Kenilworth Market, a bulletproof junk-food emporium just inside Washington, D.C.’s eastern border, sells ski masks in the dead of summer. Its clerks steadily hawk “loosies,” or illegal single-sale cigarettes.
In 2006, the federal government permanently banned its owner from accepting food stamps after it proved that the store was engaging in large-scale food stamp laundering — yet the store still does much of its business in food stamps.
Stores that trade food stamps for cash at 50 cents on the dollar, claiming federal reimbursement while allowing program recipients to use their benefits for drugs and other illegal activity, commit the most egregious of violations and their owners face permanent bans from the food stamp program.
Yet more than 1 in 3 stores known to the government as sites of major trafficking in recent years are still accepting food stamps, The Washington Times found.
Under the Freedom of Information Act, The Times obtained a list of stores sanctioned from 2005 to March 2012 and compared it by address to the Agriculture Department’s inventory of stores currently accepting food stamps.
A quarter-million stores, ranging from inner-city bodegas to Wal-Marts and including gas stations, seafood and steak markets, and liquor stores, are authorized to accept the Supplemental Nutrition Assistance Program, the $80 billion-a-year program popularly known as food stamps.
Over the seven-year span, nearly 12,000 retailers, or 1 in 21, faced disciplinary measures for allowing food stamps to be used for ineligible items; 6,400 were permanently banned for flagrantly converting large amounts to cash. But as of last month, food stamp recipients still could go to 2,300 of those same outlets and make purchases. At more than 1 in 4, the store is the same right down to the name.
The Agriculture Department said owners, not the stores, are banned, and a store can continue to accept food stamps if the owner, after being caught, sells the establishment to someone else.
But The Times found many suspiciously timed sales, seemingly less than arms-length or to a friend or associate, and even cases in which local business records indicated that no ownership change had taken place at all.
D.C. corporate registration papers filed in 2005, the year before Kenilworth Market was permanently banned, show that the establishment at that address — then referred to as the Far East Deli — was registered to the Masawa Corp. and tied to a man named Mussie Ghirmai. Papers filed in 2011 indicate the convenience store at that address is still tied to the same man and company.
“If a bona-fide transfer of ownership occurs, the new owner may apply to become a certified [food stamps] retailer,” the Agriculture Department’s Food and Nutrition Service said in a statement to The Times. “The new owner is required to submit documentation proving both that a sale has taken place and that the previously sanctioned owner(s) have no financial interest in the new store. If a bona-fide sale has taken place, the previous disqualified owner is also assessed a transfer of ownership monetary penalty.”
The department recently required stores that were disqualified under previous owners to reapply every year rather than every five years, as most stores do, the statement said.
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The Northeast Supermarket on Mount Olivet Road in Northeast Washington was banned permanently from accepting food stamps in August 2006 and again just months later in January 2007. Soonhee Jung, the store’s new owner, said the stores on either side of her sell ineligible items and customers are accustomed to buying them there, plus those who bought them at her store under its previous owner, become enraged when she refuses to do so.
“Next door they sell cat and dog food with [electronic benefit transfer]. Customers come in and show me receipts and say why won’t you do this too. They want to buy everything with food stamps. And when I say no, they get very mad and won’t shop here anymore,” she said.
In the Detroit area alone, food stamps can be used to purchase items at 19 stores containing the words “liquor,” “beer” or “party” in their names and which have been sites of major trafficking.
Days before Farah’s Market in that city was officially banned under the ownership of Vaha Inc., another company known as Alkhouri Inc. was formed, and the first company’s president, Michael Alqazaha, became the registered agent for the new company.
Each year since the O & A Petro Mart at 20581 Mound Road in Detroit was permanently banned under the ownership of Omar M. Ahmed in 2007, Mr. Ahmed has renewed his business license. But the Agriculture Department says food stamps can now be spent at A & A Petro Mart, which was formed in 2009, lists its address alternatively as 20581 and 20681, and is registered to Mohamed Fara, a neighbor of Mr. Ahmed.
Cool Lane Express in Richmond was permanently disqualified in September 2011. But Virginia business filings from September 2010 and May 2012 indicate that at both times, it was registered to GK Ventures Inc.
