Case Study: Multi-Million-Dollar Organic Fraud
How massive quantities of soybeans and corn turned “organic” in the blink of an eye
Back in 2016, I was flagging the risks of food fraud in organic supply chains in my early days of collating the Food Fraud Advisors’ Food Fraud Risk Information Database.
I even called out animal feed in the US as a particular risk.
Sales of organic food and beverages in USA continue to increase, and this is expected to be a long-term trend. Purchasers of organic foods and organic ingredients, including animal feed, continue to be at risk of fraudulent misrepresentation of the organic status of such. Food Fraud Advisors, March 2016
Why is animal feed at high risk? Because in the United States’ organic rules, animals for organic meat must be fed only on organic, non-GMO feeds and forage (source). However, most of the crops grown for animal feed in the US are genetically modified (GMO), meaning they are unsuitable for raising organic meat.
In 2016, organic animal feed was scarce and expensive.
Within a few months of my database entry flagging risks for organic animal feed, an Idaho man was jailed for selling conventional seed as 'organic'. Two years later, a Missouri farmer pleaded guilty to long-running food fraud worth $140m in which he sold conventional corn and soybeans as organic.
At around the same time, a group of businessmen in Turkey (now Turkiye) concocted a plan to profit from the supply gaps in the US domestic market for organic corn and soybeans.
What they did was simple but incredibly profitable.
They purchased large quantities of not-organic commodities in Europe and sold them in the United States as ‘organic’. The frauds were revealed in 2017 and reported in The Washington Post. The scale of the fraud was breathtaking, with one shipment alone containing 36 million pounds of soybeans, large enough, said The Washington Post, to “constitute a meaningful proportion of the U.S. supply of those commodities.”
The miraculous transformation from not-organic to organic netted huge profits.
For example, in 2015, a shipment of non-organic soybeans from Ukraine was purchased for $423 per metric ton (MT) and sold to an American customer as organic soybeans for $614/MT, a price increase of 45%. The total transaction exceeded $4.9 million.
Likewise, in 2016, non-organic corn was purchased for $168/MT and sold as organic for $247/MT - a markup of 47% - with a total value of more than $3.3 million. Subsequent shipments in 2016 and 2017 were valued at up to $10 million each.
How the frauds were perpetrated
New details about the operation were recently published in Nordic Monitor. The operators included two Dubai-based companies owned by Turkish citizens. These companies offered to procure organic grain from Eastern Europe for an American organic feed broker, Global Natural, with the grains delivered through a third company based in Virginia, US, which was run by one of the Turkish men’s ex-wives.
The Virginia-based company sold the ‘organic’ grains to the broker Global Natural which arranged for their sale to certified organic handlers in the US.
The men and their companies have been charged with conspiracy to defraud the US, smuggling goods into the US, wire fraud and making false statements in a prosecution brought by the US Environment and Natural Resources Division’s Environmental Crimes Section, along with Assistant US Attorney for the District of Maryland. A civil lawsuit was also pursued against the men and their companies by Global Natural, the American grain broker that purchased the commodities.
How the frauds were discovered
In early 2017, a customer of Global Natural, who had purchased ‘organic’ animal feed questioned the validity of the organic certificates supplied by Global Natural. Enquiries were made with Global Natural’s supplier, the Dubai-based company Hakan Agro DMCC, which declined to share documentation about the organic status of the materials and blamed the lack of documentation on a plot orchestrated by their competitor.
One month later, another customer of Global Natural requested reimbursement for a shipment of soybeans, citing Turkish documents indicating they were not organic.
At the same time, officials from the United States Department of Agriculture (USDA) were investigating the other Dubai-based company, Hakan Organics DMCC, collecting evidence that implicated them in the fraudulent sale of non-organic products labelled as organic.
The USDA issued a notice of noncompliance to Hakan Organics in April 2017, claiming it had represented non-organic fumigated soybeans as organic, and proposing to revoke its organic certification.
Shockingly, Hakan Organics appealed this and subsequent proposed revocations, including those related to three subsequent shipments of soybeans and corn which the USDA said were also falsely labelled as organic.
In their appeals, the company blamed other business entities that it said were competitors. However, the USDA cited evidence linking the companies, their ownership and their operations and countered that Hakan Organics was involved in all stages of the transactions, whether or not other company’s names appeared on some of the documents.
