What started out as a small meeting in Houston to discuss the problem of infant formula theft led to arguably one of the most significant positive examples of teamwork between private sector loss prevention, law enforcement, and government officials in the fight against organized retail theft. The lessons from these collaborative efforts in the early 2000s are still applicable in today’s loss prevention industry.
In the fall of 2002, several grocery loss prevention representatives met with Joe Williams, then president of the Gulf Coast Retailers Association, to discuss the growing problem. The standard deterrence and apprehension techniques used in the industry were having little effect on slowing the theft of formula. CCTV, electronic article surveillance (EAS), and even undercover shoplift agents proved to be of little value in significantly slowing the losses. In many locations, retailers were locking up formula just to keep it in supply for their customers. While this helped to slow the theft, it also was an inconvenience for legitimate customers and was damaging sales.
The Scope of the Organized Retail Theft Problem
By comparing notes on the apprehensions made in their stores, the loss prevention representatives found that in many of the cases the suspects detained for the formula thefts were primarily from South and Central American countries, specifically El Salvador and Honduras.
These individuals usually worked in groups of five to six. They would filter into the store separately or in pairs and quickly post lookouts for store management or security. A designated team would then load hand baskets or shopping carts of formula and exit the store.
In the instances where the suspects were detained by loss prevention agents, the interviews conducted with them revealed they were stealing literally thousands of dollars of formula a day and selling it primarily to Middle Eastern fences who had recruited them specifically for this type of work. Although many of the suspects were in the United States illegally, even when they were arrested, they were rarely deported from the country.
For the most part, local law enforcement looked at the formula theft as just another shoplifting case. Although the police were finding more and more formula, as well as other stolen products, during their own investigations, they were having difficulty understanding the implications and linking it to what it really was: organized retail theft.
However, the reality for the merchants in the 2002 meeting was that they were losing millions of dollars due to theft of formula each year in the Texas market alone. In addition to this staggering financial loss, there was an even greater concern with the theft of formula. Namely, “Where was this stolen formula going, and for what purpose were the proceeds being used?”
The Terrorism Connection
Williams listened to the concerns of the loss prevention professionals and referred them to Sergeant Johnnie Jezierski, then with the Texas Department of Public Safety (DPS). As a member of the Special Crimes Services section of the DPS, Jezierski was somewhat knowledgeable of baby formula theft and had become more attentive to the topic after September 11.
Coincidently, on the night of September 11, 2001, a DPS trooper stopped a rental truck loaded with formula driven by a Middle Eastern male, who was later identified as a member of a terrorist organization recognized by the FBI. This was only one of several traffic stops DPS troopers would make in the coming months where Middle Eastern males were driving rental trucks carrying large quantities of formula. When questioned by law enforcement, the suspects would always explain that they were legitimate wholesalers of infant formula, but could rarely produce any paperwork to validate where they had obtained the formula in their possession.
Jezierski was also aware that there had been warnings distributed by U.S. Department of Treasury as well as posted on their website that linked the theft and subsequent proceeds of the sale of stolen infant formula to funding of Middle Eastern terrorism.
As if the connection of stolen formula to terrorist funding was not enough, another concern was the condition of the facilities where the formula was stored prior to being resold. More often than not, law enforcement was finding formula in dirty, insect-infested storage units, garages, and covert repackaging warehouses, where no climate controls or other safety procedures were in place to protect the integrity of the product.
In these repackaging facilities, the stolen formula cans were modified to make it appear as if they were coming directly from the manufacturer. In some cases, it was relabeled with the product type and expiration date changed to make it more marketable. In instances where the retailer had marked the product to make it more easily identifiable to law enforcement in the event it was stolen, the repackaging houses hired “cleaners” to remove any markings that would prevent them from reselling it. As a result, much of the formula was at risk of losing its intended nutritional value and could potentially cause serious health concerns.
The Federal Connection
Jerieski reasoned that there had to be another avenue to fight the organized retail theft of formula other than just the occasional arrest of the shoplifters and the buyers of their stolen product. He and Williams turned to the Texas Department of Health (TDH), which among its other duties supervises the federally funded Woman, Infant, and Child (WIC) program. This agency also oversees the distribution of vouchers for infant formula purchases to over 200,000 low-income families with babies. Many of these families buy formula for their infants from small mom-and-pop retailers and what are known as “WIC only” stores that carry and sell primarily WIC-approved product.
In order to cut their overhead, some of these stores do not regularly purchase formula directly from the manufacturer, as do most major retail chains. These smaller retailers were buying their formula—unwittingly in some cases—from unlicensed wholesalers because it was offered at a lower cost than they could purchase through the normal supply chain.
The result—millions of dollars of stolen formula, some of it improperly stored, was sold to unknowing parents to feed to their babies. At minimum, the nutritional content of the product was at risk. At worst, because of contaminated or expired product, serious illness or even the death of a child could result.
A Multi-Agency Task Force
By way of the WIC advisory board, the Texas Department of Health formed an advisory committee to investigate the problem. Williams, who was already a member of the WIC board, was the logical candidate to chair the committee. This committee was made up of law enforcement officers, retail loss prevention representatives, TDH officials, baby-food manufacturers, the Texas attorney general’s office, and WIC board members.
