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Gift card fraud has become a growing concern for consumers and businesses alike. Under Project Red Hook, HSI is teaming up with our law enforcement partners and businesses to raise awareness of how Chinese organized crime groups are exploiting gift cards to launder money.

Gift card draining techniques not only affect retailers, but also our Nation’s economy and jeopardize our Nation’s national security and public safety. While gift card fraud is not committed by any one organization, Project Red Hook specifically targets Chinese organized crime groups due to the cross-border nature of the crime. This type of fraud erodes Americans’ confidence in our Nation’s economy and retailers, and funds the illicit activities of Chinese organized crime groups, such as:

• Fentanyl production and smuggling
• Illegal migration
• Human trafficking

Gift card fraud perpetrated by Chinese organized crime groups is spreading across the globe and can be attributed to losses in the hundreds of millions of dollars.

This guide provides an overview of the current trends in gift card fraud, explains the methods used by criminals and outlines steps to protect against these scams.

Understanding Gift Card Fraud

Gift card fraud involves various tactics to steal the value stored on gift cards. Recently, criminals have been increasingly using sophisticated methods to tamper with gift cards and exploit online vulnerabilities.

Chinese organized crime groups are combining key characteristics of organized retail crime, victim assisted fraud, and trade-based money laundering to commit gift card fraud.

Here’s a closer look at some of the most common types of gift card fraud:

• Card tampering: Criminals manipulate gift card packaging to steal the card information before the card is sold. They then place the tampered cards back on store shelves. When a consumer purchases and loads money onto the card, the criminal quickly drains the funds.

• Online attacks: Criminals gain access to online gift card accounts through phishing or hacking. They then use or sell the stolen card information online.

• Victim-assisted fraud: This involves telemarketing groups tricking individuals via phone or online into purchasing gift cards and sharing the redemption codes with the criminals, often through scams that involve impersonation of authority figures or loved ones in distress. The criminals sell the redemption codes to the criminal organization for a portion of the redemption value. The criminal organization sends the gift card information to colleagues in the United States to purchase consumer goods, which are then shipped overseas to be re-sold.

Indicators of Gift Card Tampering

Here are some red flag indicators that a gift card has been tampered:

1. 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.
    
2. 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.
    
3. Product and brand logos, colors, or marks closely resemble, but do not match a company's intellectual property.
    
4. The personal identification number (PIN) cover has pieces missing, is fully missing, is not flat/smooth or contains wrinkles.
    
5. 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.
    
6. There may be no physical signs of tampering, but the balance does not match what you purchased.