Just weeks after New York Attorney General Eric T. Schneiderman and New York Police Department Commissioner Raymond W. Kelly announced that the city took down a massive Eastern Seaboard unstamped cigarette trafficking enterprise, there are still murmurs — and strong suspicions — that the suspects were funneling a portion of the more than $55 million in illegal proceeds to terrorist organizations abroad.
“It is not uncommon at all to see this type of scam,” said Matthew Levitt, director of the Stein Program on Counterterrorism and Intelligence at the Washington Institute for Near East Policy. “It is a lucrative scam, and the penalties are lax.”
It took law enforcement officials 12 months to bust the smuggling ring, which was comprised of 16 people — all Palestinians — and dodged at least $80 million in New York taxes. As search warrants were executed up and down the Eastern Seaboard, investigators seized three handguns from ring leader Basel Ramadan, 42. The A.G. also nabbed $1.4 million stashed throughout Ramadan’s Ocean City residence; some of the money was stuffed into black garbage bags. Investigators seized more than 20,000 cartons of cigarettes from the defendants’ homes, cars and storage facilities in four states. Basel Ramadan’s brother, Samir Ramadan, 40, served as the enterprise’s treasurer. The brothers furthered the criminal enterprise by depositing more than $55 million from their untaxed cigarette sales into small local financial institutions in and around Ocean City and used that money to purchase additional cigarettes for illegal sale.
Some of the suspects, it was later learned, were associated with Ari Halberstam’s killer, the Blind Sheik and a top Hamas official. Halberstam was murdered in what became known as “The Brooklyn Bridge Shooting” in 1994, when a Lebanese-born immigrant, Rashid Baz, shot at a van carrying 15 Chabad-Lubavitch Orthodox Jewish students that was traveling on the Brooklyn Bridge. He used a Cobray MAC-11 fully automatic pistol to strafe the van and a Glock 17 9mm semi-automatic pistol to shoot at students. He also had a 12-gauge Armsel Striker shotgun in his trunk. Halberstam was 16.
“There is a very real concern about the possibility of violence related to this type of enterprise,” said Schneiderman in a statement. “I am committed to putting criminals like this behind bars.”
“While it hasn’t been established yet where the illicit proceeds ended up, we’re concerned because similar schemes have been used in the past to help fund terrorist organizations like Hamas and Hezbollah,” said Kelly in a statement.
How common is it to see terrorist organizations using crimes such as cigarette smuggling to support their efforts?
Said Levitt: “I wouldn’t go so far as to say it is common, but I wouldn’t say it is uncommon.”
In 2008, U.S. Rep. Peter T. King (R-N.Y.) released a report calling on the federal government and his own state to better examine the cigarette smuggling industry. He wrote that it has been well reported that terrorist and criminal organizations are conducting illicit business operations in the U.S., sending the profits overseas to finance domestic and international terrorist groups. Like Levitt, King termed cigarette smuggling a low-risk, high-profitability crime that serves as a “gateway” for more serious trafficking, such as money laundering, arms dealing and drug trafficking. In total, law enforcement officials in New York State say well-organize cigarette smuggling networks generate between $200,000 and $300,000 per week. A large percentage of the money is believed to be sent back to the Middle East, where it directly or indirectly finances groups such as Hezbollah, Hamas and al-Qaeda.
“Large-scale cigarette smuggling networks in New York State are dominated by tight-knit, nationally based networks, primarily families through blood or marriage of Lebanese, Yemeni, Jordanian and Palestinian descent,” said King in his report. “Federal and New York State law enforcement officials estimate that nearly 60 percent of all convenience retail outlets in New York City are now Arab-owned, and with the Arab network compartmentalized by ethnicity and familial ties, the risk of infiltration by law enforcement is minimal.”
The most well-known case of cigarette smuggling funding terrorism is about a decade old. In 2002, main suspect Mohamad Hammoud, a 28-year-old Shiite Muslim from Lebanon, was convicted and sentenced to 155 years in prison when it was found that he smuggled $10 million to Lebanon and likely the pockets of Hezbollah officials.
