The gift card industry is booming — and so is related fraud and organized crime
Gift card fraud in Canada and U.S. linked to organized crime in China, U.S. officials say
Joan Oanes says she was baffled to learn a gift card she had purchased had been drained of all its money.
The $50 Lululemon gift card was bought last October at a Shoppers Drug Mart location in Brampton, Ont., and given to her sister-in-law in December.
"The receipt is there. It says it's activated," said Oanes. "How come there's no money in it?"
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Martin Paquette, in Oakville, Ont., knows the feeling. The $50 Sephora gift card he bought for his daughter for Christmas at Walmart was also emptied of its entire value.
"My daughter was embarrassed, to say the least," said Paquette. "We were informed that it was used for an in-store purchase on Dec. 25, which seemed a little strange to us because no stores are open."
Big business, big theft
The gift card industry in Canada is booming and is expected to balloon from about $11 billion in 2023 to nearly $14 billion by 2028, according to a 2024 report by Research and Markets. But where there's big business, there's also a big opportunity for theft, warns one expert, noting that consumers need to be aware of possible scams.
"There's a lot of money to be made," said Joe Aversa, associate professor at Toronto Metropolitan University's Ted Rogers School of Retail Management.
"The fact that this is happening is not surprising to me and [thieves are] getting more and more sophisticated."
Experts say there are numerous ways fraudsters can steal gift card balances before the intended recipients can use them.
The cards are often displayed in kiosks on sales floors, allowing scammers to steal them and copy their barcode numbers and PINs or security codes before returning the tampered cards to the store.
The thieves then wait for the cards to be purchased and loaded with money by unsuspecting customers before they use the stolen codes and pins to drain the funds from the cards.
"If you buy it in the store, try to buy it in a store where the gift cards are locked up or in a drawer versus out in the open," said retail analyst Bruce Winder. "And spend it fairly quickly, too."
Winder says consumers have no protection from fraud when it comes to gift card draining.
"Right now, unfortunately, it's a risk that a customer has to eat."
Jeffrey Horncastle, with the Canadian Anti-Fraud Centre (CAFC), says carefully inspecting gift cards is important because some fraudsters surreptitiously cover a card's real barcode with a secondary one, which funnels the money elsewhere when the card is loaded.
"Take your time, verify the packaging and you'll save yourself from being a victim," said Horncastle who suggests consumers inspect their gift card packaging to ensure it hasn't been altered or tampered with.
According to the Retail Council of Canada (RCC) in 2021, $3.8 million in losses were reported due to gift card fraud, although some experts say the actual figure could be much higher because many do not report it.
Winder says gift cards do not have the same layers of authentication or security features that credit or bank cards do, making them an easy target for criminals to exploit.
Getting your money back once you've realized your gift card has been compromised can also be challenging, even with a receipt, as Joan Oanes and Martin Paquette quickly learned.
They both approached their gift card companies and third-party retailers with no luck.
"I'm being bounced like a ball from Shoppers to Lululemon just to get what I purchased," said Oanes.
Lululemon did give Oanes a $30 US gift card for the inconvenience, but she's still out some money.
"I just want the assurance that the gift card I'm purchasing is safe and it really has value in it."
Paquette agrees. "I just really wanted somebody to take some responsibility."
Project Red Hook
Law enforcement officials in the United States have linked some of their country's gift card fraud — and the loss of hundreds of millions of dollars — to Chinese criminal groups.
The Department of Homeland Security (DHS) launched a task force called Project Red Hook to bring together law enforcement agencies and retailers to investigate and dismantle these networks.
"What we saw, roughly in 2023, was the emergence of organized crime into gift cards," said Adam Parks, an assistant special agent in charge at Homeland Security Investigations, a law enforcement agency within DHS, in Baton Rouge, Louisiana.
"We identified this as an organized crime threat, specifically cross-border. And because of that, we decided to get involved and implement Project Red Hook."
Parks said the money siphoned from gift cards is often used to purchase high-dollar luxury items, like Apple products and designer handbags, to be sold in China for cash.
HSI officials say some of that money then goes to funding illicit activity like fentanyl production and smuggling, illegal immigration and human trafficking.
Last December in Florida, a Chinese national pleaded guilty to the possession of more than 6,000 unauthorized gift cards in a scheme to defraud consumers.
Officials say the enterprise "involved individuals stealing gift cards from the store, obtaining the account information from the back of the cards, resealing the cards in their original packaging, and placing the gift cards back onto the shelves of a different store location for customers to purchase. Once a customer purchased the gift card and loaded a monetary amount onto it, the fraudsters had access to the funds without the customer's knowledge."
"We are at around 160 arrests at this point," said Parks, who added these Chinese criminal networks are not just operating in the U.S.
"We know for a fact it's happening in Canada," he said.
"And we have worked with our Canadian law enforcement partners, the RCMP, the CBSA and others."
Gift card fraud in Canada
When asked if there was a similar task force in Canada investigating Chinese organized crime syndicates involved in gift card fraud, the RCMP said it was working alongside the Canadian Anti-Fraud Centre to share information with local, national and international law enforcement partners to combat fraud and scams.
The federal department of justice told Go Public it's not responsible for criminal investigations and "questions about the use of prepaid cards by organized crime groups or law enforcement efforts to tackle such activity are best directed to the police forces of jurisdiction."
Retail analyst Bruce Winder says retailers can play an important role in protecting consumers from gift card theft.
"You can lock up the cards," said Winder, so they're only accessible with the assistance of a sales person.
But retail expert Joe Aversa says it can be tricky for stores to balance preventing theft and fraud with making gift cards visible and accessible to shoppers.
"They want to obviously put in protocols to help prevent thefts from taking place, but not at the risk of making it inconvenient for the consumers," he said.
After Go Public contacted Loblaw, Shoppers Drug Mart's parent company, it said "gift card fraud is an issue impacting the retail sector as a whole" and its sales teams have been "trained to recognize tampering."
Oanes said the company contacted her after Go Public reached out and offered to replace her Lululemon gift card.
In an emailed statement to Go Public, Walmart Canada said it "issues and processes thousands of gift cards daily and incidents of gift card tampering are extremely rare." The company also said that to further protect customers, it displays gift cards in high-traffic areas and its employees are trained to look for signs of tampering.
Martin Paquette says Walmart Canada also offered to replace his daughter's Sephora gift card after being contacted by Go Public.
And while he's happy with the outcome, he says that in future, he'll be more diligent and only buy cards from the stores that issue them.
"The third-party retailer is probably not a good idea because the cards aren't secure in the store, as far as I'm concerned."
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With files from Marnie Luke