Phone Cases Imploding Without Charges

Two separate cases (one of which I noted Monday) of young Muslim men buying pre-paid telephones in bulk in the Midwest are ending without charges against the men involved:

Two alleged terrorism cases involving men of Middle Eastern descent and bulk purchases of cell phones were in tatters Monday, and Arab-American leaders said the arrested men were victims of racial profiling.

The FBI and Michigan State Police said Monday there is no evidence linking three Texas men arrested in Caro, Mich., to terrorism or a plot to blow up the Mackinac Bridge.

And in Ohio, federal authorities said they were dropping felony terrorism charges against two Arab-American men from Dearborn.

Both cases were prompted by suspicions the men aroused after buying large quantities of cellular telephones. Arab-American leaders and others said discounted cell phones are frequently bought and resold to make money.

While vigilence in this day and age is necessary, in this case, I have to agree with my SLU colleague’s assessment of the cases against the men:

Though it makes sense to be cautious, “it sounds more likely that it is a commercial venture,” said Jean-Robert Leguey-Feilleux, a political science professor and expert on Mideast terrorism at St. Louis University.

It’s true cellular telephones can be used to detonate bombs, but why would terrorists need to purchase so many at one time in a manner that would be likely to arouse suspicion, Leguey-Feilleux asked.

“I doubt very much that many bombs would be on an assembly line,” he said.

Instead, the purchases are likely part of a scheme whereby the GSM phones (which are “locked” electronically to be used with TracFone or other prepaid providers and sold at a discount) are “unlocked” by a middleman to be useful with other companies’ cell services; these unlocked phones can then be sold at a premium, either domestically or in overseas markets.

These two incidents are not the first time bulk purchases have been scrutinized by authorities:

Tony Margis, deputy chief of police in Hemet, Calif., said a Target clerk became suspicious after Middle Eastern men tried to buy about 60 cell phones on New Year’s Eve. The FBI investigation “found it was not nefarious,” Margis said.

More details on the Ohio case are contained in this AP story on the dismissal of charges in that case:

The FBI and the U.S. Department of Homeland Security sent bulletins early this year warning police departments nationwide to be alert for bulk purchase of prepaid TracFones, which could be used to finance terrorism. [emphasis added]

Washington County Sheriff Larry Mincks said Tuesday that officers had been watching for cars with Michigan, Virginia and Florida license plates after receiving numerous calls from store merchants in recent weeks about men of Middle Eastern descent buying large numbers of prepaid cell phones.

Ali Houssaiky acknowledged smoking marijuana in the car after a police dog detected drug use, according to an affidavit filed to support the arrest.

Abulhassan said he believes the men were targeted because they are Arab-Americans. He referred to a comment by Mincks, who said last week the department did not profile based on ethnicity but said the suspects’ background “caused a bit of a stir.”

“If that’s not profiling, I don’t know what is,” Abulhassan said.

Mincks said Tuesday his department profiles people based on behavior, not background.

Given the DHS/FBI alert given above, it seems we are in for many more of these cases over the coming months–at least until the false positive rate leads authorities to lose interest in these “suspicious” situations.

Update (Steve Verdon): The buying of multiple pre-paid cell phones isn’t just bad tradecraft it is amazingly stupid tradecraft. Buying 80 pre-paid cell phones is like saying, “Please, come arrest me and investigate my background.” Now having 2 or 3 operatives going into a store and buying 1 maybe 2 phones at a time can give you 29 detonators for IEDs. Doing this again in a couple of weeks would ramp that up to 59, and with the added benefit of not arousing an suspicions at all.

Buying 80 pre-paid cell phones at a time is consistent with re-selling the phones for a profit. Of course, now that DHS has enlisted Wal-Mart clerks as their front line informants we will likely see far more phone re-sellers being arrested and investigated for possible terrorist connections. And while, there is indeed the possibility that some of these might be money making schemes for terrorist organizations I think most organizations will be looking into other money making ventures. After all, DHS/FBI have just advertised their intent to investigate any and all such bulk purchases that they are made aware of.

That we will be hearing more and more about these stories will now doubt mean that Debbie Schlussel and Michelle Malkin will have lots more to be outraged about in the future.

FILED UNDER: Terrorism, , , , , , , ,
Chris Lawrence
About Chris Lawrence
Chris teaches political science at Middle Georgia State University in Macon, Georgia. He has a Ph.D. in political science (with concentrations in American politics and political methodology) from the University of Mississippi. He began writing for OTB in June 2006. Follow him on Twitter @lordsutch.

