Chinese crime rings already dominate the illegal marijuana trade in the U.S. and launder cocaine and heroin profits. Now a federal task force is investigating their role in a burgeoning form of gift card fraud:
Federal authorities are investigating the involvement of Chinese organized crime rings in gift card fraud schemes that have stolen hundreds of millions of dollars or more from American consumers.
The U.S. Department of Homeland Security has launched a task force, whose existence has not previously been reported, to combat a scheme known as "card draining," in which thieves use stolen or altered card numbers to siphon off money before the owner can spend it. The initiative has been dubbed "Project Red Hook," for the perpetrators' ties to China and their exploitation of cards hung in store kiosks on "J-hooks."
This marks the first time that federal authorities have focused on the role of Chinese organized crime in gift card fraud and devoted resources to fighting it. Homeland Security Investigations, a DHS agency, began prioritizing gift card fraud late last year in response to a flurry of consumer complaints and arrests connected to card draining.
[...] Card draining is when criminals remove gift cards from a store display, open them in a separate location, and either record the card numbers and PINs or replace them with a new barcode. The crooks then repair the packaging, return to a store and place the cards back on a rack. When a customer unwittingly selects and loads money onto a tampered card, the criminal is able to access the card online and steal the balance.
[...] More broadly, almost 60% of retailers said they experienced an increase in gift card scams between 2022 and 2023. Between 2019 and 2023, Americans lost close to $1 billion to card draining and other gift card scams, according to the Federal Trade Commission.
Originally spotted on Schneier on Security.
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The incident exposes the growing vulnerabilities tied to digital ID systems and mandatory KYC (know your customer) data collection:
A US-based online gift card retailer has resolved a critical data exposure incident that left highly sensitive customer identity documents accessible on the internet, raising concerns about the growing risks posed by mandatory data collection under "know your customer" (KYC) and digital ID regulations.
The issue came to light when a security researcher, known by the alias JayeLTee, discovered an unprotected storage server linked to MyGiftCardSupply. According to TechCrunch, the server, which lacked even basic password protection, contained hundreds of thousands of government-issued IDs, including driver's licenses and passports, as well as selfies submitted by customers. These documents are required by the company to comply with US anti-money laundering laws, which mandate identity verification for certain transactions.
Despite an attempt by JayeLTee to notify MyGiftCardSupply about the exposure, the company did not respond until TechCrunch reported the breach. MyGiftCardSupply's founder, Sam Gastro, later confirmed the issue. "The files are now secure, and we are doing a full audit of the KYC verification procedure," Gastro stated. He also pledged that the company would delete identity documents promptly after verification in the future.
[...] According to JayeLTee, the server, hosted on Microsoft's Azure cloud platform, contained over 600,000 images of identity documents and selfies from approximately 200,000 customers. These materials are a part of controversial KYC procedures, intended to confirm identities and prevent fraud.
Related: Chinese Organized Crime's Latest U.S. Target: Gift Cards
(Score: 4, Insightful) by looorg on Friday January 03, @12:03PM (2 children)
If they change the numbers and you send money to it don't you just send money to them? Sounds like bad packaging them if you can't see that it has been opened and resealed.
Still I was fairly certain that giftards was a scam even before Chinese (or any) organized crime got involved. It's locked money that can only be used in a specific location during a specific time or else store gets them for free. How is that not a scam again?
(Score: 0) by Anonymous Coward on Friday January 03, @01:46PM
> It's locked money that can only be used in a specific location during a specific time or else store gets them for free.
Not always. At our local BJs (like Costco, but not as good) I bought a $50 gift card for LL Bean, only cost me $40. Before buying I read the back carefully and it does not expire, can be used in stores (there is one nearby), online, with mail or with phone orders.
It was a present for a family member who usually treats themselves to one article of Bean's clothing every year (it's usually very high quality)--so the specific store wasn't a problem.
(Score: 2) by ikanreed on Friday January 03, @05:13PM
Criminals can get quite sophisticated in replicating the look and feel of legitimate merchandise.
(Score: 3, Insightful) by JoeMerchant on Friday January 03, @12:44PM (10 children)
Gift cards, particularly those that redeem for equal or less value than their purchase cost, should not exist in the first place. They prey on an often subconscious control freak in the gift givers. They frequently give the sellers money for nothing.
They are tantamount to unregulated currency issued by businesses, and now we are spending tax dollars attempting to address some of their many flaws.
If you are going to handle "credit accounts" with less than asymmetric key security (chip / RFID credit card level security) you should have explicit BOLD labeling educating the consumer that not only are they throwing fungibility value away when they purchase the card, but they are also at significant risk of loss of value to untraceable petty thieves.
