U.S. v. Alhalabi, 05-2209.

• Decision Date: 11 April 2006
• Docket Number: No. 05-2591.,No. 05-2209.,05-2209.,05-2591.
• Citation: 443 F.3d 605
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Abdul Karim ALHALABI, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

443 F.3d 605

UNITED STATES of America, Plaintiff-Appellee, v. Abdul Karim ALHALABI, Defendant-Appellant.

No. 05-2209.

No. 05-2591.

United States Court of Appeals, Seventh Circuit.

Argued November 29, 2005.

Decided April 11, 2006.

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James Barz (argued), Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.

Timothy P. O'Connor (argued), Winston & Strawn, John A. Meyer, Chicago, IL, for Defendant-Appellant.

Before MANION, WILLIAMS, and SYKES, Circuit Judges.

MANION, Circuit Judge.

Abdul Alhalabi owned a grocery store in Chicago. Most of the store's income came from transactions with customers using food stamps. The government started investigating Alhalabi after his store reported unusually large food stamp benefit redemptions. Through its efforts, the government determined that Alhalabi was illegally paying his customers cash for their benefits in an amount well below their face value. The government revoked Alhalabi's participation in the food stamp program but did not bring charges for wire and food stamp fraud until nearly five years later. After a five-day trial, a jury convicted Alhalabi on three counts of wire fraud and three counts of food stamp fraud, and he was sentenced to forty-one months' imprisonment. Alhalabi appeals his conviction. We affirm.

I.

Holyland Foods, Inc. ("Holyland"), a Chicago grocery store owned by Abdul Alhalabi, began participating in the federal food stamp program in 1993. While the United States Department of Agriculture ("USDA") provides food stamp benefits, the Illinois Department of Human Services administers the program in Illinois. The food stamp program allows eligible recipients to use vouchers to buy certain types of staple food, such as grains, meat, dairy, and poultry, from authorized stores. The owners of authorized stores must go through an application process and training, during which they learn that they are forbidden from trading food stamps for cash. After training, the USDA sends an investigator to conduct an inspection of the store and then decides whether to authorize that store.

Holyland's applications to the USDA detailed Holyland's operation. In the initial 1993 application, Alhalabi, identified as the president of Holyland, stated that the store had one cash register and no optical scanners. The application further stated that the store was stocked with household supplies and a range of foods including breads, dairy, fresh produce, poultry, fish, meat, and eggs. He estimated that Holyland would have annual gross sales of $240,000 and that approximately $190,000 of this amount would come from food sales. After a store inspection, Holyland received its authorization in November 1993.

In 1996, Alhalabi applied for reauthorization of Holyland's participation in the program. Alhalabi still listed himself as the president, though the gross sales (for the 1995 tax year) had increased to $367,000, with eligible food sales accounting for $300,000 of the total. Alhalabi indicated that in 1995 Holyland had accepted $280,000 worth of food stamps. Holyland was reauthorized in December 1996.

In 1997, the food stamp program in Illinois underwent a major change, replacing the existing regime in which paper food stamp coupons were used to obtain food. In its place, Illinois adopted an electronic system in which each person eligible for food stamp benefits had an individual account to which benefits were added once a month. The electronic system, which was named the LINK system, made use of a plastic card (the "LINK card"), similar to an ATM card, which was swiped at a point of sale device (the "POS") in an authorized store. The food stamp recipient would then enter a PIN code, and the amount of the sale would be deducted from his account balance. The LINK card also could be used to obtain cash if the card owner participated in the Illinois cash assistance program, which is not related to food stamps. Because this appeal centers on the technicalities of the LINK system and how it relates to the elements of the crime, a detailed description of the operation is helpful.

After a recipient used his LINK card, a retailer received payment through an entirely automated process. For the years 1997 and 1998, Illinois contracted with a company named Transactive, based in Austin, Texas, to administer these payments to retailers. Transactive, in turn, used services provided by National City Bank in this operation. National City offered a type of electronic funds transfer, the automated clearing house ("ACH") program. This computer program compiled the daily LINK card transactions at Transactive, and sent the data to National City, which automatically transmitted payment to the appropriate retailer bank accounts using the Federal Reserve system.

