1998 Congressional HearingsIntelligence and Security
1998 Congressional Hearings
TESTIMONY of Ben Jacobson,
of the Peregrine Group,
Miami, Florida for;
PRESENTATION BEFORE THE SENATE JUDICIARY -
SUBCOMMITTEE ON TECHNOLOGY9 TERRORISM &
GOVERNMENT INFORMATION
CONSUMER COUPON NETWORKS IN THE UNITED STATES -
THE TERROR CONNECTION
Thank you Senator Kyl and members of the committee for this
opportunity to address this distinguished panel. I come here
today, as a private citizen, a professional investigator, and a
small business owner. I am not a representative of the Coupon
Industry, nor any corporation that utilizes consumer coupons as
an advertising instrument. I have been asked to testify here
today to recount a consumer coupon fraud operating throughout the
United States which I had occasion to investigate.
First, let me provide some background on consumer coupons.
Coupons began in the United States in 1909, when C.W. Post
first thought of the strategy to get more customers to purchase
his products. . The rest is history in the marketing of American
business products. I'm talking about those 25 Cent off coupons
for your favorite cereal, candy bar, soda, soap, detergent and
even disposable diapers. Due to the competitive nature of
business, more than 700 public and private corporations offer
coupon discounts for their products. In many ways, consumer
coupons represent the Third currency in the United States. After
U.S. currency and illicit drug money, Consumer Coupons generates
more than 8 Billion dollars annually in transactions.
Consumer coupons are transacted across the many cash
register counters of major supermarkets in America's urban cities
and transacted across the counters of the small convience stores
in suburbia. To many of us sitting here today, the consumer
coupon is nothing more than the colorful insert in the Sunday
morning papers. To the corporations, the inserts represent
millions of national marketing dollars. To terror organizations,
hiding in our communities, the inserts mean financing, here and
abroad. It represents more than $150 million diverted annually to
the cause.
In 1987-8, A.C. Neilson, NCH, the nations leading Consumer
Coupon Clearing House asked that our Corporate
Security/Investigative organization begin an investigation to
develop information, and collect evidence for criminal
prosecution against a network of individuals operating a Coupon
Fraud organization in the New York metropolitan area. But before
I explain the investigations, let me give you the necessary
background on the coupon redemption process.
The Coupon Redemption Process
The consumer coupon industry manages billions of coupon
submissions from retail stores throughout the United States. To
illustrate, the local grocery store on the corner must register
with a Retail Coupon clearing House. This registration process
requires filing a document, verification by the Clearing House,
that the store exists, then providing an Account Number for
computerized tracking of submissions and payments for the
coupons. In many cases, NCH being the nations leading clearing
house, would sub-contract smaller clearing houses to accept
coupons from NCH clients. The coupons are submitted, often by
U.S. Mail or private carrier to the clearing house for
processing. The coupons are counted, sorted by category, then
accounted for under the customer's account number. A check is
generated and mailed to the store owner, who then deposits the
check into his business account.
That's a quick study on the legitimate coupon submission
process. However, to the networks that we are examining today,
the process is different and the rules are circumvented. The
offenders in this fraud network would purchase bulk inserts from
recyclers, newspaper distributors and even the small newspaper
stands that sell the Sunday morning papers. Recruits, usually
women with small children, college students and even high school
students, are hired to CLIP the coupons. The coupons are
artificially aged or worn to appear similar to the coupons
dragged from the bottom of grandma's pocketbook. The coupons are
then SORTED by product, GROUPED for shipping by store account
number, and PACKAGED, usually in shoe boxes. They are then sent
in bulk to targeted Clearing House via UPS, instead of U.S. Mail,
since the operatives hope to minimize their exposure to Federal
mail fraud statutes.
The Investigation
To begin my story, I'll start with a coupon fraud
investigation in Florida, during 1987-8. NCH and their agents had
been working with the U.S. Postal authorities, the Broward and
Dade County, Florida, Sheriff s Offices to collect documentation
and present a criminal case of fraudulent submission of coupons.
Little did NCH or its investigators, the Postal Inspections
Service or the Sheriffs Departments expect what they discovered.
(go to the BAHOUR Tape) Postal Inspectors, operating in an
undercover capacity, met with Adnand Bahour, a Palestinian
operating several grocery stores with his family in the
Hollywood, North Miami, Florida area. Bahour was more than a
grocery store owner - he was a kingpin in the national terror
network creating money laundering and financing for the PLO. By
his own admission, Bahour was caught on video tape, detailing to
undercover operatives, that he is the nephew of George Habash,
the leader of the Palestinian Liberation Front. During this
investigation and the raid on the meeting hall of this network,
more than 72 individuals from throughout the United States
gathered in Hollywood, Florida, to further their fraudulent
coupon distribution network. This national network was no
different than the infrastructure which was exposed when New York
State Troopers tripped on the Appalachian meeting of Organized
Crime in 1959.
