Tracfone Terrorism Fraud & Copyright Infringement

| 5 Comments

I've read many recent articles -- and a few older ones -- about investigations, arrests, and releases of men of Middle-Eastern origin buying pre-paid cell phones in bulk at discount stores in the US. By the current reckoning, they're not terrorists or terrorist funders or terrorist sympathizers: they're copyright infringers.

Apparently we must fear first and think later, so national reporters had dutifully reminded us that pre-paid cell phones can be used as remote detonators and untraceable communication devices, that resellers of them can use their profits to fund terrorism, and that end-users can steal from cellular providers. What was the real concern?:

Authorities say the phones are being modified by terrorists to make untraceable international calls and also in the production of roadside bombs.

However, it appears that most of these infamous Wal-Mart, Dollar General, and Radio Shack shoppers are just the first of many middlemen who are going to resell the phones at a considerable markup every step of the way, none of whom have ties to terrorist organizations. However, I think their insistence that they're in a perfectly legitimate business is mostly bombast, as they must surely know about the legal claims Tracfone has brought against Sol Wireless for unlocking its Nokia-produced phones.

Also, I gather that the end user of these phones -- in the US or elsewhere -- is somebody who will use the cell phone as an ordinary cell phone, not a weapon of force or fraud.

In fact, to many cell phone store owners, all this is really is just business as usual:

Arab-American leaders and others said discounted cell phones are frequently bought and resold to make money.

"These were young kids trying to earn ... money over the summer, and nothing more,"

According to one arrested man's father:

"Someone brought it to their attention to buy the phones on discount and resell the phones here to a retailer. They did that a couple times"

This does sound like an excellent way to make a quick, decent profit. Niraq Warikoo gets right to it:

It may seem unusual for someone to buy hundreds of cell phones at a time, but metro Detroiters of Middle Eastern descent say that practice is part of a long tradition of entrepreneurship in Arab-American communities.

From Dearborn to Troy to Sterling Heights, Arab Americans are a major part of the cell phone business in southeastern Michigan. At least half of the cell phone businesses in the region are owned by metro Detroiters of Arab or Chaldean descent, say business owners in the industry. Many new immigrants or emerging businessmen earn money by buying the cell phones and then selling them to gas stations, distributors or stores.

It's called capitalism, Arab Americans say.

Yes, it is. However, Niraq then relates a story by the head of the American Arab Chamber of Commerce:

An independent entrepreneur will buy the phones for, say, $8 each. He will sell them to a distributor for $12, making a $4 profit. Multiply that by a thousand -- about the number of phones the three men arrested in Caro bought in total -- and you have a $4,000 profit.

The distributor then will sell the phones at a higher price to gas station owners, who in turn sell them at a marked-up price.

That's the wrong story, for the wrong group of people. Who will buy a Tracfone handset from a gas station owner when they could get the entire package for half price at CVS or Wal-Mart, just like the initial entrepreneur -- unless there isn't a Wal-Mart around for a 1,000 miles? Almost nobody. These particular Nokia 2126 phones are headed to another market -- not for resale in a local bodega:

According to the complaint, the three men told investigators that they planned to sell the cell phones to people in Dallas, who would then sell them to middlemen in California, New York or Miami. Those men would then re-program the phones and sell them overseas.

Unfortunately for them, the three entrepreneurs in the Caro case knew too much about what would happen to the phones after they sold them. They knew that some of the phones would be reprogrammed, and freely admitted it to police, without realizing that reprogramming (unlocking) is right now considered illegal (like it or not).

The question remains, how big a resale market is there:


Cell phones that can be bought for $20 in the U.S. can bring $200 to $300 in China and Iraq, said Rich Rawlins, deputy director of the Ohio Division of Homeland Security.

Just like monthly cell plans, the hook in the pre-paid business is to sell the phone with a subsidy -- sometimes below acquisition cost -- and more than make up the loss in pre-paid airtime purchased. Outsiders reconfiguring the hardware and reselling must cost Tracfone a small bundle one each and every phone.

TracFone, the nation's leading provider of prepaid telephone services, "has estimated to investigators that to date, more than 800,000 of their telephones have been fraudulently converted..."

The Dallas Morning News put two reporters on the case, and came up with the best intel -- people who've done business with the alleged money launderers:

Mr. Charanya said he does business with between 30 and 100 men in the area who buy discounted prepaid phones at places such as Wal-Mart and Target and then resell them to him for about $5 profit per device.

In turn, Mr. Charanya and other businesses unload the cellphones in bulk, either to other suppliers in Los Angeles, New York, or Miami, and occasionally overseas. He said the strongest international demand for prepaid cellphones is in Hong Kong.

There are at least a dozen businesses in Dallas and hundreds across the country that turn a profit on discounted prepaid cellphones. At each stop in the chain, from the original buyer, to the wholesaler, to the overseas merchant, the price of the cellphones increases.

So a discounted handset sold at Family Dollar in Dallas for $29.99 may eventually sell for more than $100 in Asia or the Middle East.

"All these phones are headed overseas," said Sean Mobh, manager of Wireless Wholesale Stop on Harry Hines Boulevard. "Nokia knows this is going on, Wal-Mart knows this is going on, there's no secret. Nobody says anything because everybody's making a few bucks' profit on these phones."

I find it hard to believe that Tracfone is making a profit if the phone sells retail for $20, even if the minutes are just thrown away...

Update: Please remember that all opinions expressed here are my own; I do not perform research into the nature and causes of terrorism.

5 Comments

Then why is it that the stores put a limit on these purchases?

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2) Unlocked / sim free
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Contact us today at:
Email:raymondphonedealer@hotmail.com
Email:raymondphonedealer@yahoo.com

Available & affordable phones for sale. Fot further inquiry contact marketing Manager:

Email: craig.llinks@yahoo.com
Mr. Craig Don
Tell: +447031834321

N95...$250
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Available & affordable phones for sale. Fot further inquiry contact marketing Manager:

Email: Available & affordable phones for sale. Fot further inquiry contact marketing Manager:

Email: craig.llinks@yahoo.com
Mr. Craig Don
Tell: +447031834321

N95...$250
N93...$200
N91....$160
8800..$190

E60....$150
E61 ....$155
E70....$160
N-Gage..$175

Apple Iphone 4GB..$200
Apple Iphone 8GB..$250
Apple Iphone 16GB....$500.

Hello, we are a Romanian company, we would like to buy some hundred phones. We would like you to give us a price offer for wholesale.

Best regards, Stefna Gavril
Company: Sc. Blue S.L. Srl.
E-mail: scsristefan@hotmail.com

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