Sara Market in Hampton, Va., was permanently banned from the program July 7, 2010, under the ownership of Fatna Tacha. Just six days later, it was sold to Lakli El Mehdi rather than try its hand at profitability without food stamps.
In Delmar, Md., the Stop N Shop was disqualified in 2010 and transferred from Priyanka LLC to another limited liability company, Vishnu Sai 23 LLC, with an agent at the same address a few miles away.
The 7-Eleven in Clementon, N.J., was permanently banned in 2011 but listed as still accepting food stamps as of last month.
“Our research to date shows no indication that the new owners are related to the former disqualified owners. However, our staff is still analyzing this case based on the information you have noted. If FNS determines that false information has been provided the owners are subject to permanent disqualification. In addition, the owners may be liable for a $10,000 fine or imprisoned for as long as five years, or both,” the Food and Nutrition Service said of the 7-Eleven.
Other times, superficial modifications were made.
In Chicago, Tobaccosville changed to Tobacco City, which continued to accept food stamps after being banned permanently from the program in 2006. On Baltimore’s Belair Road, the B & B Grocery became the B & C Grocery after one owner, Rodriguez Edwin, was disqualified for trafficking.
Hardly ever prosecuted
“One of the most common ways a disqualified retailer can circumvent FNS’ efforts to keep them out of the program is by enlisting a ’straw owner,’ often a family member, acquaintance or employee, as the alleged owner,” the Agriculture Department’s inspector general testified.
But for most, the deterrent virtually ends there: In fiscal 2011, the Food and Nutrition Service said in its new rules proposal, “civil or criminal court action was concluded on approximately 5 firms.”
The department’s inspector general, however, said the criminal tallies were much higher.
“In the last 5 years, we have completed 779 [food stamp] investigations that have resulted in 1,356 indictments, 944 convictions, and 792 sanctions against individuals and businesses. During that time, our monetary results have totaled more than $186 million,” she testified.
FNS said criminal enforcement was not its department.
“FNS only has the authority to pursue administrative actions against violating stores. The Agency pursues violating stores and removes them from the Program through an administrative process. The more serious cases that may result in criminal charges are all referred to the Office of Inspector General,” it said.
Also among sanctions were 4,100 temporary bans because stores accepted food stamps for “expensive or conspicuous nonfood items, cartons of cigarettes, or alcoholic beverages.”
“Under these regulations, the appropriate disqualification time period would be three years if the firm had not been warned that such violations might be occurring or five years if the firm had received prior warning,” regulations say.
But the department gives owners the benefit of the doubt that infractions are merely the result of “rogue” employees: Unless infractions occur repeatedly with different clerks and continue after a warning, “the appropriate penalty would be a six-month disqualification due to carelessness or poor supervision.”
Twenty-four stores were also allowed to continue accepting food stamps despite being found to have engaged in serious, flagrant trafficking, The Times’ seven-year record set showed.
The number of stores sanctioned for food stamp violations rose to a high of 1,919 in 2011, from a low of 1,263 in 2007. The number of stores caught for infractions that triggered permanent bans nearly doubled in that period.
Modest reforms
Last month, the Agriculture Department proposed rules allowing it to be more aggressive with vendors suspected of blatantly trafficking.
Currently, some retailers can simply ignore fines and penalties for infractions and the department can’t remove them from the program or deny future applications. More than 700 retailers have a delinquent debt as a result of program violations. The proposed regulations would change that.
The department also said its policy has been even more lenient than regulations allow, and it will modify its policy to say that any time two or more clerks misuse food stamps, the owner will be held responsible and a three-year ban triggered, without requiring a warning.
But retailers who illegally accept food stamps for nonfood items will soon be able to be fined $1,000 instead of banned for six months — a relaxing of the rules.
“The proposed rule would allow for consideration of a fine when a clerk at a store allows the purchase of minor ineligible items (such as toilet paper or diapers),” FNS said. “The disqualification of a retail store adversely affects access for recipients relying on the store to purchase food. Therefore, the disqualification policies must balance both program integrity and recipient access.”
• Luke Rosiak can be reached at lrosiak@washingtontimes.com.
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