More than 100 stores in Michigan have been kicked out of the program since fall 2007. Nationally, 1,437 were disqualified during the government's 2009 fiscal year, said Alan Shannon, a Midwest spokesman for USDA's Food and Nutrition Service. (Photo by HB Meeks/Tell Us Detroit)

Detroit-area stores swipe millions from food aid

By ED WHITE
Associated Press Writer

DETROIT (AP) -- Two undercover informants entered Jefferson's Liquor Palace and spotted the owner at the register. "Big baby," said one, "we gon' do this?"

The man behind the counter provided $50 in cash, two bottles of liquor, two porn DVDs and two Viagra pills - all in exchange for taking $280.85 off a food-stamp card, say federal investigators who recorded the deal.

Fraud in the government program that helps the poor has added up to nearly $100 million since 2007, according to the U.S. Agriculture Department. It's a fraction of the more than $40 billion spent to feed people each year, but the crime has become a brazen way for some small stores to literally swipe cash from the U.S. Treasury, especially in the Detroit area.

There have been at least 122 fraud-related convictions of owners or employees in the five-state Midwest region since 2007, nearly double the number from 2003-06, says USDA, which oversees the welfare program. About half of those have occurred in southeastern Michigan.

Among the latest cases: A store west of downtown Detroit is accused of selling bags of the exotic chewy drug that in exchange for food-stamp benefits. Agents in another investigation discovered that cash was wired to Somalia and other countries.

"You have a money machine on your counter. It's a crime of opportunity. We see a lot of cases," said Sheldon Light, head of the economic-crimes unit at the U.S. attorney's office in Detroit.

Debit-style cards replaced paper coupons in the 1990s. Customers step to the counter with groceries, and their card is swiped to electronically record the transaction.

The boldest scam works like this: People hungry for cash ask the store to ring up a small food sale or a phony one. An employee agrees to hand over money, maybe $50, but takes a larger amount off the card for a nice profit, sometimes as high as 100 percent.

Taxpayers get stung when money is transferred to a store's bank account from the U.S. Treasury.

"When times get tough, people do desperate things," said Doraid Markus, a defense lawyer who has represented merchants.

USDA notes that fraud across the country is considered relatively small compared to the overall size of the food-stamp program, which has seen enrollment grow as more recession-stricken Americans become eligible for federal help.

Nonetheless, attacking it has been a priority. Federal agents and state police have formed a task force in Michigan. Seventy percent of USDA's investigative resources in Michigan, Illinois, Wisconsin, Ohio and Indiana was dedicated to uncovering fraud in food programs in 2009.

More than 100 stores in Michigan have been kicked out of the program since fall 2007. Nationally, 1,437 were disqualified during the government's 2009 fiscal year, said Alan Shannon, a Midwest spokesman for USDA's Food and Nutrition Service.

"The big players we don't have an issue with," he said, referring to large grocery chains, which redeem 85 percent of all food-stamp benefits. "Some of the smaller stores have been flagrant violators."

How does the government catch on? The best clues are electronic. Because food-stamp transactions are logged, it's possible to spot trends, such as a store's high number of redemptions compared to past months or activity at a similar store down the street.

The government uses informants posing as customers with hidden recording devices. The undercover work can last more than a year.

Wasfi Shalhout of Dearborn was sentenced to three years in prison last May after $1.2 million in fraud at Ann's Market in Detroit. Customers waited in line 10-deep to trade food-stamp benefits for cash.

Agents said he would write dollar amounts on old lottery tickets and tell customers to present them at the counter. Shalhout's wife, Fatima, was sentenced to 30 months behind bars.

"In addition to making mortgage payments with the funds, they also purchased property in Israel and leased three vehicles," then-Assistant U.S. Attorney Noceeba Southern said in a court filing. The government "is unlikely ever to recover the $1.2 million."

Defense attorney Harold Fried told the court that Wasfi has "humiliated, embarrassed and shamed himself."

North American Money Transfer Inc. recently agreed to pay $25,000 and open its books to investigators in a deal to dismiss an indictment that was tied to how it handled money that flowed through an Ypsilanti store, Abbas Phone Card and Grocery.

The government says food-stamp recipients instructed the store to take money off their cards and get it wired to Somalia and other destinations in Europe, the Middle East and Africa. The grocery would charge a 25 percent fee.

North American is not licensed in Michigan. But the indictment says store employees were able to move at least $265,000 through a local credit union that had a relationship with North American's credit union in Seattle.

The company, based in Stone Mountain, Ga., said it had no idea the money could be the fruit of fraud. The government's case against four co-defendants who worked at the store goes beyond the money-transfer allegations. All have pleaded guilty and are awaiting sentences.

In Chicago, an illegal immigrant was sentenced to nearly three years in prison last year after plowing $1.1 million in stolen food-stamp benefits into an international pseudoephedrine ring. It's a key indredient in methamphetamine.

While the debit-style card hasn't stopped fraud, USDA still considers it effective because every transaction is recorded.

USDA's Office of Inspector General believes it's the "best way to deliver benefits to recipients with the least amount of risk for waste and abuse," said Paul Feeney, deputy counsel.


 

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