By AML Intelligence Correspondents
A SHARP rise in gift card fraud is being exploited by Chinese organized crime groups (OCGs) to launder money and fund illicit activities, U.S. Homeland Security Investigations (HSI) has warned.
The fraud is not only impacting retailers and consumers but also poses significant risks to national security and the broader economy, the agency said.
Under the initiative dubbed Project Red Hook, HSI is collaborating with law enforcement agencies and businesses to address this burgeoning issue.
The program specifically targets Chinese organized crime groups due to the cross-border nature of their operations, which have been linked to a range of criminal activities, including fentanyl production, human trafficking, and illegal migration.
“Gift card fraud is more than just an economic nuisance—it’s a threat to public safety and national security,” said an HSI spokesperson.
“These criminal networks are using sophisticated methods to drain the value from gift cards, undermining consumer confidence and funneling millions of dollars into dangerous activities.”
HSI’s efforts under ‘Project Red Hook’ aim to raise awareness of the tactics used by these criminal groups and provide strategies to protect against such fraud. The initiative highlights several methods employed by criminals, including card tampering, online attacks, and victim-assisted fraud.
Card tampering involves criminals manipulating gift card packaging to access the card’s information before it is sold. Once a consumer purchases and loads funds onto the card, the criminals quickly drain the balance. This tactic has become increasingly common in retail environments, leading to significant financial losses for both businesses and consumers.
Online attacks are another prevalent method, where criminals gain access to gift card accounts through phishing schemes or hacking. Stolen card information is then sold on the dark web or used to make unauthorized purchases.
In victim-assisted fraud, telemarketing scammers deceive individuals into purchasing gift cards and providing the redemption codes. These scams often involve impersonation of authority figures or loved ones in distress, convincing victims to act quickly. The redemption codes are then sold to criminal organizations, who use them to buy goods that are shipped overseas for resale.
HSI has also identified several red flags that may indicate a gift card has been tampered with. Consumers should be on the lookout for signs such as visible tears or cuts in the packaging, compromised pull tabs, and discrepancies in brand logos or packaging design. In some cases, there may be no physical signs of tampering, but the card’s balance does not match the amount purchased.
The impact of this fraud is substantial, with losses attributed to Chinese organized crime groups running into the hundreds of millions of dollars globally. These criminal networks are leveraging the anonymity and ease of use associated with gift cards to mask their illicit financial activities, further complicating efforts to track and disrupt their operations.
HSI is urging consumers and retailers alike to remain vigilant and report any suspicious activity related to gift cards. If a consumer suspects that a gift card may have been tampered with, they are advised to contact the customer support number listed on the back of the card immediately.
Indicators of Gift Card Tampering
Here are some red flag indicators that a gift card has been tampered:
- Visibly evident tears in the zigzag cuts around the perimeter of the secure pack or visible paper fibers around the borders where a sharp knife may have cut through an edge.
- Visibly evident tears or exposed nicks along the pull tab or a pull tab that has been compromised or cut with a knife and then laid back down. A slight bend back and forth can show if this has occurred.
- Product and brand logos, colors, or marks closely resemble, but do not match a company’s intellectual property.
- The personal identification number (PIN) cover has pieces missing, is fully missing, is not flat/smooth or contains wrinkles.
- The product’s packaging or PIN covering deviates from the company’s standard gift card packaging. Compare the packaging and PIN to others on the shelf.
- There may be no physical signs of tampering, but the balance does not match what you purchased.
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