The welfare-fraud link
April 9, 2006
BY FRANK MAIN AND NATASHA KORECKI Staff Reporters
Corner groceries -- the ones tagged with graffiti and plastered with advertisements like "Chorizo $2.89" and "Eggs 89¢ a dozen" -- dot Chicago's neighborhoods. But some of these stores aren't making their money on sausage and eggs.
More and more of these tiny pantries claim to sell millions in merchandise a year through the food-stamp program. Federal investigators are after dozens of them for ringing up phony sales and illegally handing customers cash -- and pocketing a sizable cut -- all courtesy of U.S. taxpayers.
This fraud puts money in the hands of the poor to buy drugs and might even be helping to fund terrorism. Phyllis Fong, the watchdog for the U.S. Department of Agriculture, says anti-terrorism investigators across the country are focused on some of these crooked grocers, who authorities say reap a staggering amount of cash.
In recent years, federal prosecutors in Chicago have charged 22 store owners and employees with ripping off at least $16 million from the food-stamp program, court records show. Three went to prison. Three more got probation. One case was dismissed; the rest await trial.
This electronic food-stamp program -- called Link -- was launched in Illinois in 1997 to combat rampant fraud in the paper food-stamp program. The stamps were often used illegally, as black-market currency, to buy drugs. But cheaters quickly found a way to steal from the new, electronic food-stamp system, too.
The latest scam works like this:
A welfare recipient goes to a store with a Link card credited by the government with a dollar amount for groceries -- say, $100. The store clerk swipes the card through a government computer and takes credit for $100 in phony food sales. Then, the clerk hands $70 to the welfare recipient, keeping the rest as profit.
Typically, a Link participant receives $200 to $500 a month on his or her card, depending on household size. The program does not allow a participant to use a Link card to get cash.
Such Link fraud is being rooted out by the USDA -- the administrator of the program -- along with the U.S. attorney's office here, the Secret Service, the Internal Revenue Service, the Chicago Police Department and the Illinois Health and Human Services Department.
Ringing up charges
Investigators in Chicago have stepped up surveillance of the small groceries in the Link program, looking for huge spikes in electronic food-stamp redemptions and tracking them on computers.
"We recognize how serious a problem this is in Chicago," said James Barz, an assistant U.S. attorney who prosecutes Link cases. "With the aggressive work of the USDA and Secret Service in the last nine months, we have made great strides in shutting off the flow of money to stores that would engage in illegal activity."
Tom Moriarty, special investigator with the U.S. attorney's office, said about $120 million in Link benefits are redeemed monthly in Illinois.
Since September, federal authorities have served a flurry of search warrants on stores and kicked 57 of them out of the Link program, Barz said. Those stores did $27 million in sales in the year before they were barred from the program. Criminal investigations of those stores are under way and more prosecutions are expected, he said.
"It's like using a high-priced ATM machine," Barz said. "When was the last time you went to a 7-Eleven, and the person in front of you bought $150 worth of groceries?"
For every $100 redeemed in the scams, $70 typically goes back to the Link cardholder, he said.
"If the question is, 'Has a portion of taxpayer money gone to pay for drugs?' the answer is yes," Barz said.
Amar Abu Siessi is among the latest store owners charged in Chicago. After a mix-up with his bail a week ago, Abu Siessi was accidentally let out of a federal lockup. Now, he's a fugitive. Abu Siessi, a Jordanian, is accused of running a scam dating to the late 1990s, making millions from a half dozen small grocery stores he's owned.
He's charged in two separate Link-fraud cases. In one, Abu Siessi's corner store at 3000 W. Addison didn't have scanners to ring up food quickly, shopping carts or a large inventory. Yet the store claimed to do hundreds of dollars in sales a minute, court records show.
One figure jumped out at investigators: From May through October 2000, Abu Siessi's store redeemed $383,000 in Link-card benefits -- 82 percent of what a Dominick's in the same neighborhood redeemed.
Federal prosecutors said Abu Siessi used fake names -- Khaled Beh and Khaled Al Mara Beh -- to set up bank accounts to which he'd funnel the money he stole from the Link program.
They said he paid off an inspector to lie about the size of his business. The inspector worked for "Greet America," which was under contract by USDA to evaluate stores applying for authorization to participate in Link. The inspector was caught taking bribes from store owners. After she was arrested, the inspector worked undercover and implicated Abu Siessi, prosecutors said. The inspector still could face criminal charges.
Terrorists getting a piece?
Abu Siessi's lawyer, Joseph Di Natale, said his client actually was the victim, scammed by family members. They lent him money to open grocery stores, made money off his Link sales and then fled the country, Di Natale said. He said Abu Siessi's uncle sometimes sent his nephew to lunch, then rang up hundreds of thousands of dollars in Link sales without his knowledge.
Di Natale, who has represented about a dozen of the Link-fraud defendants, acknowledged that some of the money sent overseas might end up in the hands of terrorists. But it's not necessarily because store owners agree with terrorists' ideology, Di Natale said. In some countries, a ruling group might demand a cut of money wired overseas, sort of like paying "juice" on a mob loan, he said.
"If the money goes to the other side, the terrorist is getting a piece of it," Di Natale said.
Most of the store owners he dealt with had used their ill-gotten money for legal investments, Di Natale said. They bought used car lots, strip malls, big homes, pricey cars and sometimes paid off mistresses, he said. Banks often caught the fraud after noticing a huge spike in deposits, Di Natale said.
Like lining up for Cubs tickets
Blue Bird Food Market on the Southwest Side is another store targeted by the government. The bodega sits on the corner of 24th and Hamlin in Little Village. Federal investigators suspect most of the money the store earned last year was from welfare fraud.
