of Bolton & Preston, The Islamic Society of Greenwich, The Muslim Cultural Society, The Party of The Future, The Islamic Society of Nottingham, The Islamic Society of Hounslow, The Defenders of The Faith, The Islamic Society of Bradford & Halifax, The Islamic Advise Bureau, The Islamic Society of Manchester, The Islamic Society of Sheffield, Al-Ansaar Society, The Islamic Society of Maidenhead, The Islamic Awareness Society, The Islamic Society of Kent, The Intellectual Society, The Islamic Heritage Society, The Islamic Society of Slough, The Islamic Society of Stoke-on-Trent, The Islamic Society of Luton, The Islamic Society of Crawley, The Islamic Society of Kent, The Islamic Society of Rochdale, The Islamic Society of Leeds, The Islamic Society of Derby, Al-Khialafah Newsletter etc..

London, Tuesday the 13th of Shawwaal 1418 HD 10 February 1998

THE VOICE, THE EYES & THE EARS OF THE MUSLIMS

Senator KYL. Mr. Jacobson.

PANEL CONSISTING OF BENJAMIN JACOBSON, PEREGRINE GROUP, MIAMI, FL; OMAR ASHMAWY, WASHINGTON, DC; AND STEVEN EMERSON, THE INVESTIGATIVE PROJECT, WASHINGTON, DC

STATEMENT OF BENJAMIN JACOBSON

Mr. JACOBSON. 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, 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 Ĉ.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 am talking about those 25-cent-off coupons for your favorite cereal, candy bar, 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 a third currency in the United States. After the U.S. currency and illicit drug money, consumer coupons generate more than $8 billion annually in transactions.

Consumer coupons are transacted across the many cash register counters of major supermarkets in America, in America's urban cities, and transacted across the counters of small convenience stores in suburbia. To many of us sitting here today, the consumer coupon is nothing more than a colorful insert in the Sunday morning papers. To the corporations, those 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 to the cause.

In 1997-1998, A.C. Neilson Clearing House, the Nation's leading consumer coupon clearing house, asked that our corporate security and 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. Before I explain the investigations, let me give you the necessary background on the coupon redemption process.

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 leading clearing house, would subcontract smaller clearing houses to accept coupons on their behalf. 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 is a quick study on the legitimate coupon submission process. However, to the networks that we are examining here 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 then 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 sent in bulk to the targeted clearing house via UPS, instead of U.S. mail, since the operatives hope to minimize their exposure to Federal mail fraud statutes.

To begin my story, I will start with a coupon fraud investigation in Florida in 1987 and 1988. NCH and their agents had been working with the U.S. postal authorities, the Broward and Dade County Sheriff's offices to collect documentation and present a criminal case of fraudulent submission of coupons. Little did NCH or its investigators, the Postal Inspection Service, or the Sheriff's Departments expect what they discovered.

Senator KYL. Mr. Jacobson, we are going to have to ask you to summarize this in about 5 minutes. I know that cuts down your testimony.

Mr. JACOBSON. There was a tape, Senator. Here it is.

[Videotape shown.]

Mr. JACOBSON. Moving to America's heartland, the Midwest, from St. Louis to Madison, WI, an active network of grocery storeowners were creating havoc in an organized coupon fraud. One of its leaders, Zion Isa, was identified as a cell leader of the Abu Nidal network. During his coupon fraud activities, the regional task force of law enforcement officers, NCH agents, Secret Service, and postal inspectors gather information about the group's activities. Not only were they active in fraudulent coupon submission, but also hijacking trucks, sale of stolen food stamps, and stolen gods. Unfortunately, the task force was dismantled with few storeowners prosecuted, and the fraud activity continued to flourish.

Incidentally, 3 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 authorities, and he couldn't accept her assimilation into our American culture. Her murder was caught on audiotape.

[Videotape shown.]

Mr. JACOBSON. Returning to New York, in 1989 through 1992, investigation had identified a network of coupon transactions that were 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, storeowners, and illegal banks operating in the New York metropolitan area.

The primary force in this network was Radwan Ayoub, a Palestinian living in the United States, who had established a network of stores in New York, New Jersey, and Pennsylvania which were later identified as having association with persons identified as terrorists of the World Trade Center bombing. Many of the stores that 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, underneath and next to the mosque where Sheik Rahman was identified.

Ayoub and associates would solicit storeowners for their coupon submission business. Take a small minimart, which normally would submit $200 to $300 a month in coupons. Once Ayoub came on the scene, the submissions increased by the thousands. The storeowners 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 the coupons to pay the debt to these loan networks, sometimes requiring a usurious rate of more than 49 percent interest per month.

At one particular location, 7912 Fifth Avenue, Brooklyn, 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 Ayoub and his coconspirators. 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 a penitentiary for his participation.

I am disappointed to report that after more than 5 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 understaffing or lack of prosecutive appeal. This was in spite of the fact that during this period hundreds of stores, businesses, and individuals were identified. Perhaps 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. Thank you, Senator.

[The prepared statement of Mr. Jacobson follows:]

PREPARED STATEMENT OF BENJAMIN JACOBSON

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 in

strument. 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 Office 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 Sheriff's 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 is 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