Black Market Billions: How Organized Retail Crime Funds Global Terrorists (Gal Zentner's Library) (10 page)

Apart from Operation Greenquest, the FBI identified and interviewed 18 people led by families of Middle Eastern origin who bought and sold (in addition to infant formula) razor blades, nicotine patches, and Viagra stolen from supermarkets in north Texas between October and May. In addition to sending laundered funds via hawalas, these members moved money using diapers worn by infants on international flights, violating the Bank Secrecy Act of 1970.
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Money was also laundered through import and export businesses dealing with automobile parts. According to FBI informants, Middle Easterners in the north Texas area who owned and operated convenience stores would purchase items from “a loosely knit group of repetitive thieves and drug addicts,” repackage the merchandise, and sell it in their stores.

In the case of Maria, a former MS-13 gang member now jailed in Houston, her weekly haul along with her two other accomplices in Madison, Wisconsin, was nearly $200,000 retail, costing Walgreens close to $1.5 million a month. Although her route was through the Midwest, hitting mostly Walgreens stores from Houston all the way up to Madison, Maria would send the merchandise back to a warehouse in Louisville to be resold. Not only did the Louisville warehouse send the profits of the merchandise sold overseas to terrorist organizations, such as the Holy Land Foundation, the ORC ring also was funneling money back to the MS-13 group in Houston. This particular cell of the MS-13, according to the Houston Police Department and FBI, was known to take funds made from the sale of stolen over-the-counter drugs to fund other MS-13 units linked to the FARC (Revolutionary Armed Forces of Colombia), as well as Mexican terrorist organizations. From one ring, three different terrorist organizations were being funded over two continents.
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“This is a high-profit, low-risk crime, and it’s safe to draw the conclusion that rings of people engaged in it are also engaged in something a lot more criminal with a larger-scale impact,” explains Jerry Biggs from Walgreens. “You have boosters who either feed the warehouses and illicit wholesalers who purchase the merchandise or sell the merchandise on their own. In Maria’s case, she and her ORC ring were not only sending merchandise to Alpha Trading out of Louisville, for which she was paid a flat rate of $300 to $500, she was also selling merchandise on the side, all of which funded numerous terrorist fronts. Did she have an idea that’s what her efforts were being used for? Probably not, but on the higher levels people like her know exactly what they are doing.”
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Walgreens engaged in a big case (an investigative case which then became a legal case) in North Carolina with Middle Eastern fences who had stolen nearly $1.5 million in a year, according to Gary Weisbecker, an executive in the organized retail crime division at Walgreens.
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Most of the merchandise was stolen by a booster who passed it on to a Level 1 fence, who then moved the merchandise to a higher-level fence. These boosters and Level 1 fences, says Weisbecker, were part of a group of illegal immigrants from Mexico and Latin America. The higher fences were from the Middle East. Weisbecker also was told that the money the higher fences made from selling the stolen merchandise was being sent overseas to unmarked bank accounts.

Wholesale Scam: Terrorist-Affiliated Warehouses Sell to the Little Guy

Walking along Broadway near 28th Street in New York City, you see numerous small deli-like stores. You can buy pretty much anything you need at these stores, from laundry detergent to soap to perfume to medicine, all at severely discounted prices. But if you inspect the merchandise, something is a little off. What looks like Oil of Olay
face wash has a slightly different font on the packaging, and its smell is altered. The price is $2.50, as opposed to the $8 I usually spend when I purchase Oil of Olay at the drugstore down the street from my apartment. Could this merchandise have been altered in one of Chong Lam and Siu Yung Chan’s illegal warehouses?

“It’s likely, especially in that area,” says Weisbecker. He explained to me through a detailed drawing how a Level 1 fence who might own a small deli or bodega has a large enterprise in stolen beauty products and drugstore items. He sells them to a middle man Level 2 fence or goes directly to a larger Level 3 wholesaler such as Coco USA. The Level 3 wholesaler ends up selling back to the larger retailer in some cases. Weisbecker detailed the Queen of Sheba case in Queens, New York, run by a Bangladeshi by the name of Abdul Malik. Although the Queen of Sheba store looked like an unassuming local deli, Malik stored boxes of Prilosec OTC in his basement and back rooms, ready for resale that was originally Walgreens stock. He also had close to $14.5 million in the bank. “He definitely wasn’t making that kind of money off of selling cans of 40s,” Weisbecker says.

