme, Edelman conveyed this false story of Le Dain’s ownership to arms of the U.S. government, including to a Subcommittee of the House of Representatives during a 2010 Congressional investigation, to the Department of Defense during contract negotiations, to the Internal Revenue Service in a 2015 application to the Offshore Voluntary Disclosure Program, and to the Justice Department in a 2018 presentation. 

Until approximately 2015, Edelman allegedly did not file any U.S. individual tax returns and did not pay any tax on the tens of millions of dollars he was allegedly making each year from Mina/Red Star. In 2015, Edelman allegedly filed false returns for tax years 2007 to 2014, claiming that his business interests, income, and assets belonged to Le Dain. From 2015 to 2020, Edelman allegedly filed false tax returns reporting 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 his profits from Mina/Red Star into banks known at the time to shield account holder identities from U.S. authorities, in countries such as Switzerland, the Bahamas, Singapore and United Arab Emirates. 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. Edelman allegedly always 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 — all of which were purchased in the name of nominees.

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.

If convicted, Edelman and Le Dain face up to five years in prison for the conspiracy count, as well as up to five years in prison for each tax evasion count. Edelman also faces up to five years in prison for each false statement count and ten years in 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. They each face 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 Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney Matthew M. Graves for the District of Columbia made the announcement.

IRS Criminal Investigation 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, United Kingdom and United States. Assistance with the arrest was provided by the U.S. Drug Enforcement Agency and Guardia Civil of Spain.

Senior Litigation Counsel Nanette Davis, 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.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Man Pleads Guilty To Selling $3.5M In Counterfeit And Deficient Electronics For Use In Military Systems

The U.S. Justice Department released the below information:

A California man pleaded guilty yesterday to a scheme to defraud the Department of Defense’s (DoD) Defense Logistics Agency (DLA) by selling over $3.5 million worth of fan assemblies to the DLA that were either counterfeit or misrepresented to be new.

“The defendant sold counterfeit and deficient fan assemblies for use in military systems to increase his profit,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division. “Criminals who cheat the U.S. military by selling deficient or counterfeit goods put our national security at risk. This case demonstrates the Justice Department’s commitment to protecting the military supply chain and Americans’ security.”

“Through his company, Kim delivered counterfeit products to our armed services and tried to pass off non-conforming products with fake invoices,” said U.S. Attorney Ismail Ramsey for the Northern District of California. “Swindling our military is a sure way to find oneself in jail. This office is always on the lookout for fraudsters and will prosecute anyone caught cheating our military by providing products that endanger our service people or compromise our readiness.”

According to court documents, Steve H.S. Kim, 63, of Alameda County, controlled Company A, which sold fan assemblies to the DLA that were either counterfeit or were used or surplus fan assemblies that he claimed were new. To trick the DLA into accepting the fan assemblies, Kim created counterfeit labels — some of which used Company B’s registered trademarks — that he attached to the fan assemblies he sold to the DLA. When the DLA questioned Kim about the origin of the fan assemblies, Kim concealed his scheme by giving the DLA fake tracing documents that he created and often signed using a false identity. Some of these counterfeit fans were installed or intended to be installed with electrical components on a nuclear submarine, a laser system on an aircraft, and a surface-to-air missile system.

“The Defense Criminal Investigative Service (DCIS), the law enforcement arm of the DoD Office of Inspector General, is fully committed to protecting the integrity of the DoD supply chain,” said Special Agent in Charge Bryan D. Denny of the DCIS Western Field Office. “Supplying counterfeit products to the DoD endangers the mission and betrays the public’s trust. This investigation demonstrates DCIS’ ongoing commitment to working with its law enforcement partners to hold individuals who defraud the DoD accountable.”

