Compliance Blog

Dec 06, 2021
Categories: BSA Fraud

DOJ Investigates the Use of Gift Cards in Financial Schemes

Any fan of The Real Housewives of Salt Lake City is familiar with the news about Jen Shah, a cast member, allegedly participating in a telemarketing scheme defrauding victims including the elderly. The Federal Trade Commission (FTC) calculated that in 2020 alone Americans 60 years or older lost at least $602 million dollars due to fraud, scams, and other financial exploitation schemes. Occasionally, fraudsters use gift cards to launder the proceeds from these schemes. Now may be a good time to review recent Department of Justice (DOJ) action targeting the use of gift cards for money laundering.

Recently, the Northern District of Georgia, a DOJ jurisdiction participating in the Transnational Elder Fraud Strike Force, announced the indictment of six defendants for fraud targeting the elderly and using gift cards to launder the proceeds. The DOJ alleges the defendants scammed victims into providing gift cards or other methods of payment:

Once the scammer on the telephone scared the victims, the scammer would instruct the victim on how to pay money. Sometimes the scammer directed the victim to withdraw cash, package the cash in shipping boxes, and deliver the package as instructed. Other times, the individual on the phone would tell the victim to obtain gift cards and provide the redemption code on the back of the card. Oftentimes, the individual on the phone would tell the victim to wire money to a particular bank account; withdraw their money for cashier’s checks made payable to a specific company; or deposit cash directly into a specific company’s bank account.

In a separate case, the Consumer Protection Branch of the DOJ and the DOJ’s Central District of California, working with the Transnational Elder Strike Force, indicted four other defendants, accusing the defendants of  purchasing electronic appliances and gift cards to launder the proceeds of criminal activity:

According to the indictment, defendants Bai, Hu and Shi obtained over 5,000 gift cards from a group known as the “Magic Lamp.” Defendants Bai, Hu and Shi caused the gift cards to be distributed to “runners” like defendant Fu who use the funds on the cards at Target stores in Los Angeles and Orange County and elsewhere to purchase, among other items, consumer electronics and other gift cards. Through the purchases, returns and other transactions at multiple Target stores, the defendants and their co-conspirators sought to conceal the fact that the gift cards had been originally funded with fraudulent proceeds.

These two recent DOJ actions are a reminder of how fraudsters target different populations and use innocuous financial products like gift cards to launder the proceeds. Credit unions may want to educate their members on these issues as NAFCU has recently heard from our members that credit union members have fallen victim to these schemes. The federal government advises members to hang up the phone or ignore the message when a person demands payment with a gift card. Typically, fraudsters will demand the card number on the back of the gift card, which then allows the fraudsters to steal the money directly from the card. If a credit union learns a member has fallen victim to financial exploitation involving gift cards, the credit union may be required to file a Suspicious Activity Report, if the regulatory thresholds are met, or may want to voluntarily file one to alert law enforcement. While we enter the holiday season and depend on these same gift cards for friends or family members who are hard to shop for, it is important to remember, as the DOJ emphasizes, “gift cards are for gifts, not payments."

About the Author

Justin White, Regulatory Compliance Counsel, NAFCU

Justin White, NAFCU-Regulatory-Compliance-Counsel

Justin joined NAFCU as a regulatory compliance counsel in August 2021. As part of the Regulatory Compliance Team, he provides daily compliance assistance to member credit unions on a variety of topics.

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