New York (CNN) -- A cigarette smuggling scheme that cost New York state millions of dollars in sales tax revenue may have raised funds for militant groups, authorities said.
Sixteen Palestinian men, some with ties to convicted terrorists, were indicted Thursday in the alleged scheme that spans New York, Maryland, Delaware, Virginia and New Jersey states.
Investigators say they uncovered $55 million in illegal cigarette sales.
Although it is unclear where the illicit proceeds ended up, similar schemes have funded organizations such as Hamas and Hezbollah, according to Ray Kelly, commissioner of the New York Police Department.
"This case started because we were being vigilant about terrorism," Kelly said in a statement. "We discovered that individuals who were on our radar for links to known terrorists were engaged in a massive raid on the New York Treasury in the form of cigarette tax avoidance."
One of the suspects had financial ties to Omar Abdel-Rahman, the blind cleric serving a life sentence for a conspiracy to blow up New York City landmarks.
New York Attorney General Eric T. Schneiderman said authorities are still working to trace the "astounding profits" generated by the scheme.
A family affair
Basel Ramadan, 42, of Ocean City, Maryland, ran the operation, authorities said.
With his brother, Samir Ramadan, 40, they allegedly obtained cigarettes from a wholesaler in Virginia and smuggled the untaxed cartons to a storage facility in Delaware.
Adel Abuzahrieh, 42, of Brooklyn, would allegedly drive from New York to the storage facility several times a week with tens of thousands of dollars in cash to be exchanged for untaxed cartons of cigarettes. The cigarettes were then distributed and sold.
The state of New York lost more than $80 million in sales tax revenue, Schneiderman said. New York state imposes a tax of $4.35 per pack of cigarettes. New York City adds a tax of $1.50 per pack.
In addition to lost revenue, officials were concerned about the suspects' ties to convicted terrorists.
Links to convicted terrorist?
"The association of some of the suspects in this case to Ari Halberstam's killer, the 'Blind Sheikh,' and a top Hamas official concerned us gravely," Kelly said.
Authorities said one of the ring's alleged distributors, Yousef Odeh, 52, had strong financial ties to Abdel-Rahman, an Egyptian-born cleric known as the Blind Sheikh.
"Odeh also had a business selling baby formula. And one of his investors in the 1990s was Omar Abdel-Rahman," Kelly said in a statement.
Another alleged distributor, Muaffaq Askar, was closely connected to Pashid Baz, the Lebanese immigrant who fired on a car full of Hasidic students on the Brooklyn Bridge in 1994, killing Halberstam. Baz referred to Askar as his "Palestinian Uncle."
The 16 men arrested Wednesday were the Ramadan brothers, who were the alleged boss and treasurer of the enterprise, nine distributors, four resellers and one transporter.
"The proceeds from this alleged scheme can be used to fund a host of other criminal acts that threaten national security and public safety of Americans at home and abroad," said James T. Hayes Jr., special agent in charge of Homeland Security Investigations.
Money stuffed in garbage bags
Investigators said they seized three handguns from Basel Ramadan, as well as $1.4 million from his residence, some of which was stuffed into black plastic garbage bags.
More than 20,000 cartons of cigarettes were also taken from defendants' homes, cars and storage facilities in four states, authorities said. At least $200,000 in cash was seized from defendants in New York City alone, officials said.
Each of the suspects was charged with enterprise corruption, as well as other criminal acts in connection to the alleged untaxed cigarette scheme.
If found guilty, each faces eight to 25 years in prison.