“The Naval Criminal Investigative Service (NCIS) and our law enforcement partners work diligently to thwart attempts to infiltrate the DoD supply chain with potentially damaging counterfeit product,” said Special Agent in Charge Greg Gross of the NCIS Economic Crimes Field Office. “This case highlights the efforts of the investigative team to expeditiously shut down such a scheme and prevent possible grievous harm to our ability to conduct effective combat operations.”

“This case reflects Homeland Security Investigation’s (HSI) core mission set of investigating national security threats as well as protecting global trade and government supply chains,” said Special Agent in Charge Tatum King of HSI San Francisco. “In this case, the serious risks posed to mission readiness were especially alarming. HSI appreciates the joint efforts of NCIS, DCIS, and the Army Criminal Investigation Division (Army CID), together with the Justice Department, in bringing the violator to justice.”

“The result of this joint investigation underscores the importance of our federal law enforcement partnerships and shows that by working together we can identify, prosecute, and dismantle businesses that supply the U.S. military with fraudulent parts and services,” said Special Agent in Charge Keith K. Kelly of the Army CID Fraud Field Office. “Our Army communities and the public can rest assured that we are committed to pursuing anyone that would defraud the U.S. government for their own personal gain and put combat readiness at risk.”

Kim pleaded guilty to one count of wire fraud and one count of trafficking in counterfeit goods. He is scheduled to be sentenced on July 17 and faces a maximum penalty of 20 years in prison on the wire fraud count and 10 years in prison on the trafficking in counterfeit goods count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

DCIS, NCIS, HSI, and Army CID are investigating the case.

Assistant Chief Kyle C. Hankey and Trial Attorneys Louis Manzo and David D. Hamstra of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Katherine Lloyd-Lovett for the Northern District of California are prosecuting the case. Assistant Deputy Chief Adrienne Rose and Senior Counsels Jason Gull and Matthew A. Lamberti of the Criminal Division’s Computer Crime and Intellectual Property Section provided substantial assistance with the investigation. 

Navmar Applied Sciences Corporation Agrees To Pay $4.4 Million To Resolve Claims Of Double-Billing And Cost-Shifting Under U.S. Navy Contracts

The US Attorney’s Office in Philadelphia released the below information:

PHILADELPHIA – United States Attorney Jacqueline C. Romero announced today that Navmar Applied Sciences Corporation (NASC), headquartered in Warminster, Pennsylvania, has agreed to pay $4.4 million to resolve allegations that NASC violated the False Claims Act by knowingly and improperly double-billing and shifting certain labor and material costs under a series of contracts with the U.S. Department of the Navy. Separately, NASC has also agreed to resolve administrative claims arising out of an audit by the Defense Contract Audit Agency of NASC’s incurred cost proposals for Fiscal Years 2011, 2012, and 2013.

The United States’ allegations under the False Claims Act arise from a series of contracts, awarded by the Navy to NASC between 2010 and 2012, for enhanced intelligence, surveillance, and reconnaissance systems, hardware, maintenance technical support services, and the development and rapid deployment of various advanced sensors and Unmanned Aerial Systems.

The United States alleged that under those government contracts, NASC knowingly and improperly billed the Navy for certain labor and material costs on one contract, and then billed the same costs on another contract, and was improperly paid twice. The United States further alleged that in multiple instances, NASC knowingly and improperly shifted the costs of materials from one contract to another, to avoid cost ceilings and maximize payments from the government to which NASC was not entitled.

“This settlement demonstrates the Justice Department’s commitment to take appropriate action when it determines that taxpayer dollars have been doubled-billed and improperly accounted for,” said U.S. Attorney Romero. “Cases such as this one should be seen as a warning to defense contractors that false claims have no place in military purchasing.”

“Investigating allegations of cost mischarging on Department of Defense (DoD) contracts is a top priority for the Defense Criminal Investigative Service (DCIS), the law enforcement arm of the DoD Office of Inspector General,” stated Special Agent in Charge Patrick J. Hegarty, DCIS Northeast Field Office. “The DCIS is committed to working with the Naval Criminal Investigative Service and the Department of Justice to protect the integrity of the DoD procurement process. The Defense Contract Audit Agency’s Operations Investigative Support Division provided valuable expertise during this investigation.”

