U.S. Senate hearing discusses gift card fraud scheme


This week's U.S. Senate hearings on Chinese money laundering groups touched on a little-known but growing issue: gift card fraud schemes.

Chinese organized crime gangs have turned to gift card fraud schemes to steal hundreds of millions of dollars from American consumers, ProPublica reported in April, prompting the Department of Homeland Security to create a task force to address the “card churning” problem.

Here's how card skimming works: Criminals take gift cards from a store, open them at a separate location, and then record the card number and PIN or replace them with a completely new barcode. The criminals then repair the packaging and take the gift cards back to the store. When customers purchase and add money to a card, criminals can access the card online and steal the funds.

“When unknowing customers deposited funds into gift cards that were tampered with, CMLO [Chinese money-laundering organization] Ricardo Mayoral, assistant director for combating transnational organized crime at the U.S. Department of Homeland Security, told a Senate hearing on Tuesday:

“These iPhones and devices purchased with proceeds of crime from TCO [transnational criminal organizations]and then exported for resale abroad to complete the underground bank cycle,” Mayoral added.

In New Hampshire, police arrested three people from December to March on suspicion of using stolen gift card funds to buy millions of dollars worth of electronics, including iPhones.

Adam Parks, the Department of Homeland Security official who leads the new task force, told ProPublica that authorities across the United States have arrested about 100 people for skimming cards in the past 18 months. The official said 80 to 90 of them were Chinese citizens or Chinese Americans.

Parks said multiple Chinese criminal groups are believed to be involved in credit card skimming and may use the stolen goods to fund other illegal activities. Criminal syndicates use low-level “runners” in the United States to carry out the scheme.

In one case, a man named Xue Ming visited 14 Walmart stores in Ohio in the day before his arrest, court documents show. Police said they found 2,260 Visa, Apple and Mastercard gift cards in his car. He pleads not guilty.

In a separate case, police said they found $60,000 worth of tampered gift cards in possession of a man named Donghui Liao who was shopping at a Target in Florida. Arrested while replenishing stolen gift cards.

Americans spend a lot of money on gift cards, which helps explain why they are targeted in the first place. Industry estimates suggest Americans will spend more than $200 billion on gift cards by 2024.

Data shows that card loss has been on the rise in recent years.

According to a report by the National Retail Federation, nearly 60% of retailers said they will experience an increase in gift card fraud in 2022-23.



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