Gift Cards Provide ‘Perfect Exit’ for Criminal Syndicates

Gift cards are reportedly central to billion-dollar Chinese organized crime operations.

As Bloomberg News reported Saturday (Oct. 18), investigators for the Department of Homeland Security (DHS) say these groups have established a money laundering network that uses U.S. retailers, mobile wallets and cryptocurrency to steal and transfer wealth out of the country.

Operatives within the U.S. use compromised gift cards to purchase high-valued products like iPhones and laptops and send them to China, where they are resold at a profit, the report said. The proceeds from that sale are converted to digital currency and funneled through Chinese payment platforms.

“The end goal is to cash out stolen money from fraud or other criminal activity,” Adam Parks, an assistant special agent in charge with Homeland Security Investigations, told the FT. “When you’re talking about China, the trade relationship gives them the perfect exit.”

The DHS operation, known as Project Red Hook, has uncovered a network of China-based organizations using stolen card data and digital wallets to carry out more than $1 billion in fraud in the last two years.

“The system operates with the efficiency of a supply chain,” said Dariush Vollenweider, a senior Homeland Security agent helping run the investigation. “You have the takers, the tampers, the placers, the redeemers, the supporters. By the time a consumer loads money onto a card, that balance is already gone.”

As PYMNTS wrote last year, the practice of “gift card draining” has led to legislation in at least one state. Maryland last year enacted the Gift Card Scams Prevention Act of 2024, which mandates merchants conducting online gift card sales to register each year with the Division of Consumer Protection within the state’s Office of the Attorney General.

In addition, those merchants are also required to display a consumer warning about gift card scams online and at physical locations where the cards are sold. The law also says that physical gift cards must be kept in secure packaging to prevent tampering unless the card is chip-enabled and numberless or sold only for use at the merchant’s establishments.

In related news, PYMNTS spoke in August with Mary Bailey, senior product manager for Bank of America’s gift card program, about the evolution of these cards into a tool for consumer engagement, brand building and revenue generation for merchants.

The bank’s research, meanwhile, has underscored what Bailey called “growing popularity and changing behaviors around gift card usage,” showing that 81% of consumers purchased a gift card in the past year, a 6% increase from the prior year.