141. “Ali Musa Daqduq: False Identification Documents,” slides accompanying press briefing with Brig. Gen. Kevin Bergner.
142. Press briefing with Brig. Gen. Kevin Bergner.
143. “Ali Musa Daqduq: Translated Excerpt from Personal Journal,” slides accompanying press briefing with Brig. Gen. Kevin Bergner.
144. Urban, Task Force Black, 225; “Attacks on “Palace” in Basrah,” slides accompanying press briefing with Brig. Gen. Kevin Bergner.
145. “Ali Musa Daqduq: Translated Excerpt from Personal Journal,” slides accompanying press briefing with Brig. Gen. Kevin Bergner.
146. “Ali Musa Daqduq: Translated Excerpt from Training Manual He Carried,” slides accompanying press briefing with Brig. Gen. Kevin Bergner.
147. Press briefing with Brig. Gen. Kevin Bergner.
148. Michael R. Gordon and Andrew W. Lehren, “Leaked Reports Detail Iran’s Aid for Iraqi Militants,” New York Times, October 22, 2010.
149. US Department of the Treasury, “Treasury Designates Individuals and Entities Fueling Violence in Iraq,” September 16, 2008.
150. Carrie Johnson, “As Iraq Hostilities End, Fate of Combatant Unclear,” NPR, November 15, 2011; David B. Rivkin Jr. and Charles D. Stimson, “Obama and the Hezbollah Terrorist,” Wall Street Journal, December 7, 2011.
151. US Department of the Treasury, “Treasury Designates Individuals and Entities Fueling Violence in Iraq.”
152. “Ali Musa Daqduq: Documents Found in His Possession,” slides accompanying press briefing with Brig. Gen. Kevin Bergner.
153. Charlie Savage, “Prisoner in Iraq Tied to Hezbollah Faces U.S. Military Charges,” New York Times, February 23, 2012.
154. US Military Commission Charge Sheet for Ali Musa Daqduq al Musawi, ISN Number 311933, January 3, 2012.
155. Laura Jakes, “Hezbollah Commander Could Be Transferred in Days,” Associated Press, July 20, 2011.
156. US Department of the Treasury, “Treasury Designates Hizballah Commander Responsible for American Deaths in Iraq,” November 19, 2012; Thomas Joscelyn and Bill Roggio, “Iraq Frees Hezbollah Commander who Helped Mold Shia Terror Groups,” Long War Journal, November 16, 2012.
157. Press briefing with Brig. Gen. Kevin Bergner.
158. US Department of the Treasury, “Treasury Sanctions Five Individuals Tied to Iranian Plot to Assassinate the Saudi Arabian Ambassador to the United States,” October 11, 2011.
11
Party of Fraud
Hezbollah’s Criminal Enterprise in America
IN THE SPRING OF 2012, the head of the FBI’s counterterrorism office in Detroit told an audience at the local Jewish community center that while he knew of no specific Hezbollah threat to Jewish communities in metropolitan Detroit, he remained concerned about potential and “general” threats in the area, from Hezbollah and other violent extremists. “The Iranian issue … that is a huge deal,” he said. “Their use of the proxy group Hezbollah—these are things we’re very concerned about.”1 But while Detroit has seen its share of trained Hezbollah gunslingers pass through town, the vast majority of Hezbollah cases in Detroit and around the country revolve around financial and logistical support for Hezbollah through criminal enterprise.
“Hezbollah acts like a basic crime organization here in the United States,” explained a former head of the FBI’s Iran-Hezbollah unit.2 Employing an “Al Capone” disruption model—getting the bad guys on whatever legitimate charges will most easily stick—can be an extremely effective means of disrupting terrorist activity. In fact, the vast majority of cases targeting Hezbollah supporters in the United States have been prosecuted in just such a fashion, without any mention of the group.
