Is black-market baby formula financing terror?

On the day terrorists destroyed the World Trade Center, a Texas state trooper pulled over a rental van driven by a Middle Eastern man toward Houston. Opening the cargo door, the officer found a huge load of ... baby formula.

False alarm? Not really. Police later identified the driver as a member of a terrorist group and linked him to a nationwide theft ring that specialized in reselling stolen infant formula, says Sgt. Johnnie Jezierski of the Special Crimes Service of the Texas Department of Public Safety. Proceeds were wired to the Middle East. The driver is still under investigation.

Operation Blackbird, as Texas investigators dubbed their multistate baby-formula investigation, has since led to felony charges against more than 40 suspects, about half illegal immigrants. Authorities have seized some $2.7 million in stolen assets, including $1 million worth of formula.

Blackbird was just the beginning. In the nearly four years since 9/11, police have uncovered and dismantled a growing number of regional and national theft rings specializing in shoplifted infant formula, over-the-counter medicines, and personal-care products. At least eight of the major baby-formula cases have involved "fences" who are of Middle Eastern descent or who have ties to that region, according to a Monitor review of congressional testimony, news accounts, and a study by the National Retail Federation released Tuesday.

The Federal Bureau of Investigation has traced money from these infant-formula traffickers back to nations where terrorist groups, such as Hamas and Hizbullah, are active, investigators say. Then, the trail usually goes cold. Once funds enter such countries, there's often no way to track them.

FBI Director Robert Mueller first talked of a possible link in a speech last fall. He did it again in testimony before the Senate Committee on Intelligence in February, saying: "Middle Eastern criminal enterprises involved in the organized theft and resale of infant formula pose not only an economic threat, but a public health threat to infants, and a potential source of material support to a terrorist organization."

So far, most officials are unwilling to draw conclusive links between proceeds from shoplifted formula and terror financing, saying only that they're "likely" or "probable" in some cases.

"Just because you have an infant- formula operation doesn't mean it's a terror funding operation," says Sergeant Jezierski. "But to say there's no terrorist funding isn't the case either."

While many terrorist groups eschew criminal commerce because it tends to attract police attention, other groups finance themselves with theft, fraud, and smuggling. The Irish Republican Army, Colombia's FARC, and Hizbullah all have engaged in criminal enterprises, says Matthew Levitt, a former FBI counterterrorism analyst, now director of terrorism studies at the Washington Institute for Near East Policy. Some Al Qaeda cells, mostly at the fringes of their operations, have engaged in criminal self-financing, he says. "Important operational funding can come from these criminal activities.... If you are funding yourself, it's freeing up the home organization."

Less convinced is Mardi Mountford, executive director of the International Formula Council, an Atlanta-based trade association that represents infant formula manufacturers in the United States. "We've heard that speculation, but we're not aware of a direct connection."

Theft of baby formula from store shelves has risen over the past decade, costing retailers billions of dollars. Formula was the fourth most-often-shoplifted item last year, according to a survey by the Food Marketing Institute, a Washington, D.C., trade group.

In the wake of several cases in North Carolina and Florida, some retailers have transferred formula from store shelves to behind the counter. One big grocery chain, Albertsons Inc., now keeps a few cans on the shelf - along with a sign directing customers to the courtesy counter.

Calling it "a serious security issue" for retailers, the National Retail Federation unveiled its 200-page report highlighting "organized retail theft" of infant formula. At least seven of the report's 10 case studies detail fencing operations run by citizens of Middle Eastern origin.

"The rings I identified dealing in stolen infant formula are operated mostly by Middle Easterners," says Charles Miller, a loss-prevention consultant and author of the report. They typically organize the rings, pay the shoplifters (who are mostly from Latin America), repackage the formula, and resell it. Out of $30 billion in annual retail theft, about $7 billion of infant formula is stolen and resold for a tidy profit, Mr. Miller estimates.

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