The gift card industry is booming — and so is related fraud and organized crime

Joan Oanes says she was baffled to be taught a present card she had bought had been drained of all its cash. 

The $50 Lululemon reward card was purchased final October at a Customers Drug Mart location in Brampton, Ont., and given to her sister-in-law in December.

“The receipt is there. It says it is activated,” mentioned Oanes. “How come there is not any cash in it?”

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Martin Paquette, in Oakville, Ont., is aware of the sensation. The $50 Sephora reward card he purchased for his daughter for Christmas at Walmart was additionally emptied of its complete worth.

“My daughter was embarrassed, to say the least,” mentioned Paquette. “We had been knowledgeable that it was used for an in-store buy on Dec. 25, which appeared a bit of unusual to us as a result of no shops are open.”

Massive enterprise, huge theft

The reward card trade in Canada is booming and is predicted to balloon from about $11 billion in 2023 to just about $14 billion by 2028, in response to a 2024 report by Analysis and Markets. However the place there’s huge enterprise, there’s additionally a giant alternative for theft, warns one skilled, noting that buyers want to concentrate on attainable scams. 

“There’s some huge cash to be made,” mentioned Joe Aversa, affiliate professor at Toronto Metropolitan College’s Ted Rogers Faculty of Retail Administration.

“The truth that that is taking place isn’t a surprise to me and [thieves are] getting increasingly refined.”

Specialists say there are quite a few methods fraudsters can steal reward card balances earlier than the supposed recipients can use them.

The playing cards are sometimes displayed in kiosks on gross sales flooring, permitting scammers to steal them and replica their barcode numbers and PINs or safety codes earlier than returning the tampered playing cards to the shop.

The thieves then anticipate the playing cards to be bought and loaded with cash by unsuspecting clients earlier than they use the stolen codes and pins to empty the funds from the playing cards.

“If you happen to purchase it within the retailer, attempt to purchase it in a retailer the place the reward playing cards are locked up or in a drawer versus out within the open,” mentioned retail analyst Bruce Winder. “And spend it pretty rapidly, too.”

Winder says customers haven’t any safety from fraud in the case of reward card draining.

“Proper now, sadly, it is a threat {that a} buyer has to eat.” 

WATCH | Organized crime tied to reward card scams:

Reward card scams are huge enterprise with potential organized crime hyperlinks

Some individuals who purchase or obtain reward playing cards uncover they’ve been drained of funds earlier than the recipients had an opportunity to redeem them. Specialists say it may be a profitable enterprise and inform CBC’s Go Public it might have ties to organized crime.

Jeffrey Horncastle, with the Canadian Anti-Fraud Centre (CAFC), says fastidiously inspecting reward playing cards is vital as a result of some fraudsters surreptitiously cowl a card’s actual barcode with a secondary one, which funnels the cash elsewhere when the cardboard is loaded.

“Take your time, confirm the packaging and you will save your self from being a sufferer,” mentioned Horncastle who suggests customers examine their reward card packaging to make sure it hasn’t been altered or tampered with.

In accordance with the Retail Council of Canada (RCC) in 2021, $3.8 million in losses had been reported resulting from reward card fraud, though some specialists say the precise determine could possibly be a lot greater as a result of many don’t report it.

Winder says reward playing cards should not have the identical layers of authentication or safety features that credit score or financial institution playing cards do, making them a simple goal for criminals to use.

Getting your a reimbursement as soon as you’ve got realized your reward card has been compromised can be difficult, even with a receipt, as Joan Oanes and Martin Paquette rapidly discovered.

They each approached their reward card corporations and third-party retailers with no luck.

“I am being bounced like a ball from Customers to Lululemon simply to get what I bought,” mentioned Oanes.

Lululemon did give Oanes a $30 US reward card for the inconvenience, however she’s nonetheless out some cash.

“I simply need the reassurance that the reward card I am buying is protected and it actually has worth in it.”

Paquette agrees. “I simply actually needed any person to take some duty.”

Mission Crimson Hook

Regulation enforcement officers in the US have linked a few of their nation’s reward card fraud  — and the lack of tons of of tens of millions of {dollars} — to Chinese language legal teams.