This was the strategy behind several Dearborn-based investigations that morphed into Operation Bathwater, a major case aimed at disrupting Hezbollah activities by focusing on the group’s broad array of criminal schemes. While some bit players involved in the Hezbollah support network were caught up in the investigation, the FBI focused on the higher-level figures. “Some Hezbollah supporters [in the United States] are not actual members, they are just useful idiots who want to be associated with a glorious cause but don’t need or want to know more,” explained the former FBI unit chief.3
Operation Bathwater was predicated on information developed in January 1999 by US Secret Service agents assigned to the Detroit Joint Terrorism Task Force (JTTF).4 Investigating a series of financial crimes, the agents stumbled onto what proved to be not only the largest credit card fraud scheme in the country at the time but also a Hezbollah fundraising enterprise. The scheme dated back to 1994, though authorities would become aware of it only in November 1998, when an off-duty Toledo police officer moonlighting as a department store security guard arrested Nancy Paulino, a single mother from New York, for trying to purchase $1,600 in clothes with a counterfeit Visa credit card. A couple of days later, another New Yorker named Jose Diaz Jr. traveled to Toledo to post bond for Ms. Paulino’s release and was himself arrested on outstanding theft warrants from Wisconsin. The two suspects quickly conceded their roles as shoppers in an elaborate credit card scam run out of Toledo by Dearborn resident Ali Nasrallah.5
What police officers and federal agents learned from their investigation amazed them. In 1994, Ali Nasrallah, then living in New York, approached Diaz with a business proposition: Nasrallah would provide Diaz with fraudulent credit cards and counterfeit identification to match, and Diaz would recruit shoppers—like Ms. Paulino—who would use the cards to buy electronic equipment for Nasrallah. In return, the shoppers would be paid 5 percent of the purchase price for the items they bought. Nasrallah’s organization later expanded beyond New York, first to Florida and then to Michigan.6
Diaz walked federal agents through Nasrallah’s scheme. In an effort to “keep the heat away from where he lived,” Nasrallah used Toledo as his base of operations, away from his Dearborn home but close enough to make regular trips down Interstate 75.7 Diaz would meet Nasrallah at a Knights Inn or an Olive Garden restaurant to pick up counterfeit credit cards and plan shopping trips. The shoppers, often single mothers from New York, drove across the country buying laptops in places like Oklahoma City; Fort Wayne, Indiana; and Jackson, Mississippi. The laptops were then shipped to one of several addresses in Michigan or Virginia. “The idea,” the prosecutor explained, “was to move around, not get caught, and not stay anywhere too long.”8
Nasrallah and his business partners obtained active credit card numbers from computer hackers who breached the security systems of some 138 financial institutions from New Zealand to Switzerland. They acquired more than 10,000 blank credit cards that were stolen from a security company in Nebraska, which they then embossed with legitimate but stolen credit card numbers, and produced false IDs to match. In the words of one prosecutor, “It was incredibly sophisticated, and it utilized the latest computer technology.”9
Based on the information Diaz provided, authorities obtained a search warrant for Nasrallah’s Dearborn home. They found ample evidence of his criminal enterprise—including a list of 1,300 credit card numbers issued by banks across the globe, just under $20,000 in cash hidden in socks, and store circulars from cities where the computers were purchased—but Nasrallah himself had fled south to Toledo just as the authorities were about to raid his home. What followed was a Hollywood-worthy chase down I-75, involving officers from fourteen police agencies. Eventually, Nasrallah was pulled over just short of a highway interchange in Toledo and arrested. Within months, he was convicted, sentenced to six years in prison, and fined $5.1 million.10 According to Secret Service agent Dan Sullivan, who supervised the case, the full extent of the financial losses resulting from Nasrallah’s scam will never be known, but the total for just two dozen of the affected financial institutions came to $1.7 million.11
The original investigation was conducted by state prosecutors because federal prosecutors passed on the case when it first arose in 1998. A Secret Service memo written for the US Attorne
y’s Office noted that several of Nasrallah’s associates were Hezbollah fund-raisers, but since the original criminal act involved only $1,600 in stolen charges, authorities did not appreciate the full extent of the case, as federal prosecutors later conceded.12
Later, in revisiting the case, federal authorities found that the Secret Service investigation had raised several disconcerting and unanswered questions. Several shipments of laptops were traced to southern Lebanon and one to Baghdad, but the ultimate recipients were unclear. Several wire transfers were also traced to southern Lebanon, but from there the money trail went cold. Finally, the Lucas County (Ohio) grand jury named two people as unindicted co-conspirators in the credit card fraud ring, Ali Farhat and Hussein Kassem. According to an assistant county prosecutor who investigated the case, the two were suspected of raising money for Hezbollah.13
While Ali Nasrallah’s case was never explicitly connected to Hezbollah, members of the JTTF cite his case as an example not only of a successful disruption of a Hezbollah financial support scheme but also as the trigger for Operation Bathwater.14 The investigation into Ali Farhat’s criminal and terrorist support activities would be opened under the FBI’s case management system as a “265”—Bureau-speak for a criminal case aimed at securing a conviction in federal court. The FBI understood all too well what Hezbollah operatives and supporters in America were up to; it was now time to put a stop to it.