During the Hollywood raid, documents of PLO activities were
seized and records of money laundering were found. As a result,
the Bahour network was disrupted, but unfortunately not broken.
Some of the suspects in the Bahour case were prosecuted locally,
other disappointingly released. After all, as I've heard all too
often from Prosecutor's throughout America's ma or cities, "this
is not guns, it's not drugs- it's coupons and those rich
companies can afford to lose a little."
Moving to America's heartland, the mid-west, from St. Louis
to Madison, Wisconsin, an active network of grocery store owners
were creating havoc in an organized consumer coupon fraud
network. One of it's leaders, store owner Zion Isa, was
identified as a "cell leader" of the Abu-Nidal terror network.
During his coupon fraud activities, a regional task force of
local law enforcement officers, NCH agents, Secret Service and
Postal Inspectors were gathering information about the group's
activity. (go to ISA overhead) This task force not only
identified the principals of the organization, but wrote a chart
which linked the stores and store owners to the Abu-Nidal terror
network. Not only were they active in fraudulent coupon
submission, but also hijacking trucks, sale of stolen food
stamps, and stolen goods. Unfortunately, the task force was
dismantled with few store owners prosecuted and the fraud
activity continuing to flourish. Incidentally, three years after
having been identified as being involved in coupon fraud, Zion
Isa murdered his 17 year old daughter in his home, with the help
of his wife. The reason for the murder was that the daughter was
going to expose him to the authorities and he couldn't accept her
assimilation into our American culture. Her murder was caught on
hidden audio tape by the FBI. (go to video tape)
Returning to New York, by 1989 through 1992, investigation
had identified a network of coupon transactions that linked in a
similar fashion as the Bahour and Isa network. These were
individuals with cultural ties to the Middle East. At the time,
the players were more than just a fraudulent coupon group, but
rather a network of money lenders, store owners and illegal banks
and money wire rooms operating in the New York metropolitan area.
The primary force in this network was Radwan Ayoub, a
Palestinian living in the U.S., who had established a network of
stores in New York, New Jersey and Pennsylvania which were later
identified as having association with Ayoub enlisted were owned
and controlled by middle eastern businessmen who were willing to
participate in schemes which defrauded American businesses. Some
of the stores were located in Brooklyn, New York others in Jersey
City, New Jersey, underneath and next to the Mosque, where Sheik
Rahman was identified.
Ayoub and associates would solicit store owners for their
coupon submission business. Take a small mini-mart, which
normally submit $200-300 in coupons monthly, once Radwan Ayoub
came on the scene, the submissions increased by the thousands.
The store owners didn't see the coupons, they just got the
checks. In many cases, they borrowed money, or agreed to leasing
stores for a monthly fee by the Radwan network. They used coupons
to pay the debt to these loan networks, sometimes requiring a
usurious rate more than 49% interest per month.
At one particular location, 7912 Fifth Ave, Brooklyn, New
York, initially identified as "Hamada Video", a storefront was
observed that had no groceries - only video rentals. This
location was most interesting, because they weren't submitting
many fraudulent coupons, but rather, the storefront was used as a
meeting point for coupon submissions by Radwan Ayoub, and his co-
conspirators. Both Radwan and Ibriham Abu-Musa, his coupon
mailer, worked in a local livery private car service with another
Hamada Video employee, Mahmud Abouhalima. In fact, Abouhalima
resided in the upstairs portion of the building above Hamada
Video and regularly conducted business in the store itself. Of
course, Abouhalima is best known as the blind Sheik's driver who
was a primary conspirator in the World Trade Center bombing and
is serving 240 years in Federal penitentiary for his
participation.
I'm disappointed to report that after more than five years
of tracking, documenting and formulating a strategy for criminal
prosecution in this New York scheme, I was unable to enlist the
substantive aid of any law enforcement agency or prosecutor's
office. I was told this was due to under staffing or lack of
prosecutive appeal. This was in spite of the fact that during
this period, hundreds of stores, businesses and individuals were
identified. Had law enforcement successfully intervened,
perhaps the tragedy of the World Trade Center bombing with its
precious loss of life could have been averted.
Today, as I understand it, the fraud schemes continue,
unabated, unchallenged, and facilitated by computers and the
internet.