Seattle restaurant owner fleeced other refugees Iraqi freedom fighter turned ‘incorrigible money launderer’ caught helping undercover agent posing as pot trafficker

Hussein Alshafei, pictured in a 2002 file photo. Alshafei was convicted of money laundering then after sending funds to Iraq. He is slated to face a federal judge again Friday for new crimes. Hussein Alshafei, pictured in a 2002 file photo. Alshafei was convicted of money laundering then after sending funds to Iraq. He is slated to face a federal judge again Friday for new crimes. Photo: Grant M. Haller/Seattle Post-Intelligencer Photo: Grant M. Haller/Seattle Post-Intelligencer Image 1 of / 6 Caption Close Seattle restaurant owner fleeced other refugees 1 / 6 Back to Gallery

As a broker on a money-transfer network, Hussain Alshafei relied on trust to make his living.

That trust was apparently misplaced.

A Seattle restaurateur and onetime Iraqi freedom fighter, Alshafei moved money through a longstanding, unregulated network used throughout the Moslem world, the hawala network.

Doing this cost him dearly 12 years ago, when he was imprisoned for sending money to sanctions-crippled Iraq.

This time around, Alshafei was helping no one but himself.

Federal prosecutors say Alshafei agreed to launder money for a drug trafficker – in reality, an undercover agent – and stole hundreds of thousands of dollars from his clients. The Mountlake Terrace man has since pleaded guilty, without admitting to any theft, and is slated to be sentenced Friday.

The Homeland Security Investigations sting operation saw Alshafei agree to launder $126,000 for an undercover agent posing as a marijuana dealer. Prosecutors say at least $42,000 more went missing during the sting operation, presumably taken by Alshafei.

Investigators found no evidence that Alshafei previously moved drug money. Alshafei had been imprisoned in 2003 for sending money into Iraq before Saddam Hussein’s ouster; Alshafei himself fled Iraq after taking up arms against Hussein in a failed 1991 rebellion.

Writing to U.S. District Judge Richard Jones, Alshafei said he should’ve walked away as soon as the undercover agent told him he was moving drug money.

“I have no good excuse for making this error in judgment,” he told the judge.

Jones sentenced Alshafei to 10 months under house arrest as well as three years under probation. Alshafei had asked for that punishment, while prosecutors requested a short prison sentence.

Alshafei was indicted in February on money laundering-related charges. He pleaded guilty in October to operating an unlicensed money transmitting business – in his case, a hawala brokerage owned by his wife.

Assistant U.S. Attorney David Reese Jennings contends Alshafei’s crimes extend well beyond money laundering. Alshafei, the federal prosecutor said in court papers, stole more than $500,000 from his clients.

“Alshafei appeared at first to be an incorrigible money launderer, previously convicted, willing to help drug dealers transfer drug proceeds and buy more product,” Jennings said in court papers. “After investigation, however, he appears instead to be an incorrigible, greedy, and daring thief.”

The hawala system in which Alshafei operated is used throughout much of the Moslem world as a cashless money exchange. Brokers exchange debts, collecting and dispensing money without moving it.

A client hoping to move money would bring a deposit to a broker like Alshafei. That broker would then call another broker at the destination location; the brokers then exchange credits so that the second broker can make a payment.

The system is sometimes cheaper than formal channels, and operates in unstable areas of the world such as Somalia. Negotiations also allow for the use of bartered goods and non-standard exchange rates. Hundreds of thousands of hawala brokers are believed to be in business.

Prosecutors contend Alshafei often wired money to other brokers. He is said to have also had money hand-delivered.

Alshafei, Jennings claimed, used the hawala system to fleece his clients.

“Alshafei created a business with little or no visibility, transparency and accountability, thus setting a nearly perfect trap to pluck the unwary,” the prosecutor said in court papers. “He made his services available to others in his cultural community, representing that he could be trusted since he shared a history and language with them. …

“He kept few if any records, and the hawala system … is stubbornly resistant to any kind of criminal investigation, and certainly inscrutable to a civil lawsuit.”

Alshafei was in the throes of a gambling addiction when the undercover agent approached him in 2012. At the time, he was spending thousands of dollars a night at a Mountlake Terrace cardroom and other casinos.

“When the undercover agents came to me with the money, and indicated that it was from an illegal source, I took the money because I believed I needed it to gamble,” Alshafei said in his letter to Judge Jones. “Each time money was provided, I immediately spent at least part of it, and usually most of it, on gambling.

“While, of course, this is no excuse for this criminal conduct, I wanted you to know the truth.”

Born in Najaf, Iraq, Alshafei was a teen when his father was kidnapped by government agents and executed. According to defense statements, Alshafei was told his father had been “fed to the dogs.” Alshafei, at age 14, became the man of the house.

Alshafei escaped Iraq in 1991 after joining in a failed uprising against Saddam Hussein following the Gulf War.

“Although encouraged by the Americans to rise up against the Iraqi government, the Americans abruptly halted their military advance and left the American-sympathizing rebels such as Mr. Alshafei to fight the Saddam Hussein government on their own,” defense attorney Peter Offenbecher said in court papers.

“When the uprising was brutally put down by Saddam Hussein’s troops, Mr. Alshafei was forced to flee for his life,” Offenbecher continued. “Mr. Alshafei escaped and fled to the American lines, where he was taken into custody by the American forces.”

Alshafei spent the three years that followed in a Saudi Arabia refugee camp before he was allowed to come to the United States. He settled in Seattle and went to work as a janitor while also enrolling in community college.

In 2002, Alshafei and 11 others were indicted for moving money to Iraq. Doing so, they violated sanctions put in place following the first Iraq War.

Alshafei was sentenced to an eight-month jail term, even though the activity he was convicted of was decriminalized – Saddam Hussein had been deposed – before he was sentenced.

Suggestions that Alshafei's money went to Hussein's government or terrorists proved unfounded. He appears to have been the only one of the accused to serve jail time.

Released from prison, Alshafei went to work as a tow truck driver and then bought a restaurant, Cellars Grill & Lounge, in Seattle’s Belltown neighborhood. Alshafei’s family has since sold its interest in the restaurant. Since his most recent indictment, Alshafei has been working as a car-service driver.

Alshafei faced up to five years in prison, though the prosecution, probation officials and his attorney all requested far shorter terms.

Probation officials, who offer a sentencing recommendation alongside prosecutors and the defense, have suggested Alshafei serve eight months in prison followed by eight months under house arrest. Prosecutors asked that Jones sentence Alshafei to at least 15 months in prison.

Jennings said Alshafei’s conduct shows the risks inherent in unregulated, outlaw financial services like the hawala.

“It is axiomatic that the temptation to steal overcomes inhibition far too often, especially when large sums of money fall into the control of people without sufficient compunctions,” the federal prosecutor told the court. “In other words, people who can steal and get away with it often do so, or try to do so.”

The defense argued that a 10-month term of house arrest is punishment enough for Alshafei. Writing the court, Offenbecher said Alshafei had been trying for years to run the business legally, and has not been convicted of defrauding anyone.

Alshafei is currently free. He is slated to be sentenced Friday morning by Jones at the Seattle federal courthouse.

Seattlepi.com reporter Levi Pulkkinen can be reached at 206-448-8348 or levipulkkinen@seattlepi.com. Follow Levi on Twitter at twitter.com/levipulk.