The Division of Homeland Safety (DHS) launched a activity power known as Project Red Hook to carry collectively regulation enforcement businesses and retailers to research and dismantle these networks.

“What we noticed, roughly in 2023, was the emergence of organized crime into reward playing cards,” mentioned Adam Parks, an assistant particular agent in cost at Homeland Safety Investigations, a regulation enforcement company inside DHS, in Baton Rouge, Louisiana.

“We recognized this as an organized crime menace, particularly cross-border. And due to that, we determined to get entangled and implement Mission Crimson Hook.” 

Parks mentioned the cash siphoned from reward playing cards is commonly used to buy high-dollar luxurious gadgets, like Apple merchandise and designer purses, to be bought in China for money.

HSI officers say a few of that cash then goes to funding illicit exercise like fentanyl manufacturing and smuggling, unlawful immigration and human trafficking.

Final December in Florida, a Chinese language nationwide pleaded responsible to the possession of greater than 6,000 unauthorized reward playing cards in a scheme to defraud customers. 

Officials say the enterprise “concerned people stealing reward playing cards from the shop, acquiring the account data from the again of the playing cards, resealing the playing cards of their unique packaging, and inserting the reward playing cards again onto the cabinets of a distinct retailer location for purchasers to buy. As soon as a buyer bought the reward card and loaded a financial quantity onto it, the fraudsters had entry to the funds with out the shopper’s information.”

“We’re at round 160 arrests at this level,” mentioned Parks, who added these Chinese language legal networks are usually not simply working within the U.S.

“We all know for a reality it is taking place in Canada,” he mentioned. 

“And we’ve got labored with our Canadian regulation enforcement companions, the RCMP, the CBSA and others.”

Reward card fraud in Canada

When requested if there was an identical activity power in Canada investigating Chinese language organized crime syndicates concerned in reward card fraud, the RCMP mentioned it was working alongside the Canadian Anti-Fraud Centre to share data with native, nationwide and worldwide regulation enforcement companions to fight fraud and scams.

The federal division of justice informed Go Public it isn’t accountable for legal investigations and “questions on the usage of pay as you go playing cards by organized crime teams or regulation enforcement efforts to deal with such exercise are finest directed to the police forces of jurisdiction.”

Retail analyst Bruce Winder says retailers can play an vital function in defending customers from reward card theft.

“You possibly can lock up the playing cards,” mentioned Winder, so that they’re solely accessible with the help of a gross sales individual.

However retail skilled Joe Aversa says it may be difficult for shops to steadiness stopping theft and fraud with making reward playing cards seen and accessible to buyers.

“They wish to clearly put in protocols to assist forestall thefts from going down, however not on the threat of creating it inconvenient for the customers,” he mentioned.

WATCH | Tricks to shield your self in opposition to card-draining scams: 

Reward card scams are on the market. A cybersecurity skilled says there are methods to guard your self

Each vacation season, you hear about it: Reward playing cards which have a zero steadiness, although they have been loaded with cash for a present. It is a rip-off. The CBC’s Dale Molnar spoke with a cybersecurity skilled in regards to the methods scammers use, and what you are able to do to maintain it from taking place to you.

After Go Public contacted Loblaw, Customers Drug Mart’s guardian firm, it mentioned “reward card fraud is a matter impacting the retail sector as a complete” and its gross sales groups have been “educated to acknowledge tampering.”

Oanes mentioned the corporate contacted her after Go Public reached out and provided to exchange her Lululemon reward card.

In an emailed assertion to Go Public, Walmart Canada mentioned it “points and processes 1000’s of reward playing cards day by day and incidents of reward card tampering are extraordinarily uncommon.” The corporate additionally mentioned that to additional shield clients, it shows reward playing cards in high-traffic areas and its workers are educated to search for indicators of tampering.

Martin Paquette says Walmart Canada additionally provided to exchange his daughter’s Sephora reward card after being contacted by Go Public.

And whereas he is pleased with the end result, he says that in future, he’ll be extra diligent and solely purchase playing cards from the shops that concern them. 

“The third-party retailer might be not a good suggestion as a result of the playing cards aren’t safe within the retailer, so far as I am involved.”