Operation Bathwater
The Racketeer Influenced and Corrupt Organizations (RICO) Act of 1970, said by some to be named after the gangster protagonist in the 1931 movie Little Caesar, empowered federal prosecutors to target a criminal enterprise writ large, focusing not only on the criminal acts per se but also on the patterns of behavior that support the criminal activities. It also enabled prosecutors to hold the leaders of the conspiracy responsible for any involvement, whether direct or not, in the crimes they ordered as part of the conspiracy.15 Originally used to prosecute Mafia dons and their organized crime networks, RICO has proven equally effective in targeting organized groups engaged in raising money for terrorist groups. In Detroit, the Bathwater investigation would lead to three rounds of indictments, targeting some fifty individuals for a variety of criminal activities.
Though they would not be the first to be indicted, the initial targets of the JTTF investigation were Dr. Ali Abdul-Karim Farhat and his brother, Hassan Karim Farhat. In March 2001, the FBI obtained approval for a Title III criminal wiretap—requiring a higher threshold than an intelligence wiretap authorized by the Foreign Intelligence Surveillance Act (FISA) court—for Dr. Farhat’s telephone lines. Two members of the JTTF oversaw the electronic surveillance portion of the investigation, which, together with traditional FBI surveillance and the recruitment of human sources, “morphed into an unprecedented global terrorist financing investigation,” as one JTTF member described it.16
Investigators found that beginning in March 1999, Ali and Hassan Farhat and several members of the Berro family “conspired to defraud multiple banks and other issuers of credit cards of hundreds of thousands of dollars.” The suspects used Ali Farhat’s perfume distribution company, Sigma Distribution, Inc., and another conspirator’s company, Byblous Distribution Investment, Inc., to process transactions on credit cards that they never intended to pay. Sigma and Byblous would be paid by the banks and credit card companies, and the members of the conspiracy would then declare bankruptcy to creditors who could not collect on the debts incurred. In an effort to hide their assets from bankruptcy court, several members of the group “sold” their homes to their wives or adult children. In total, they charged more than $1.7 million on more than 230 credit cards.17
Given that the Farhat-Berro branch of the investigation grew out of the Nasrallah credit card scam case, investigators were hardly surprised by the nature of what they found. What did surprise them was the extent to which the conspiracy involved extended members of a single family. Ali Farhat had married into the Berro family, the same clan to which Ibrahim Hussein Berro, the Hezbollah suicide bomber who struck the Asociación Mutual Israelita Argentina community center in Buenos Aires in 1994, belonged. So far, the Bathwater investigation had been pretty cut-and-dried—but it soon took a turn for the worse.
In December 2003, FBI agents secured a court order for a criminal wiretap of a suspected drug trafficker’s cell phone. The suspect was believed to be a Nigerian bearing a Canadian immigration document involved in drug dealings with Ali and Hassan Farhat. Much of the drug trafficking investigation was run strictly by the book, including FBI surveillance, the use of undercover FBI agents, and telephone wiretaps. In June 2003, according to the evidence, which had overtones of a pulp detective novel, FBI agents watched as “a very large African man” who went by the name of Bull visited Ali Farhat’s restaurant to emphasize, as only a large man named Bull could, that Farhat had to quickly repay overdue money he owed a more senior drug trafficker.18 The Farhat brothers, in turn, were arrested in January 2004 on charges of conspiracy to distribute cocaine. According to the criminal complaint, Ali Farhat had been involved in trafficking of cocaine, as well as heroin and marijuana, for more than a decade. Within days, government filings made it clear agents saw the case as one involving narco-terrorism finance. According to two confidential informants, the document explained, the Farhat brothers were Hezbollah supporters. An affidavit used to secure search warrants for the Farhats’ homes and businesses revealed agents were looking for evidence of possible ties to Hezbollah, including “Hezbollah-related books, videos and documents.”19 But the charges, borne of several years of investigation, quickly fell apart.