Dishonest wholesalers who deal with legitimate retailers, both small and big-box, have been known to sell stolen merchandise back to the same source. The 2009 Retail Industry Leaders Association (RILA) ORC Annual Report outlines how dishonest wholesalers use a number of methods to trick legitimate stores into purchasing their stolen goods. For example, some warehouses have been known to use lighter fluid and windshield fluid to remove price stickers and labels. They have access to packaging counterfeiters, who repackage the goods to make them look identical to their original packaging. Some fences go so far as to collude with chemists and engineers to get the colors and packaging correct. They repackage the items so there is no way law enforcement can tell whether an item was stolen from a specific store. Legitimate stores such as gas stations, convenience stores, beauty shops, bars, gyms, and music stores are all places
that potentially purchase stolen goods and sell them to unassuming customers. The proceeds build up the bank accounts of dangerous groups.
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In 2007, retail department store Mervyns was hit by an ORC group in 2007 that lifted close to 63,000 pairs of Levi’s, jeans to sell in the garment district of New York City. The crime rings would sweep the pants off store shelves and then run them out to a waiting car. The jeans were warehoused in the homes of the thieves, along with other stolen merchandise. The total cost to Mervyns was nearly $1 million.

Khaled T. Safadi, Ulises Talavera, and Emilio Gonzalez-Neira, whom we met in
Chapter 1
, “
Organized Retail Crime Goes Global
,” were no strangers to repackaging and reselling stolen items. The three business partners from Miami had a warehouse dedicated to printing packaging for Sony PlayStation 2s and then putting the stolen sets in it. The men then used their contacts in the Tri-Border Area of Paraguay, a central location where counterfeiters as well as ORC criminals sell stolen merchandise. The group had contacts within the Galeria Page mall, owned by a Hezbollah sympathizer who employed other Hezbollah sympathizers to manage the mall, staff stores, and send money back to Iran to aid the terrorist group. Sony’s estimated loss totaled several millions of dollars.
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States’ budgets also are affected by ORC. Pennsylvania estimates that ORC costs the state $81 million a year in lost sales tax revenue. This was one of the arguments supporting the state’s passing a law making ORC a felony. “We’re talking about gangs targeting stores, moving quickly, and walking out with thousands of dollars worth of merchandise to resell. Before this week, if those criminals were caught, they faced a mere fine. Pennsylvania’s become a target,” says Pennsylvania Rep. Tom Caltagirone (D-Berks County), chairman of the House Judiciary Committee. “They can and will be put away for a number of years.” Likewise, California has lost $228.5 million, Texas $153 million, and Florida $132 million. Of the 46 states that have a state sales tax, roughly $1.6 billion in sales tax revenue is lost each year.
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Taking a Bite Out of the Balance Sheet: Economic Downturn Fosters Cargo Theft

A December 2008 survey by RILA found that 80% of the retailers surveyed reported experiencing an increase in ORC since the start of the current economic downturn. In a 2008 survey of loss prevention executives performed by the NRF, 85% of the 114 retailers surveyed indicated that their company had been a victim of ORC in the past 12 months.
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The majority of the losses came from cargo theft from semi-trucks, trains, shipments, baggage, and so on.
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In an unmarked LAPD car, Detective Kent Oda took me to meet Senior Detective Marc Zavala with BAD-CATS, the LAPD cargo theft squad, to see what they had obtained in a recent cargo theft bust. Zavala monitors an official warehouse the LAPD uses to store evidence obtained in raids and from busts of cargo theft rings. Its location is so secretive that Oda drove around the downtown area for an hour to sufficiently disorient me before we arrived at the site. And it worked.