Case closed. Please spend my DHS taxes on better things, like anti-drone defense systems.
🌻🌻🌻 [google.com]
(Score: 2) by Thexalon on Friday January 03, @01:17PM (1 child)
Ah yes, but they're very profitable for the rich people who run the companies that issue them, so as long as the right government people get to wet their beak a bit on the profits it's pretty much guaranteed that they'll continue to be issued under their current predatory system.
As for what DHS needs to spend money on, based on current events it's apparently good systems for protecting large crowds from vehicles driving into them. You'd think they'd have no problem putting up the concrete barriers used for construction or something similar, but apparently not.
"Think of how stupid the average person is. Then realize half of 'em are stupider than that." - George Carlin
(Score: 2) by JoeMerchant on Friday January 03, @01:36PM
To follow your tangent, being the Big Easy I suspect they just were feeling too lazy to take any obvious security / safety precautions that involved work like moving heavy concrete.
Wider tangent: both the New Orleans crowd crasher and the Vegas Trump tower bomber rented their vehicles from the same app. Both served active duty in Afghanistan and trained at Camp Pendleton. Very similar profiles, but apparently they didn't know each other / never met.
Loop back closer to topic: neither will likely be paying their vehicle rental bills.
🌻🌻🌻 [google.com]
(Score: 3, Informative) by owl on Friday January 03, @01:50PM (7 children)
Gift cards
, particularly those that redeem for equal or less value than their purchase cost,should not exist in the first place.There, FTFY.
Gift cards only exist for one silly reason. Your kooky Aunt Flo. just has to give a birthday/Christmas gift, but has no idea what to get, and for some reason, sending a check in the mail with your card became uncouth. Neither of which is a good reason for "gift cards". They are (as you say) less fungible, and no less uncouth than mailing a check or just handing over cash.
(Score: 2) by fliptop on Friday January 03, @02:07PM (2 children)
My brothers usually get me gift cards to Cabela's b/c they know two things, I'll definitely spend it and they sell stuff I need.
Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.
(Score: 2) by owl on Friday January 03, @07:07PM (1 child)
Which is fine, but, if instead they gave you cash, you could spend it at Cabela's or for something else you might need at the moment from some other store.
The Cabela's gift card is only good for Cabela's. Cash is universally useful.
(Score: 2) by fliptop on Friday January 03, @07:24PM
They're my brothers, not my uncles [youtube.com].
Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.
(Score: 2) by JoeMerchant on Friday January 03, @04:00PM (1 child)
Once in my life I thought a gift card was a good idea. There was this Dodge dealer in the middle of our cross-state weekly commute. We stopped in and he genuinely helped us, explained how their custom ordering system worked, and explained how we could sign up for a $50 Farm Bureau membership and get $500 back from the factory on our new truck purchase. He didn't have any trucks available that we wanted, but he did save us $450 on the truck we ended up buying a few weeks later.
Being in a small town that we frequently passed through, there were only two "nice restaurants" in town - so to thank him for his time and kindness, we bought a $50 (then and there the price of a nice dinner for two) gift card to one of the nice restaurants and gave it to him. He had related stories about his wife, and so we pictured the two of them having a nice dinner on us.
In hindsight, it would have been kinder still to hand the man a $50 bill as thanks and let him choose which of the two restaurants they preferred, or do something else entirely with the money. Would have been easier for us, and saved all the machinations of purchase and handling and redemption of the gift card. I suppose it did somewhat benefit our preferred restaurant, particularly since car salesmen tend to drink and the $50 might have only covered his bar tab.
More recently, my wife found a new favorite restaurant here in town and wanted to help promote the restaurant so she purchased a $100 gift card and gave it to some friends, who still haven't redeemed it over a year later. I suppose we did help out the restaurant owner.
Gift cards suck.
🌻🌻🌻 [google.com]
(Score: 2) by owl on Friday January 03, @07:38PM
Yup. That old 'money is fungible' factor. Perhaps he had tried this restaurant before, and was not a fan. He's now stuck with a card good only at the location that is not his preference. With a $50 bill he could use it anywhere.
(Score: 0) by Anonymous Coward on Friday January 03, @08:22PM (1 child)
Seriously, my late aunt always sent $5 with my birthday card and it was awesome. $5 was worth a lot more back then--good towards some toy I really, really wanted or whatever and my parents wouldn't just buy it otherwise.
Make birthday cards great again!
(Score: 2) by owl on Friday January 03, @10:20PM
Yes, but a $5 bill beats a $5 gift card to, say, Target.
With the $5 bill you could get that toy you really really wanted no mater which retailer was selling it.
With the Target gift card, you are stuck buying only the toys Target stocked, and if the one you really really wanted was not stocked at Target, you were SOL.