“Procurement fraud threatens military readiness and therefore poses a significant threat to our national security,” said Special Agent in Charge Gregory Gross of the NCIS Economic Crime Field Office. “NCIS remains committed to ensuring the good stewardship of U.S. taxpayer dollars by thoroughly investigating all allegations of fraud that damage the integrity of the Department of the Navy procurement process.”

The resolution obtained in this matter was the result of a coordinated effort between the United States Attorney’s Office for the Eastern District of Pennsylvania, the U.S. Department of Justice Civil Division, Commercial Litigation Branch, Fraud Section, with investigative assistance from the Defense Criminal Investigative Service, the Naval Criminal Investigative Service, the Defense Contract Audit Agency, and the Defense Contract Management Agency.

The matter is being handled in the U.S. Attorney’s Office by Assistant U.S. Attorneys Landon Y. Jones and Mark J. Sherer, and Auditor Dawn Wiggins.

Note: For a good number of years, I did security work for a Defense Department command in Philadelphia that oversaw contractors like Navmar for the U.S. Navy and the other military buying commands. 

As I noted in my Counterterrorism magazine piece on the Philadelphia Quartermaster bribery and procurement fraud case, I was involved in several investigations of contractor fraud and other crimes. 

You can read about the Quartermaster case via the below link:    

Paul Davis On Crime: A Look Back At The Multi-Million Dollar Defense Contract Fraud and Bribery Case At The Philadelphia Quartermaster

Former Civilian Navy Engineer Charged With Unlawful Disclosure

The U.S. Attorney's Office Eastern District of Pennsylvania released the below updated information on September 15th:

PHILADELPHIA – United States Attorney Jacqueline C. Romero announced that Nicole K. Schuster, 32, of Revere, Massachusetts was charged by Information with disclosing contractor bid, proposal, and source information. Schuster was a mechanical engineer and “project lead” employed by the United States Department of the Navy (“the Navy”) at the Naval Foundry and Propeller Center in Philadelphia, Pennsylvania (the “NFPC”).

According to the Information, in or about early 2019, Schuster began working as the project lead on a solicitation for a procurement contract for a submarine propeller-making machine known as a VTC. During the contracting and bidding process, Schuster favored one company, identified in the information as “Company 1,” over other competing companies. Schuster urged her superiors to make the contract for this VTC a “sole source” contract for Company 1. That is, she requested that the contracting process should be established in a manner that would ensure that Company 1 would be awarded the procurement contract. The NFPC and Defense Logistics Agency agreed to favor Company 1 in this process but did not agree to prevent other companies from pursuing the contract. Rather, they established a process that allowed other contractors to submit information and compete for the contract. 

The information further alleges that on or about September 14, 2019, Schuster sent a WhatsApp message to a representative of Company 1 expressing her “loyalty” to Company 1 and attaching to the message Company 2’s confidential and proprietary contractor bid, proposal, and source selection information for its VTC. The documents that Schuster provided to this representative of Company 1 were marked “SOURCE SELECTION INFORMATION,” “OFFICIAL USE ONLY,” and “[Company 2] Proprietary information.” The documents included cost and pricing data and proprietary information about manufacturing processes and techniques. This disclosure gave Company 1 a competitive advantage over Company 2 and other companies seeking to obtain the VTC contract.  

On or about April 28, 2020, the procurement contract for the VTC was awarded to Company 1 for a total price of $15,254,608.

The case was investigated by the Department of Defense, Office of Inspector General, Defense Criminal Investigative Service and the U.S. Naval Criminal Investigative Service, Economic Crimes Field Office, and is being prosecuted by Assistant United States Attorney Louis D. Lappen.