Despite the involvement in several cases of documented fraud, Hammoud and two fellow countrymen were allowed to reside in the U.S. since 1992. From 1995, he and his accomplices began smuggling cigarettes from North Carolina and Virginia to the northern Detroit, capitalizing on the difference in excise duties between the two states. The excise duty to be paid in North Carolina amounted at the time to $0.50 whereas in Michigan $12.50 had to be paid per carton. In Detroit, the cigarettes were distributed among fellow Shiite Lebanese living in that area. Each trip, over a distance of about 800 miles, they hauled up to 300 cigarettes — good for a net profit of a maximum $3,000. A tobacco shop was opened to acquire unsuspicious access to bulk loads of cigarettes, and according to the court files, a restaurant functioned as a money laundering vehicle. Between 1995 and 1999, when the smuggling ring was busted, the total turnover was multiple millions. Along with Hammoud, 18 other suspects were arrested. Not all of the money went to Hezbollah; much money was spent on fancy cars and equipment. Evidence of the funneling of funds was found in a financial investigation into Hammoud’s bank account and financial history and in wiretapped telephone conversations with allegedly high-ranking Hezbollah officials.
Hammoud was likely caught because of his and his accomplices’ reckless driving style, which regularly led to fines and confiscation of the cigarettes. Cases like Hammoud’s are not easy to track.
Jonathan Schanzer, an American author and scholar in Middle Eastern studies and vice president of research at the Foundation for Defense of Democracies, said, “A lot of times, people get away with this for quite a long time until it pops up on someone’s radar. When that happens, there is an urgency.”
Schanzer explained that foreign countries — especially those in the Middle East in which terrorism is rampant — are unlikely to cooperate in these types of investigations, making the process of nabbing the culprits more challenging.
Schanzer also noted that while cigarette smuggling “is not a new phenomenon” among terrorists, it is likely being stepped up at this time.
“What we have been watching is a turn on the part of Hamas and Hezbollah toward organized crime and some of that has to do with Iran’s cash flow being curtailed because of sanctions,” he said.
Levitt said he feels similarly and told the JT that terrorism is primarily funded via three modes: state sponsorship (Iran or other terrorist-supporting entities funneling money to the organizations); charity organizations, the most well known being Texas’ Holy Land Foundation, designated a terrorist organization in 2001; and criminal activity (cigarette smuggling, watering down baby food, stolen PlayStations, etc.).
“Over time, crime has increased because of efforts by the international community to crack down on other [forms of] sponsorship,” said Levitt. “The international sanctions targeting Iran are having an impact on Iran’s ability to dump as much as it has in the past to groups, such as Hamas and Hezbollah. [The terrorists] have to diversify their portfolios. The easiest and lowest-risk way is through relatively petty crime.”
And now that it has happened right here, in Maryland, the question is what’s next?
Maarten van Dijck, in his report, “The Link between the Financing of Terrorism and Cigarette Smuggling. What Evidence Is There?” called
on the government to make a policy decision and for the government to “allocate more means to the investigation of cigarette smuggling.”
He said investigators have two choices: preserving a source of leads in cigarette smuggling, which might lead to the detection or dismantling of
terrorist cells, or immediate intervention, a “quick blow,” which usually involves the seizure of a single shipment of cigarettes plus one or two arrests.
“If the latter becomes standard policy, it may expected that as soon as the new policy shows results, the financers of terrorism will quickly find new, unknown sources of income and the investigation leads will be lost,” wrote Dijck, who connected with the JT via email, in his report. “In the former case, one must be careful that the financers of terrorism will remain unaware of the increased attention of law enforcement agencies now focusing on cigarette smuggling as an important source of income for terrorist financers.”
Either way, stated King in his report, “This must be brought to an end. It is more than just a matter of hundreds of millions in lost tax revenue — it is a matter of national security.”
Maayan Jaffe is JT managing editor — email@example.com