Knockoff Dealers Could Have Designs on Terror

When Los Angeles County Sheriff’s Lt. John Stedman was booking a clothing store owner last year on charges of selling counterfeit high-fashion merchandise, his attention was drawn to the large and colorful tattoo on the man’s arm.

The tattoo included Arabic writing, suggesting it wasn’t a gang symbol or the mark of one of the many organized crime syndicates that have helped make dealing in knockoff goods -- like Gucci handbags, Prada shoes and Louis Vuitton watches -- a multibillion-dollar industry in the United States.

It turned out to be a symbol of allegiance to Hezbollah, the Islamic militant organization that the U.S. government has designated as a terrorist group.

The case of the tattooed merchant was one of several in Southern California in which alleged Hezbollah operatives had been caught trafficking in counterfeit merchandise, Stedman and other experts told the Senate Homeland Security and Governmental Affairs Committee on Wednesday.

They said that suspected Hezbollah operatives in the U.S. and other groups accused of terrorist activity were raising as much as $30 million a year in America through the sale of counterfeit merchandise and other criminal enterprises, and sending unknown but substantial sums back home.

Hezbollah has not commented on its U.S. fundraising activities, but says it generates money for legitimate charitable activities.

U.S. and other law enforcement officials assert that some of the money has been used to fund terrorist attacks in the Middle East and elsewhere.

“There are mounting indicators of the involvement of terrorist groups and their supporters” in counterfeiting, said Stedman, who supervises the criminal investigation section of the L.A. County Sheriff’s Department’s emergency operations bureau. “We have encountered suspects who have shown great affinity for Hezbollah and its leadership,” Stedman told the committee.

He said the evidence of suspected terrorist organizations raising money through counterfeiting was largely anecdotal. It is based on the activity of special squads of investigators who have conducted searches in Los Angeles County that produced 125 arrests, $16 million in seized merchandise and another $3.5 million in cash.

Among those involved, Stedman and other authorities say, are members of Russian, Eurasian, Asian and Lebanese organized crime cells and, more recently, traditional street gang members.

“The profits are enormous, with minimal criminal exposure,” Stedman said. “In the parlance of one suspect: ‘It’s better than the dope business -- no one’s going to prison for DVDs.’ ”

Stedman and other witnesses at Wednesday’s hearing said that they could not identify the tattooed merchant or other suspects because of ongoing investigations.

In another case, Stedman said, he came across small Hezbollah flags displayed in one suspect’s bedroom during a search of a residence for counterfeit goods.

“Next to the flags was a photograph of Hassan Nasrallah,” Stedman said, referring to the Hezbollah leader.

The United States considers Hezbollah -- a powerful Shiite political party and militia based in Lebanon -- to be a terrorist group. But throughout much of the Mideast, it is seen as a reputable organization with a history of fighting Israeli aggression.

During another search in 2004, Stedman said, detectives found a photo album that pictured dozens of attendees at a fundraising event for the Holy Land Foundation, which has been shut down by the Treasury Department over its alleged support of Hamas, another political entity that the United States considers to be a terrorist group.

In another case, U.S. Customs officers stopped a Lebanon-bound suspect at Los Angeles International Airport and found she was carrying more than $230,000 in cash, Stedman said. Authorities later learned the woman owned a chain of cigarette shops, and seized more than 1,000 cartons of bootleg cigarettes, an additional $70,000 in cash, and wire transfers to banks throughout the world, Stedman said.

Kris Buckner, president of the Investigative Consultants group in Southern California, told the committee that numerous counterfeiters had sent large amounts of money to places such as Lebanon and Paraguay, which U.S. officials said had been a hub for Hezbollah fundraising.

The United States has asked for a worldwide freeze of Hezbollah’s financial accounts. But several European nations have refused to do so, citing the group’s political wing. U.S. officials contend both groups are controlled by the same leadership, and that the money ultimately helps underwrite terrorism no matter which part of Hezbollah receives it.

Apparent involvement by alleged terrorists in the counterfeit goods trade also has caught the attention of the FBI, Treasury Department and Interpol, the global police agency, according to Matthew Levitt, a former FBI counterterrorism analyst.

Levitt told committee members that the best U.S. intelligence estimates showed Hezbollah received $20 million to $30 million a year from criminal fundraising activities in the United States. Its members are involved in stealing and reselling baby formula, food stamp fraud, grocery coupon scams, false welfare claims, credit card fraud and a wide array of counterfeiting operations, said Levitt, a frequent expert witness on Hezbollah for the Justice Department.

In one high-profile case, Mohamad and Chawki Hammoud were convicted in June 2002 of funding the activities of Hezbollah from the proceeds of a sophisticated interstate cigarette-smuggling ring based in Charlotte, N.C.

Sen. Susan Collins (R-Maine), the Homeland Security and Governmental Affairs Committee chairwoman, called on consumers to avoid buying counterfeit items -- even if there was only indirect evidence that terrorists were benefiting from the illicit trade.

But she said an investigation by her committee staff showed that terrorist groups had become increasingly involved in counterfeiting as authorities cracked down on charities and wire transfers and dried up other sources of funding.

“Each time one avenue is closed down, another one is exploited by ever-resourceful terrorist groups,” Collins said. “And counterfeiting, because it is extremely lucrative and easy to get into, is the mechanism that terrorist groups have discovered and are exploiting.”