At the initial meeting of the advisory committee, the retailers openly shared their losses on infant formula with law enforcement and the other members of the group. It was not until this meeting that TDH officials became aware of the scope of the problem of formula theft and how it could negatively impact the health of infants. That was the primary concern of manufacturers of formula who participated in the advisory committee meetings, including Mead Johnson, the manufacturer of Enfamil. Their concern was the nutritional integrity of the stolen product that was being reintroduced to the market and finding its way to infants across the country and throughout the world.
The group learned that the TDH already had a civil remedy in place that required wholesalers of infant formula to be registered with the state. Under existing civil statutes, not only could TDH conduct inspections of suspected illegal wholesalers, they could seize any infant formula they believed was not purchased from legitimate sources.
Taking Action
Over the next few months, law enforcement officials conducted surveillance and developed leads for TDH on the locations of what were believed to be unlicensed formula distributors. In Houston, officials even used the local chapter of Crime Stoppers and various media to solicit leads from the community about the locations of stolen formula and the names of persons involved in the theft rings. Referring to the infants affected by these criminal acts, Kim Ogg, then director of Crime Stoppers of Houston, commented during a press conference, “This type of crime takes advantage of the most helpless of victims.”
In March 2003, TDH representatives, along with law enforcement, began an aggressive inspection program of WIC infant formula distributors. These distributors are required by TDH regulations to be registered with them as food wholesalers. The results overwhelmed everyone involved in the task force.
According to Julee Magness, former program director for field operations and compliance for TDH, her unit conducted over 85 inspections where they seized over $1.5 million in suspected stolen infant formula and over-the-counter medicine, which is also subject to TDH regulation.
As suspected during law enforcement surveillance, the distributors were found to be noncompliant with TDH regulations. This meant they were unlicensed with the state agency to distribute formula and medicinal products. It was evident from reviewing the records kept by some of the wholesalers that they were making millions of dollars in sales annually. However, some individuals who owned the wholesale operations were enrolled in state welfare programs such as Medicaid and were declaring income to the Internal Revenue Service of less than $10,000 a year.
Additionally, few records could be produced by the suspects during the inspections that could substantiate from whom the vast quantities of formula had been purchased.
In addition to civil charges, several formula distributors were arrested on criminal charges ranging from firearm violations to organized crime. Some of the distributors were also deported for expired visas.
In many of the cases, the defendants did not protest the seizures of product or the fines, although the state of Texas has substantially increased the civil penalty for violations of this nature. It seemed that the seizures of product and subsequent fines are almost considered by the illegitimate distributors a part of doing business.
A Problem Bigger than Texas
It was clear to all the parties involved in the organized retail theft investigation that this problem was not just a Texas problem, but a national one as well. Since WIC is a federal program funded by the U.S. Department of Agriculture (USDA), it is available to qualifying families throughout the country. It was evident that many of the distributors were shipping the stolen infant formula out of state for resale. During the course of the investigation, the task force was in communication with other local and state law enforcement agencies who were finding bags and cases of formula identified by markings as having come from Texas retailers in storage facilities far away from the state.
To attempt to find a federal solution to stop this flow of stolen formula, Jerieski and I met with then-U.S. Representative John Carter of Texas. A seasoned former state district judge, Carter listened and quickly saw the seriousness of the issue, both from the financial as well as the product safety perspectives. Additionally, the irony could not escape those involved that the federally funded WIC program was apparently being manipulated in part to fund terrorist activities.
Representative Carter requested a congressional field hearing to address the topic of organized retail theft of baby formula and the subsequent money laundering of the illegal proceeds. This hearing was held in Houston in the fall of 2003. As a result of the testimony at the hearing, Representative Carter introduced an amendment to pending legislation that requires every state to maintain an approved list of infant formula manufacturers, wholesalers, distributors, and retailers who provide formula to WIC vendors in each state. It was left up to each individual state to develop an oversight program to enforce this critically needed legislation.
A Partnership with Results
Through the collaborative efforts of the Texas task force, organized retail theft of baby formula in the state has been substantially reduced. In the six months following the seizures, retailers involved in this project reported a decrease in the loss of baby formula due to theft of up to 85 percent. This equated to several million dollars in savings to the companies. Retailers were able to put formula back on their shelves rather than locking it up. But more importantly, the task force efforts created a safer supply of formula for infants in Texas and throughout the country.
Further evidence of the success of the program was reported by legitimate Texas wholesalers who reported that their sales of previously high-theft brands of formula to convenience stores, WIC stores, and small independent grocers jumped over 12 percent after enforcement efforts were underway.
But perhaps the greatest sign of success in the program, and certainly the most chilling, is that reliable sources have indicated that chatter concerning the operation of the Texas task force and its financial impact on the illegitimate wholesalers has been monitored overseas.
Inevitably, shoplifters and their fences have moved on to other products to steal. But by working together and breaking down what have been traditional barriers to communication, the private sector, law enforcement, and government officials in this endeavor have successfully demonstrated that a collaborative effort is not only useful, but critical to both our industry and nation as we face new challenges from organized criminal enterprises at home and abroad.
This article was originally published in 2005 and was updated August 29, 2016.