An indictment, information, or criminal complaint is an accusation. A defendant is presumed innocent unless and until proven guilty.

Defense Contractor L-3 Agrees To Pay $4.63 Million To Settle Overcharging Allegations

The U.S. Justice Department released the below information:

L-3 Communications Corporation, Vertex Aerospace LLC and L-3 Communications Integrated Systems LP (collectively L-3) have agreed to pay $4.63 million to resolve allegations that they inflated labor hours for time spent by independent contractors at the military’s Continental U.S. Replacement Centers (CRC) in Fort Benning, Georgia, and Fort Bliss, Texas, preparing to deploy to overseas posts to support U.S. military operations abroad.  The CRCs prepare individuals for deployment by providing orientation briefings, training, health screenings, payroll processing and addressing other administrative matters.   

“The Justice Department is committed to vigorously pursuing all those who knowingly submit false claims under government contracts,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Contractors that seek taxpayer funds must be scrupulous in their billing, and invoice only for work and amounts permitted by their contracts.” 

L-3 performed rotary aviation maintenance and support services for the U.S. Army in Afghanistan, Iraq, Egypt and Kuwait under contracts with the U.S. Air Force.  The United States alleges that from 2006 through November 2011, L-3 knowingly overcharged the government for time their independent contractors spent at the CRCs by billing for each individual not based on the actual time that individual spent at the CRC, but based instead on the earliest arrival or latest departure time of any other individual who also processed through the center that same day. 

“Contractors owe a duty to the taxpayers to accurately bill the United States for the actual work performed,” said U.S. Attorney John Horn of the Northern District of Georgia.  “This settlement demonstrates our commitment to hold contractors accountable for false billing and restore wrongfully taken funds to the military.”

“This collaborative investigative effort reflects the Defense Criminal Investigative Service’s commitment to protecting American taxpayers’ interests by ensuring integrity and accountability throughout the Defense contracting system,” said Special Agent in Charge John F. Khin of the Defense Criminal Investigative Service (DCIS) Southeast Field Office.

“Today’s settlement is a testament to the hard work of our special agents and also highlights the importance of the whistleblower provision of the False Claims Act,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit.  “In this particular case, a concerned citizen wasn’t afraid to speak up, alerted the proper authorities, and helped save the U.S. government millions of dollars.”

The allegations settled today arose from a lawsuit filed by a whistleblower, Robert A. Martin, a former L-3 independent contractor, under the qui tam provisions of the False Claims Act.  Under the act, private citizens can bring suit on behalf of the government for false claims and share in any recovery.  Mr. Martin will receive $798,675 from the recovery announced today.

This case was handled by the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office of the Northern District of Georgia, with the assistance of DCIS, the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit and the Defense Contract Audit Agency.

The lawsuit is captioned United States ex rel. Martin v. L-3 Communications Corp., et al., 1:10-CV-1622-CAP (N.D. Ga.).  The claims resolved by the settlement are allegations only; there has been no determination of liability. 

Former Navy Engineer Pleads Guilty To Organizing And Managing Multi-Million-Dollar Fraud Scheme, Associate Admits To Stealing Government Funds

The U.S. Justice Department released the below information yesterday:

PROVIDENCE, RI—Ralph M. Mariano, of Warwick, Rhode Island, a former senior systems engineer with the U.S. Navy’s Naval Sea Systems Command (NAVSEA) in Newport, Rhode Island, and Washington, D.C., pleaded guilty in U.S. District Court in Providence, Rhode Island, today to conspiracy and to defrauding the U.S. government of between $7 million and $20 million by directing co-conspirators to bill the navy for work that was never performed, announced Peter F. Neronha, U.S. Attorney for the District of Rhode Island.