People who signed off on the fraudulent transactions even used email addresses assigned to Hakan Organics DMCC when supposedly acting on behalf of the other companies.
The USDA’s investigations included examination of three shipments which totalled 17,699 metric tons (MT) of soybeans and 21,000 MT of corn. The soybeans were exported from Ukraine to Turkiye, then from Turkiye to the United States. The USDA obtained the Ukrainian phytosanitary certificates for the soybeans, which showed that the soybeans had been fumigated with aluminium phosphide in Ukraine and that the consignee, and hence the responsible party for the fumigation was Hakan Organics DMCC.
Aluminium phosphide is not an approved organic pesticide.
The corn had been exported from Romania to Turkiye before being shipped to the United States. Its phytosanitary certificate(s) were issued by the Romanian Ministry of Agriculture and Rural Development and stated that the handlers of the corn in Romania were not certified organic.
The corn ‘became’ organic after it was sold to a company which acted as an agent for Hakan Organics. This company obtained transaction certificates identifying the corn as organic. These were traceable via the phytosanitary certificates issued in Turkiye for the shipments imported to the United States.
The USDA asserts that Hakan Organics presented fraudulent information to the company’s organic certifier in 2016, showing a specific shipment of soybeans bound for the US was sourced from an organic farmer in Russia. This contradicted the Turkish phytosanitary certificates for the same load of soybeans. The Russian farmer did not appear to have organic certification and was not listed in the organic INTEGRITY database.
For corn, records which claimed to show the purchase of bulk organic corn from Russia, which contradicted the information on Turkish phytosanitary certificates for the same shipment, were presented to the organic certifier by Hakan Organic’s agent in 2016.
The fallout
Despite its appeals, Hakan Organic DMCC had its organic certification revoked by the USDA on 2nd July 2018. The company they claimed was their ‘competitor’ had its certification revoked in October 2017, after admitting it had imported not-organic soybeans to the United States.
Global Natural terminated its contracts with Hakan Organics and its associated entities. The Washington Post reported on the fraudulent grain sales in May 2017, claiming the perpetrators had made a $4 million windfall from one of the fraudulent shipments.
Three organic certification bodies had been duped by Hakan Organics and its associates, issuing organic transaction certificates for the shipments based on false information.
Countless organic meat and dairy producers unknowingly fed their animals with non-organic feeds which had been treated with aluminium phosphide, rendering their products non-compliant with organic rules, and affecting the integrity of all food products downstream in the supply chain.
Who knows how many litres of ‘organic’ milk or burgers of ‘organic’ beef were affected? My guess is: a lot.
Global Natural’s $20 million lawsuit against its suppliers came to nought. It ceased trading in 2017 and did not pursue its legal challenges which were dismissed and forfeited. By October 2019 it had ceased to exist. The Virginia-based company was dissolved in December 2023 and Hakan Organics ‘competitor’ company was merged with another company owned by the same family in Turkiye.
There are no records of enforcement action against the perpetrators in Turkiye or Dubai. Nordic Monitor alleges the perpetrators have close ties with the Turkish government. One of the men linked to the frauds was president of the Turkish Business Council from 2011 to 2017 - the period during which the frauds were perpetrated. The council is affiliated with the Turkish Ministry of Trade.
Takeaways for food professionals
Sharp-eyed people at two of the companies who purchased soybeans and corn from Global Natural suspected problems with the organic status of their products. When their supplier was unable to assist, it became apparent that the shipments were suspicious.
Their careful enquiries likely led the USDA to investigate Hakan Organics and its associates, ultimately leading to a revocation of their organic certifications and to legal prosecutions and a civil lawsuit.
The lesson for organic products: Trust (the supplier and certificates) but verify.
In short: 🍏 When workers at American organic animal feed companies suspected problems with incoming ‘organic’ soybeans and corn, investigations began and a large food fraud operation was ultimately uncovered 🍏 The frauds were perpetrated by people who took advantage of a shortage of organic soybeans and corn in the US to make extra profits by falsifying the organic status of European grain 🍏The materials were shipped internationally with both genuine and falsified documents🍏Organic certification bodies were deceived into issuing organic transaction certificates🍏
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