Comments

  1. Richard Gardner says:

    Minor (um, major) technical point, cell phones in most of the Americas and eastern Asia operate at a different frequency than those in Europe and western Asia (EU 900&1800, vs NA 800 & 1900 (PCS)). I’m ignoring 450 Mhz systems here like NMT 450. Bottom line is that a cheap phone bought in North America cannot be used to detonate a bomb in the Middle East, unlike some of the press I’ve seen on this. The phones do not directly talk to each other, they talk to a base station.

  2. I’ve put an explanation of how mass purchases of TracFone prepaid phones are being resold as a profit on my blog.

  3. Steve says:

    Color me suspicious.

    I’ve looked at some blogs and links but have yet to see a detailed analysis of the economics of this entrepreneurial opportunity.

    These men had 1,000 cell phones. Using the numbers in the news that’s a $40K investment in inventory. Supposedly they re-sell them to unidentified “wholesalers” for $45 each. A gross profit of $5K. But they have expenses. 3 guys driving across the Midwest need fuel, food and maybe some place to occasionally sleep. I wonder what their net profit is. And are they paying taxes on their income? (Per the wife in Mesquite, TX this is how her husband makes his living.)

    What about the “wholesaler” what’s his business model? He’s paying $45 per phone. Is he retailing them or re-selling them to another “wholesaler”? How much is he getting for each phone? Is he paying taxes?

    Law enforcement has the tools to investigate and get answers to these questions. But the reporters don’t seem to be asking the right questions of the cops.

    It could very well be that the arrested men are perfectly legit and that somewhere up the “value” chain these phones become part of a criminal or terrorist enterprise.

    Buying hundreds of cartons of cigarettes in North Carolina is also perfectly legal. Selling them in NY without paying state excise taxes and then funneling the money to terrorists is not.

    I just don’t want someone telling me that you can buys eggs for $.05 in Sicily and sell them to the mess hall in Foggia for $.03 and still make a profit.

    Because I DON’T have a share.

  4. I sure would like to understand the economics of this a bit better. It is possible that a Walmart retail price (with sales tax) is less than a several hundred unit purchase through a wholesaler for the guys in the van. I don’t know enough to say yes or no.

    But then back the deal up a bit. The guy they are selling to is paying a $5 premium for the phones to make a profit for the guys buying retail. So why doesn’t he go directly to the wholesaler, rather than the teams driving around several hundred miles away on $3 gas.

    It just doesn’t seem to add up to me.

  5. Steve Verdon says:

    But then back the deal up a bit. The guy they are selling to is paying a $5 premium for the phones to make a profit for the guys buying retail. So why doesn’t he go directly to the wholesaler, rather than the teams driving around several hundred miles away on $3 gas.

    It just doesn’t seem to add up to me.

    Because you haven’t taken a course in basic economics. The idea you are missing here is opportunity cost. Doing any activity has a cost of not doing the next best opportunity. Paying $5/phone premium may make sense if he is doing something that he sees as having a value of $5.01/phone or more.

  6. Steve,

    I am not questioning the case of being able to sell the phone for more than $45. I took that as assumed. I’m not questioning that he would rather hire three guys in a van than go romping across the country buying phones in one to three phone lots. What I am questioning is why he would buy the phone from three guys in the van for $45 is he could buy it from a whole saler at potentially below $40.

    Walmart uses its buying power to get good deals. But they do include a mark up. The guy selling the phones to walmart is undoubtedly selling them for less than $40. For the sake of argument, lets say that walmart has a just under 10% mark up, so they are buying the phones at $36.50. If mystery man from Dallas comes to the wholesaler and says I want to buy 1000 of these phones, the wholesaler may not give him the $36.50 price he gives to walmart, but he might gladly take the business at $39. And if the wholesaler is making a profit at $36.50 (which is why we assume he is in the business), then even if the price went up to $44.99 (a hefty 23% mark up for the wholesaler over what is presumably his bottom price), the mystery man in Dallas would be better off going directly to the wholesaler. I’m not suggesting that the mystery man should go wandering across middle America buying phones in ones and twos, but that he would find it economically beneficial to cut out the two middle men (the guys in the van and walmart) and deal directly with the wholesaler. Its a pretty flimsy argument that says dealing with the wholesaler is that much larger of an opportunity cost than dealing with the guys in the van. Maybe it is, but that isn’t obvious to me on its face.

    Maybe there is a reason why he can’t deal directly with the wholesaler. But it sure seems worth a question to the mystery man before wrapping all of this up.