The warehouse is an unassuming building in the heart of downtown Los Angeles. Gang graffiti decorates its concrete walls, and methadone addicts visit nearby dilapidated Victorian houses. Zavala, a fast-talking Lou Diamond Phillips look-alike, took me on a tour of the warehouse, where boxes were stacked seven feet high and as wide across, all filled with clothing, shoes, car parts, and electronics intercepted through raids. Many of the items were still in their original packaging. “Los Angeles is a prime target for cargo thieves because it’s a port town,” says Zavala. “Whether it’s shipments by boat or if it is semi-trucks that are transporting the merchandise, some rings can get away with stealing hundreds of thousands of dollars in merchandise. Then they drive it across the border into Mexico, all within the same night. Recovery of any product is virtually impossible.”

Many of the items are stolen by boosters, usually former drivers from countries such as Cuba, Colombia, Ecuador, and Mexico.
These boosters are hired by shell warehouses and are paid $500 to lift the merchandise, dispose of its packaging, and ship it to another address, where the warehouse then resells it. The warehouse claims that the merchandise was stolen and collects on the insurance, creating another opportunity for a fraudulent revenue stream.

“Proceeds from illicit activities like cargo theft have been traced back to people and organizations suspected of having terrorist ties overseas.” Jared Palmer, AFN, LLC (formerly known as Advantage Freight Network) in-house counsel and cargo theft prevention expert, tells me. “There have been cases and ongoing investigations involving warehouses in Illinois that are used as the base of operations for cargo theft and retail theft fencing operations. These same fences who own the shell warehouses and sell millions of dollars of stolen goods, have been suspected of using the proceeds from these illegal operations to help fund terrorist organizations overseas. By the time law enforcement realizes that there is a complex criminal enterprise at work, the stolen goods have been sold, the fences have laundered their money, and the cargo thieves have already moved on to their next victim.”
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Post-9/11, cargo theft has been estimated to be between $30 and $50 billion annually, and ORC accounts for almost half of these losses. Law enforcement agencies believe the majority of cargo theft involves current or former employees.
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Again, the lack of communication between agencies facilitates theft between employees. To curtail the miscommunication, the trucking industry was regulated by the Federal Motor Carrier Safety Administration (FMCSA). However, after the establishment of the Transportation Security Administration (TSA), which was mostly formed to facilitate air travel safety, the government started focusing on the trucking industry as a potential breach in national security. George Rodriguez was appointed director of land and cargo security. Although the FMCSA set guidelines and security proposals for the trucking industry, the TSA did not do the same, which caused confusion. This led to a lack of initiatives between shippers, carriers, and customers that would have resulted in a virtual
“checks and balances” system. This included complete background checks for new hires with references, photo IDs, secured terminals with adequate fences, driver awareness of suspicious activities, monitoring and remote locking systems, and security training for all personnel. But this system poked multiple holes in the process of safe and secure cargo delivery.

In 2010, retailers lost $30 billion to cargo theft; big-box retailers alone have lost nearly $10 billion.
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In southern California, five men were charged with stealing nearly $200,000 worth of 3D televisions from a freight train. According to Detective Zavala, that type of crime is fairly common. He explains, “Flat-screen TVs and electronics are particularly popular items to steal, because of their resale value, but also because the penalty for getting caught is far less severe than if they got caught stealing and selling drugs. Picking someone up for stealing $400,000 worth of electronics from a freight train may put them away for ten years, versus picking someone up for stealing and selling 400 pounds of cocaine, where the resale street value is $9 million. These guys want to do the least amount of time possible.”
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But prosecuting cargo thieves poses its own challenges.

The Patriot Act was established to help curtail terrorism by creating a federal law to prosecute criminals who finance terror. However, this law did not apply to cargo theft or the boosters and fencers involved. In July of 2005, legislation introduced by Florida Rep. Cliff Stearns (R-Ocala) allowed cargo theft to be included as part of the Patriot Act, and it was officially enacted. The idea behind the act was to enhance domestic security by cracking down on a growing criminal problem that was especially prevalent in ports in Jacksonville, Tampa, and Miami.