Gift card or “stored value” card sales have increased in online auction sites that advertise discount savings on their purchase. However, cyber criminals are selling many of these cards in intricate money laundering plans, which use stolen credit card information to purchase the store gift cards. These cards are then re-sold online to unsuspecting consumers.
As the popularity of Internet shopping and auction sites has increased, so have the methods in which criminals exploit the Internet to make money. Online money laundering or “e-fencing” has increased as criminal organizations have found new ways to mask money movement and convert stolen data into cash. Until tighter regulation and controls are enacted to deter fraudulent transactions, “e-fencing” will continue to increase and the buyer should beware.
E-Fencing Basics
In “e-fencing”, cyber criminals often use stolen credit card information to buy a gift card online; the card is then advertised on popular auction sites or gift-card exchange sites at a reduced rate to the highest bidder. These “stored value” cards essentially fall into two categories, either as an open-system or as a closed-system card. Closed system gift cards are for use at only the retailer that issues the card, while the open-system cards can be used by almost any retailer selling goods.
Once an innocent purchaser makes payment for the card, the criminal has achieved the ultimate goal of a cash gain for stolen goods. According to loss prevention specialists for the National Retail Federation, “people have found that purchasing gift cards with stolen credit card information and selling them online is very lucrative.” It is also a means for criminals to quickly use stolen information to purchase items before the victims are even aware that their information has been compromised.
The fact that stored value gift cards have become a multibillion-dollar business increases the likelihood for improper use. According to TowerGroup, a leading market researcher, banks and retailers are projected to issue a record $97 billion in gift cards this year, up from approximately $82 billion in 2006. Not all of these cards are sold and associated with the Internet; however, an increasing number of cards are now found online.
Many of the gift cards available on the Internet are offered at auction sites by legitimate card sellers, but the sheer number of cards for sale on these sites—often at a 30 to 50 percent discount rate—brings to question the authenticity and origination of many of the cards.
One site, plasticjungle.com, which is a gift card exchange site where people can buy, sell, or trade gift cards, recently changed its policies in an effort to combat fraud. The site has instituted a policy that any cards issued by a major retailer must be at least 10 days old before it can be posted for purchase or trade. It is believed that enacting this time period will provide merchants time to flag possible fraudulent cards before unsuspecting purchasers acquire them.
Increasing Concern for Law Enforcement
Recent arrests in the US and Canada have revealed much about the tactics of criminal enterprises engaged in gift card fraud. The elaborate criminal organization based in Canada also had links to Europe and Africa and were charged with a wide-range of offenses including fraud, trafficking in credit card data, identity theft and participation in a criminal organization. At the time of the arrests, fake identification and complex electronic and computer equipment designed to copy credit cards and retail gift cards were also found.
According to the Internet Crime Complaint Center (IC3), which is an online complaint center dealing with cyber crime, the number of Internet related complaints involving fraud is on the rise. In fact, the IC3—operational since 2000—recently logged its one-millionth complaint in June 2007. Of this number over 450,000 cases have been referred to federal, state and local law enforcement for further investigation.
Future Outlook
Cyber crime has been a rising concern as the popularity of the Internet has increased. Criminal organizations continue to exploit financial transactions as a method to fund their illicit activities and salaries. Although consumers have an effective complaint process, the ability to proactively police the Internet for illegal practices continues to be extremely difficult.
Until gift card regulations and controls are enacted to deter fraudulent transactions, “e-fencing” will continue to prosper and thrive on the Internet.