Mariano admitted to the court that from 1999 to 2011, he used his position at NAVSEA to direct Russell Spencer, of Portsmouth, Rhode Island, a computer software specialist, to submit millions of dollars in fraudulent invoices to navy contractor Advanced Solutions for Tomorrow (ASFT), a Georgia and Middletown, Rhode Island company. Mariano admitted to the court that he directed ASFT to pay Spencer the full amount of the false invoices with money ASFT received from the Navy. Mariano admitted that the total amount of government money falsely obtained and paid to Spencer was approximately $17,957,000. The invoices were processed by Patrick Nagle, chief financial officer of ASFT.

At the time of his guilty plea, Mariano admitted to the court that he used a system of codes to direct Spencer to distribute the government funds to Mariano and individuals close to Mariano. Mariano admitted that he himself received $3,081,671 of navy funds by checks from Spencer. In addition, Mariano admitted to receiving bi-weekly $3,500 cash payments of navy funds from Spencer from 2004 to January 2011.

Mariano admitted to the court that little or no work was ever performed by Spencer in exchange for the government funds Spencer received and distributed at his direction. According to information provided to the court, Spencer provided ASFT and its subcontractors with numerous documents that purported to be work product over the years. Spencer typically provided ASFT with documents that he had taken from his employer, Electric Boat, without its consent. Spencer made cosmetic changes to the documents before submitting them to ASFT. Despite the fact that Spencer spent very little time making cosmetic changes to these documents, he billed ASFT upwards of $200,000 per month.
Mariano admitted to the court that at his direction, $2,567,028 was paid to his father, Ralph Mariano, Jr., of North Providence, Rhode Island; $1,692,650 was paid to his brother, Joseph Mariano, and to his companies; $207,900 was paid to a veterinary laboratory company controlled by his sister, Michelle Mariano; $2,446,445 was paid to private entities controlled by Anjan Dutta-Gupta, of Roswell, Georgia, chief executive officer of now-defunct ASFT.

In addition, Mariano admitted to the court that $478,880 in government funds fraudulently obtained was paid to a company owned by Attorney Mary O’Rourke, of Warwick, Rhode Island. O’Rourke pleaded guilty in U.S. District Court today to one count of theft of government property. O’Rourke admitted to the court that she submitted false invoices to Spencer from 2005 to 2011 and that she was paid with government funds for work that was never performed.

In addition to pleading guilty to conspiracy and theft of government funds, Ralph Mariano pleaded guilty today to one count of tax evasion. Mariano admitted to the court that from 2006 to 2009, he failed to report $1,864,910 in income he received from Russell Spencer. Mariano admitted that he owes the IRS $726,650.

Ralph Mariano and Mary O’Rourke are scheduled to be sentenced on September 5, 2013, by U.S. District Court Chief Judge Mary M. Lisi, who presided over today’s change-of-plea hearings.
Anjan Dutta-Gupta, who pleaded guilty on April 28, 2011, to one count of bribery, is scheduled to be sentenced on July 25, 2013, by U.S District Court Chief Judge Mary M. Lisi.

Russell Spencer, who pleaded guilty on July 25, 2012, to one count of conspiracy to commit bribery and on April 19, 2012, to one count of lying to the FBI, is scheduled to be sentenced on July 25, 2013, by U.S District Court Chief Judge Mary M. Lisi.

Patrick Nagle, who pleaded guilty on September 13, 2011, to one count of conspiracy to commit bribery, is scheduled to be sentenced on July 26, 2013, by U.S District Court Chief Judge Mary M. Lisi.

Ralph Mariano, Jr., who pleaded guilty on May 15, 2013 to four counts of tax evasion, is scheduled to be sentenced on August 16, 2013, by U.S. District Court Chief Judge Mary M. Lisi.
The cases are being prosecuted by Assistant United States Attorneys Lee H. Vilker, Terrence P. Donnelly and Dulce Donovan.

This matter was investigated by agents from the Defense Criminal Services, Naval Criminal Investigative Service; FBI; and Internal Revenue Service-Criminal Investigations.

This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force. The President established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.

The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.