    There is also the notion presented that the phones would be purchased by themselves without the chargers. So after they hack the phone and resell it for something greater than $45, wouldn’t the person buying it want to be able to recharge the phone?

    There may be a perfectly good explanation on all of this, but it all does seem fishy to me.

    p.s. My understanding of the theory behind the large number of phones is they could be used for bombs (two per bomb, one attached to the part that goes boom and one to make a single use call and then discard so as not to provide a thread to catch the bomber before the next attack) and they phones can be used for semi-secure communication by using one phone call per phone. The chances of intercept go down if you limit each phone use to one call. So if you take the London airplane bombers with 20 to 50 “people of interest”, how many phones do you need if you are going to limit the communication to one call per phone?

  7. Steve Verdon says:

    I am not questioning the case of being able to sell the phone for more than $45. I took that as assumed. I’m not questioning that he would rather hire three guys in a van than go romping across the country buying phones in one to three phone lots. What I am questioning is why he would buy the phone from three guys in the van for $45 is he could buy it from a whole saler at potentially below $40.

    Because he might be doing something illegal such as hacking the phone to seperate it from its carrier. In that case the wholesaler wouldn’t sell to him.

  8. Steve Verdon says:

    p.s. My understanding of the theory behind the large number of phones is they could be used for bombs (two per bomb, one attached to the part that goes boom and one to make a single use call and then discard so as not to provide a thread to catch the bomber before the next attack) and they phones can be used for semi-secure communication by using one phone call per phone. The chances of intercept go down if you limit each phone use to one call. So if you take the London airplane bombers with 20 to 50 “people of interest”, how many phones do you need if you are going to limit the communication to one call per phone?

    Depends on the number of IEDs you are making. If you make N IEDs then you need at least N+1 phones. If you want some redundancy in terms of people being able to set them off the upper limit probably N + M where M is the number of conspirators. So, if you have 50 bombs, and 50 conspirators you need at most 100 phones not 1,000 or 600, etc. You might have as few as 51 phones.

    So the number of phones is less inconsistent with the use in IEDs (unless you plan on making a very large number of IEDs) and more consistent with re-selling.

    While this isn’t iron-clad evidence against this being terrorism related, it should be counted as evidence against terrorism when the number of phones gets high. The only other thing is that it is a money making scheme for terrorists. While possible, I think the burden of proof should be on those making the accusations.

  9. tom clark says:

    OK, Folks let’s clear the air on this issue. Once and for all, hopefully.

    The three men and others in this business buy phones at wal-mart, dollar general, family dollar, target, k-mart, alco, sams club, costco etc etc ad nauseum. The average retail price for an entry level handset ie the nokia 1100,2126 from tracfone is $20. There are other phones at other retail prices, but lets concentrate on the aforementioned.

    The Nokia 1100 is sold by Nokia to Tracfone for about $60.00 Exact price undeterminable because neither party releases that info. The Nokia 2126 being a Dual-Band phone is closer to $100.
    Tracfone writes down its inventory to 16.50 the cost charged to the retailer. The retailer applies its mark-up to get the $20 price or in the case of Sam’s club,Costco 18.88.

    The Nokia 1100 is on a frequency that IS compatiable in other parts of the world, as is the 2126. An obvious oversight in peoples knowledge, why would tracfone sell a product(the 2126) that costs 66% more, in some areas? Because the coverage area demands it. They cannot provide service in some geographies without additional roaming agreements on other freq’s. So wholesalers know this of course and the wholesale market reflects a significant difference in the price offered for each phone.

    The current price offered 1100-$28.50 2126-38.00
    So if you were wanting to make to make some money which one would you buy? If everytime you walked into a wal-mart and bought 3 nokia 2126’s, you made lets say $30.00 profit(because almost everbody in the business uses someone elses money. so less overall profit) how far, how many stores would you visit? Answer for most in the business, LOTS. Even the Nokia 1100 gets lots of play, it is now a discontinued phone. tracfone d/c’d it because it was so easy to unlock. So what do they do? Introduce a phone even easier to unlock, the motorolla c-139. Before that it was virgin moble, before that verizon Nokia 5165’s. This business has been going on for years and likely will continue.

    Why do you care? For most, you don’t. For a few the idea that you can buy a product and not truly OWN it, are very disturbing. Lets say you spend $500 on your new Treo, you move or have other reason to desire to change carriers. And you can’t use the phone you paid for! Because the carrier has locked it. Many are asserting that the locking of the phones in the first place is ILLEGAL and against the Truman Act, an illegal tie-in. Tracfone has every right to sell phones below cost, don’t you have the right to do as YOU wish with your property?