Organized crime hits on baby formula

It was a professional hit, with an unlikely target.

In broad daylight last February, a man entered a Safeway store in Arlington, Va., headed to Aisle 11 with his grocery cart and then fled through the loading dock area with $945 in stolen merchandise.

The take: seven cases of powdered baby formula.

Forget electronic gadgets and fake Rolex watches. One of the hottest items on the black market right now is powdered infant food, particularly those high-end mixes for babies with special nutritional needs, according to law-enforcement officials.

FBI investigators say the theft of powdered formula, which retails for up to $25 per 14-ounce can, is a multimillion-dollar business for international-crime organizations, which repackage the powder. Eventually, it ends up back on grocery shelves, mislabeled, putting babies at risk.

Now some supermarkets are fighting back. Safeway executives, attempting to stanch what the company says has become a $3 million annual loss, recently ordered cases of its more expensive powdered formula off the shelves.

Stores in the Washington, D.C., area have begun complying with the directive, which requires shoppers to pay first, then have their formula brought to them by a clerk. Safeway officials in the Puget Sound area couldn't be reached to find out whether the theft is a problem here.

Powdered baby formula is a lucrative target for shoplifters because of its constant consumer base: Millions of infants in the United States alone guzzle it down several times each day. A 14-ounce can of powder, mixed with water, lasts on average about three days.

Once in the hands of organized crime, the formula is sometimes repackaged to make it appear to be a more expensive variety, and expiration dates and lot numbers are often changed, federal authorities said.

It is then sold through wholesalers to groceries small and large in the United States and overseas — a transaction that risks contamination and worse for its little users, officials warn.

In a half-dozen cases in recent years, the U.S. Food and Drug Administration (FDA) has asked companies to recall formula thought to have been stolen and mislabeled.

State and federal authorities have made hundreds of arrests for formula theft, but dismantling the organizations behind the profit-making venture has proven difficult, law-enforcement officials said.

"When I first heard of this, I laughed. It's incredible — criminals and powdered baby formula," said Joseph Revesz, an assistant U.S. attorney in Fort Worth, Texas. "But it is very big. It's all over the country."

In July of last year, the Fort Worth office prosecuted 14 people — all but one hailed from Lebanon, Egypt or Palestinian-controlled territory — allegedly linked to a powdered baby-formula cartel.

One of those arrested told prosecutors that he stole 240 cases from a Toys R Us one night. The formula was sent to a local fencing operation housed in a rat-infested warehouse, Revesz said. There, the powder was put into counterfeit packaging to get rid of the "Not For Resale" labels, and the expiration dates were changed.

Eventually, the formula appeared back on store shelves across the country for unsuspecting parents, he said.

Ten of those arrested pleaded guilty; most were given probation, according to court records. The ring's four alleged leaders were convicted of fraud, but a federal judge threw out the convictions on a technicality. Revesz is appealing that decision.

While there is no figure for how much baby formula is stolen nationwide each year, organized retail theft is a $32 billion to $35 billion business annually, according to Brett Millar, of the FBI's interstate-theft task force.

Most Americans are naive about this underground economy, he said, though ultimately they end up "paying for it in higher prices."

Millar said the large fencing organizations hire professional thieves who target everyday household items such as batteries, razors, small electronics and CDs. But "they are more interested in baby formula than any other commodity" because it is in constant demand, he said.

The shoplifters are given specific orders to fill, Millar said, and are paid 10 to 15 cents for every dollar's worth of merchandise they steal. Some receive as much as $150,000 a year this way, he said.

King Rogers, a retired vice president with Target, said that company executives had a prison interview a few years ago with a professional thief who had pilfered formula and other items from their stores. He used the money to pay for his children's college education.

They found the man to be "very nervous," Rogers said, "because the people he was stealing for were part of a ruthless organization. He was genuinely concerned for his personal safety."

Industry analysts believe fencing organizations have an easy time recruiting help because professional thieves do not fear the penalty for their crime. In most states, shoplifting is a misdemeanor, so those who do get caught and are convicted rarely serve jail time and can easily pay their fines with the money they make from stealing.

Chuck Miller, vice president of loss prevention for the Food Marketing Institute, a trade association for grocers, said he has been working to get lawmakers and prosecutors to distinguish organized retail theft from other forms of shoplifting.

The industry is lobbying Congress to make organized retail theft a felony under federal law.

"These (shoplifters) are trained what to say and what to do if they get caught. They reveal very little about their organization," Miller said.

Baby formula is so expensive, and thus a lucrative commodity, in part because it is one of the most heavily supervised foods under the FDA's umbrella, said Mardi Mountford, executive director of the International Formula Council, a manufacturers trade group.

Every step — from production to packaging — is carefully regulated, she said, because of formula's role as a primary source of nutrition for most of the 4 million babies born in the U.S. each year. Mountford recommended that parents concerned about the formula ask retailers if they buy direct from manufacturers.

When the product has been stolen and altered, "there are no guarantees of where it's been or how long it's been sitting around or if it's been corrupted," she said. "It's the sole source of food for these babies and there's no margin for error."