Blue Bird representatives are accused of paying an inspector to exaggerate the grocery's inventory to qualify for the food-stamp program, court records show.
Blue Bird allegedly redeemed $139,000 in benefits over the last five months of 2005 -- 20 times the monthly sales estimate the store gave the government to get into the program, according to a federal affidavit for a warrant to seize money from a bank account Blue Bird held.
No criminal charges have been brought against the store or the owner. Prosecutors would not comment because the investigation is ongoing. The owner could not be reached for comment.
Poor people often line up outside such stores like a crowd camping out for Cubs' tickets, officials say. During one investigation in 2002, federal agents counted about 80 Link users standing outside one South Side grocery -- R & F Foods near the Englewood police station -- to get cash.
It was late on July 31 and they were waiting for the state to credit their cards with benefits after midnight -- the first day of the month.
Federal agents watched the cardholders "yelling, jostling and shoving in line" outside the store in the 6000 block of South Racine.
A store employee came outside to say everyone would be let in one at a time, according to a federal agent's affidavit to back up fraud charges brought against the store's owner, Anwar Haddad.
When the store opened, agents saw people going inside and leaving without groceries, except for an occasional soda or bag of chips.
Later that day, an informant wearing a hidden recorder presented his Link card, which had $360 in benefits on it. He received $180 in cash and Haddad took the remaining $180 by making eight phony food sales, prosecutors said.
Haddad was sentenced to 51 months in prison for fraud and ordered to repay $801,000 to the government.
Food-stamp benefits can be legally used only to buy "food or food products for human consumption, plus seeds and plants for use in home gardens to produce food," according to the USDA.
But over and over, federal authorities have watched food-stamp recipients, who find out about crooked stores through word of mouth, use illegal cash from their Link cards to feed their drug habits, not their families.
Sylvester Baker, a former sheriff's sergeant who unsuccessfully ran in the Democratic primary for Cook County sheriff this year, said he would have cracked down on Link fraud if he had won.
"It's rampant in the black community," Baker said. "They do this in Englewood, Auburn Gresham, Chicago Lawn, just to name a few neighborhoods. It's common knowledge in our community."
Baker said the fraud is especially insidious because the family members of Link cardholders often wind up having to stand in line at food pantries for handouts because the Link benefits have been squandered on drugs.
Meanwhile, investigators have watched some shopkeepers send their illegal windfalls overseas.
In a detention hearing last year for Munthir Hamad, who faces charges related to food-stamp fraud, prosecutors alleged that he sent thousands of dollars a month to his girlfriend in Palestine.
Experts stress such money transfers can simply involve a shopkeeper feathering the nest for retirement in his native country. But investigators are looking at the possibility that some of the fraud is financing terrorists.
Tracking terror
Chicago Police officers going through a five-day training session on terrorism have been taught that Link fraud is one of the ways terrorists are suspected of raising money, along with sales of counterfeit cigarettes and baby formula. No one, however, has been charged with financing terrorism through Link fraud in Chicago.
One law enforcement source said at least 25 percent of the Chicago food-stamp fraud cases he has reviewed showed bank transfers to overseas accounts.
"We have investigated a number of food stamp trafficking cases involving the transfer of monies overseas," said Phyllis Fong, the USDA's inspector general, in testimony before Congress.
Nationally, her office was responsible for 116 convictions, 115 indictments and $16.2 million in money recovered in 2005 in connection to Link fraud across the country.
She gave Congress an estimate of $395 million in food-stamp fraud nationally, or 2.5 cents for every dollar issued, between 1999 and 2002 -- the latest figures.
The USDA has worked with joint terrorism task forces across the country and in Operation Green Quest, which tracks overseas money transfers to terrorists, Fong said. In testimony before Congress in 2003, Fong said her office was working on active Link-fraud investigations with many of the 44 terrorism task forces across the country. Chicago is among them.
In one case, $1 million was transferred overseas and two of the retailers fled the United States, Fong said.
A USDA spokesman said Fong would not comment and referred the Sun-Times to her testimony.
Though prosecutors in Chicago have made no direct links from food stamp fraud to aiding terrorism, Hatem Fariz is charged with both.
Fariz, a Chicago grocery owner, has been charged with ripping off $1.6 million from the Link program at his store T & T Foods in the 2700 block of West North Avenue between May 1999 and December 2000. He is expected to plead guilty to that charge, his lawyer has indicated.
Fariz also is accused of helping terrorists in a federal case in Florida.
Prosecutors have not publicly linked his suspected welfare scam in Chicago to his alleged funding of the Palestinian Islamic Jihad. The group is on the U.S. list of foreign terrorist organizations. Fariz faces a retrial on a conspiracy charge in the Tampa, Fla., case after a jury there deadlocked on the same charge last year. The jury acquitted him on 25 other counts.
Food-stamp fugitives
As authorities in Chicago keep searching for stores scamming the program, they're also hunting for at least five other fugitives besides Abu Siessi who are charged with food-stamp fraud.
Investigators believe Fouad Al Awawada, Ismael Hussein, Saleh Suliman Mashal, Raafat Ezaldin and Mohamad Aburkbeh have fled overseas.
Al Awawada, for instance, was sentenced in 2004 to 70 months in prison for stealing $801,000 from the food-stamp program at his store, Sam's Super Save 99 at 5419 S. Ashland. A federal judge let Al Awawada attend his daughter's wedding before he was supposed to surrender to prison. He never returned.
"We think they're in Jordan," deputy U.S. marshal Rich Walenda said of Al Awawada, Mashal and Hussein.
"Who knows what they're up to now?"