Ali Farhat was accompanied at his uncomfortable meeting with Bull by an FBI informant, usually a good thing, but not in this particular case.20 While much of the most compelling evidence came from the court-approved wiretaps and FBI surveillance, a good deal came from confidential informants gone bad. In one instance, an informant reported seeing the Farhat brothers in possession of cocaine at Ali Farhat’s perfume distribution company in early 2001. Yet another claimed Hassan Farhat once gave him four shopping bags filled with perfume and a Christmas gift containing cocaine.21 But mishandling of two key sources by the FBI’s Detroit field office caused these and many other claims to fall apart. One source admitted violating the law to collect information for his FBI handler, while the other was found to have fabricated events.22
Within weeks the Farhat brothers were released on bond and the drug charges dropped. “My clients feel vindicated,” their lawyer told the press.23 But the celebration was short-lived. The original credit card investigation was untainted by the scandal caused by the bad informants, leading a grand jury to approve new charges against twelve Dearborn residents, including Ali Farhat. Convicted on RICO charges, Farhat was ultimately sentenced to seventy-four months in prison and ordered to pay more than $660,000 in restitution, on top of forfeiting his business and more than $72,000 in cash. All told, sixteen people would be sentenced as part of this scheme.24 The new case made no mention of Hezbollah when it was filed and none when argued in court, despite the case being a cornerstone of a law enforcement campaign by the FBI and US Attorney’s Office to disrupt Hezbollah support networks in the Detroit area. Prosecutors made sure, however, to note the Hezbollah connection in their sentencing memorandum; for them this was always at heart a case of fundraising for Hezbollah through criminal activities.25
Charlotte Redux
One reason investigators were so convinced the Farhat case was at least as much a counterterrorism case as it was a white-collar crime case is that the Farhat investigation did not occur in isolation. At the very same time, other agents on the Detroit field office’s counterterrorism squad were conducting related investigations. In fact, while the Hezbollah finance Bathwater investigations grew out of the Ali Nasrallah case and his ties to Ali Farhat, the first Bathwater case to be indicted—a full year before Ali Farhat was first indicted—was another case altogether.
In January 2003, pros
ecutors indicted Elias Akhdar, Hassan Makki, Salim Awde, and eight other individuals on RICO charges covering cigarette smuggling, possession of counterfeit cigarette tax stamps, credit card fraud, money laundering, arson, and witness tampering. Like several others, this criminal enterprise was bound together not only by physical locality (Dearborn) and common heritage (Lebanese) but by blood and marriage relations and a shared purpose of generating illegal income. Another commonality was the desire not just to enrich themselves but also to raise large sums of money for Hezbollah.26
Starting around May 1996, investigators determined, Akhdar and other members of this network ran a cigarette trafficking ring that was a counterpart to the Charlotte cell. By purchasing cigarettes from the Hammouds in North Carolina and from Akhdar’s common-law American Indian wife, Brandy Jo Bowman, on the Cattaraugus Indian Reservation on Lake Erie in New York State and then slapping counterfeit tax stamps on them, the operators of the Dearborn cigarette scam made a hefty profit. In the context of his plea agreement, one participant indicated that the cigarette trafficking ring purchased more than $500,000 worth of cigarettes in North Carolina alone.27
Often, cell members used counterfeit credit cards to purchase their merchandise. They would take “fraud field trips” to North Carolina, New York, elsewhere within Michigan, and other locales where their shopping sprees would leave a path of defrauded retail and wholesale merchants in their wake.28
When Akhdar heard that the Charlotte cell was indicted in March 2001, he fled to the Cattaraugus Indian Reservation, where his estranged wife and her mother, both key members of his criminal enterprise, lived. Eager to rid himself of key pieces of evidence, and seeing one last opportunity for a profitable scam, Akhdar set fire to an Indian reservation tobacco shop he owned with his wife, Brandy Jo, who then submitted a claim on the shop’s fire insurance policy. Another way Akhdar tried to obstruct the investigation into his criminal activities was to intimidate potential witnesses, in some cases while under FBI surveillance.29
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