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Department Store Gift Card Scam

by Nikki Stiles  -   November 28, 2013
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11273884 Copyright Pressmaster, 2013 Used under license from Shutterstock.com

 

Department store gift cards at the checkout counter might seem worthless without money added to them, but not to a criminal. Criminals steal gift cards from store racks before any money has been added to them and then use an electronic card reader/writer to copy the information from one gift card to another, making an identical copy. Then they take the card back to the store for unsuspecting customers to purchase. Once money is added to the card, the criminal can then go on a shopping spree with someone else’s money.

A 22-year-old man in Beaverton, OR, used this very scam, and in less than two weeks stole more than $7,000 from gift cards at a Fred Meyer store. In another case in Plano, TX, a 30-year-old man took gift cards from a local Walmart. Instead of cloning the cards, he recorded the 16-digit numbers on them and used a razor blade to reveal the secret PIN number. He then returned the cards to Walmart. Later, he contacted the 800 number on the back of the card to find out if any balance had been added. When money was added, he went to Walmart’s website and bought items to pick up at the store.

While department store cards, otherwise known as closed-loop cards, typically are not used in money laundering, there are exceptions. A scheme uncovered by a U.S. Immigration and Customs Enforcement (ICE) and Internal Revenue Service (IRS) joint investigation revealed that criminal organizations used gift cards issued by U.S. retailers to pay a co-conspirator. The gift cards were then used to purchase mobile phone cards, which were smuggled into Mexico and sold for a profit.

“Closed-loop cards can also be used like cash if you have a stack of them with enough value,” says Steve Hudak, Chief of Public Affairs at Financial Crimes Enforcement Network (FinCEN). “They are easier to hide than cash and contain more value per square inch than cash, so they are easier to move in some respects.”

FinCEN recently amended the Bank Secrecy Act (BSA) Regulations to include prepaid access as a money services business. Within this rule, closed-loop is not to exceed $2,000 maximum value associated with a prepaid access device, such as a card.

With the holidays right around the corner, law enforcement should be aware that criminals may execute scams involving stolen gift cards.

 

Thumbnail image: 58191610 Copyright Temych, 2013 Used under license from Shutterstock.com

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