Examining the ACH process in greater detail, the program involved Transactive computers automatically bundling all the information received from Illinois LINK card transactions into an ACH file. The ACH file was created on a daily basis (at 2 p.m.) and included the amounts of all LINK transactions in Illinois for each authorized location's preceding business day. As Transactive received all LINK transactions, the file could contain amounts of both food stamp transactions and Illinois cash assistance. The file also included the bank information for both Transactive and the authorized retailers that were to receive payment. Once the ACH file had been created for a day, Transactive's computers automatically transmitted the information to its concentrator bank, National City, which was located in Kalamazoo, Michigan.

The ACH file received by National City contained information on multiple retailers—whichever stores had LINK transactions during their preceding business day. National City's ACH computer program then sorted the retailers into those which had bank accounts with National City and those that did not. For those with bank accounts outside National City, the ACH program transmitted payments to each retailer according to the dictates of the National Automated Clearinghouse Association. Basically, this meant that the ACH program forwarded each store's account information to the Federal Reserve computer system, which automatically determined the tracking/ routing number of the retailer's bank account and then sent the transaction information to the retailer's bank. The end result was that the retailer's bank posted the amount of the transaction. In other words, the retailer was paid. This process utilized no human interaction after the swipe of the LINK card and the entering of the PIN number, relying instead on computers for the interstate routing and transmission of funds.¹ In other words, once the LINK card was swiped at the site of the retail transaction, it set off a chain reaction of the events described above that ended with a deposit in the retailer's bank account.

Holyland, like other participating Illinois stores, switched from paper food stamps to the LINK system in 1997. Holyland's annual food stamp redemptions in the three years prior to this change were relatively constant: $137,723 in 1994; $201,457 in 1995; and $216,181 in 1996. The food stamp redemptions jumped significantly, however, once Illinois made the switch to the LINK system. In 1997, Holyland redeemed a total of $1,028,015 in food stamp benefits. Beginning in May of that year, the monthly food stamp redemptions shot up from $22,285 to approximately $184,000 in October. The pattern of increased activity continued unabated in 1998, during which time Holyland accepted a total of $1,032,778.26 through the first half of October. The LINK card transaction records from Holyland reflect that, during 1997 and 1998, Holyland repeatedly processed multiple, large food stamp transactions within mere seconds of each other despite its lack of multiple cash registers or optical scanners.

The jump in redemptions at Holyland did not pass unnoticed. The government suspected that Holyland was trading cash for benefits. As mentioned previously trading food stamp benefits for cash is illegal, but the incentive to cheat is high for both a store owner and a food stamp recipient. In a typical trade, the food stamp recipient accepts cash, albeit a discounted amount, in exchange for the ability to spend the proceeds without restriction. For example, a store owner might agree to give a recipient $50 cash for $100 in benefits. This gives the recipient cash to use on anything (instead of staple foods), while the store owner gets reimbursed from the government for significantly more than his actual outlay.

Acting on its suspicions, the government began an investigation, sending in multiple undercover agents to try to exchange food stamp benefits for cash. The first undercover agent posed as a welfare recipient in March 1998, but the cashier at Holyland refused to trade cash for benefits. This reluctance was short-lived, as a Holyland cashier began trading cash for benefits with a second undercover agent, Mireille Swain, in April. Swain received $80 cash for $125 in benefits on April 3 and $100 cash for $150 in benefits on April 8, as well as conducting other trades later that month. The investigation eventually culminated in the government's removal of Holyland's POS device on October 10, 1998. Alhalabi claimed that the increase in food stamp redemptions was the result of high meat sales from Holyland's meat counter and the closing of a nearby supermarket.

After the seizure of Holyland's POS device, the government left the case dormant for nearly five years. On October 8, 2003, the grand jury returned a six-count wire fraud and food stamp fraud indictment relating to payments to Alhalabi from October 8 to October 10, 1998, charging violations of 18 U.S.C. § 1343 and 7 U.S.C. § 2024(b). Before and during trial, Alhalabi argued that the conduct charged in the indictment, which referenced the bank payments he received and not the...