Wherever money changes hands, there can exist the dark side of fraud. Unfortunately, grocery coupons are no exception. On February 28, 2003, FBI agents. Along with U.S. Postal Inspectors and Agents from the Immigration and Naturalization Service (INS) raided homes and grocery stores in seven states and arrested 16 people allegedly involved in a massive coupon fraud scheme. The arrests included an employee of one of the largest retail coupon clearinghouses, International Data, recently renamed International Outsourcing Services (IOS), based in Bloomington, Indiana. The charges against the individuals include conspiracy, mail fraud, the laundering of money and the transportation of stolen property.
The criminal investigation, spearheaded by the FBI, involved over 370 stores in 15 states, most having Arab/Middle Eastern ownership or operation. Many of the stores had never redeemed manufacturer coupons prior to becoming involved in the scheme. Some of them did not sell groceries. A few were not even stores! According to FBI documents supplied to me, the identified losses to packaged goods manufacturers exceeds $4.5 million from November 1999 to December 2002. But this may be just a small part of the coupons the alleged perpetrators attempted to redeem.
The investigation included wire-taps, surveillances, and informants. In the 74 page FBI affidavit supporting the request for search and arrest warrants, it is alleged that the ring leader of the fraud was Abdel Rahim Jebara, of Miami, Florida. Jebara, with his associates around the country, recruited store owners to participate in the scheme. The owners of these small food shops agreed to allow Jebara use their names and addresses to defraud the manufacturers. In return, they received a share of the illegally obtained proceeds.
It is alleged that the coupons were supplied to Jabara by Bridge Stationary, a store in upper Manhattan, which illegally obtained tens of thousands of coupon inserts, in some cases, removing them from Sunday newspapers. Jabara arranged for the inserts to be delivered to associates who ran a high volume ?gang cutting? operation. Most of the gang cut coupons supposedly wound up at a company, ABC Printers in Yonkers, New York, where they were packaged in cartons of 5 to 35 pounds, and sent to the retail clearinghouse, International data. International Data processed the coupons, billed the manufacturers and then sent checks to the hundreds of stores involved in the scheme.
An informant stated that 20 days after he agreed to participate, he received a $5000 check from the clearinghouse. To control the flow of money, Jabara?s associates collected the checks from the retailers and cashed them at small check cashing services. Jabara then paid the retailers, his runners/bagmen and the alleged co-conspirator at the coupon clearinghouses.
Some of the illegally obtained money was sent to Ramallah in the West Bank. While the FBI says there is no immediate evidence that the scheme was related to or benefited terrorism, one expert in the field believes coupon fraud has become an easy way for millions of dollars to wind up in the hands of America?s enemies.
Most small food stores, grocers as well as some supermarkets, use retail coupon clearinghouses to sort, count and submit their coupons to the manufacturers for payment. The clearinghouses act as a middleman between the retailer and manufacturer. In return for doing all this tedious work, the clearinghouses take a penny or two of the eight-cent coupon processing fee paid by manufacturers. The retail clearinghouses have a responsibility to ensure the coupons they submit for payment were properly redeemed. When the clearinghouse signs up a retailer for redemption services, the retailer fills out a questionnaire that includes information about the type of retail operation, the size of the store, the number of cash registers and the hours of operation.
Federal authorities allege that these precautions were circumvented by Robert W. MacDonald, the branch manager of International Data?s sales office in Memphis. The sales office is responsible for signing up retailers, reviewing and approving their completed questionnaires. According to the FBI affidavit, it is alleged that Abdel Jebara filled out and submitted hundreds of questionnaires for the store owners who were involved in the scheme. Jabara placed the initials OJ on the questionnaires so MacDonald would recognize and approve them.
Ben Jacobson, a private investigator with the Peregrine Group in Miami, began investigating coupon fraud in the late 1980s. Jacobson, a former New York City police detective, says one of the coupon crooks he found in New York was Mahmud Abouhalima, the manager of a Brooklyn video store that was a center of illegal activities. Abouhalima was the driver for Sheik Omar Abdul Rachman, the blind cleric who, according to Jacobson, operated a misredemption ring out of the second floor at a mosque in Jersey City, NJ. Both are now serving long terms in federal prisons for the 1993 bomb attack on the World Trade Center.
According to Jacobson, the recent arrests and indictments expose only a tip of the iceberg. ?Coupon fraud rings have put scores of Arab immigrants into the grocery business by sub-leasing them the stores and arranging loans from shady finance companies that are then repaid with the store's share of the fraud."
International Data, issued this statement: ?Starting in early October 2002, months before we learned of the recently announced federal investigation, in the normal course of applying our ongoing misredemption control policies, we intercepted and rejected more than $40,000,000 of coupons from stores we have since learned are targets of the investigation. Since we learned of the investigation, we have been working around the clock to institute even more stringent controls.?Where would that $40 million have gone? The dark side of coupons need to be exposed. The recent disclosure that the FBI is taking coupon fraud seriously is important. Everyone in the industry; grocery manufacturers, coupon insert publishers and clearinghouses, need to act now and do more to ensure Americans that the ?American Way? for saving money on groceries is not aiding our country?s enemies.