Gift cards just the ticket for organized crime

Andrew Mayeda
Canwest News Service

December 26, 2006

OTTAWA - Those gift cards that countless Boxing Day shoppers will be cashing in today are also landing under the Christmas trees of organized-crime groups, who use them as "virtual currency'' for drug deals and money laundering, according to the RCMP.

A recent organized-crime threat assessment for Canada and the United States identified gift cards and prepaid debit cards as one of the tools in the financial-crime kit of organized crime. The assessment was compiled by the RCMP, the FBI and the U.S. Drug Enforcement Administration.

"All these cards were built for legitimate purposes, obviously,'' said John Sullivan, acting director of the RCMP's proceeds-of-crime branch. "But as with any new technology, as soon as criminal organizations see a gap, they exploit it.''

Sales of gift cards have exploded in recent years, making them a ubiquitous feature at retailers such as Chapters, HMV and Home Depot.

During last year's holiday season, 82 per cent of Canada's largest retailers offered such cards, up from 53 per cent in 2003, according to a recent Statistics Canada study.

Sales figures for Canada are tough to come by, but U.S. numbers suggest gift cards are a booming business. The U.S. National Retail Federation estimated Americans will spend $24.8 billion US on gift cards this holiday season.

Many retailers offer gift cards in set denominations. The deposit limit on such "closed'' cards make them less attractive for organized-crime groups, Sullivan said.

They prefer "open'' cards with higher deposit limits, such as those offered by credit-card companies, he said.

RCMP officers said such cards are now accepted as valid currency between crime syndicates. Instead of a suitcase of cash, operatives might show up for a drug deal with a fistful of gift cards.

"Let's just say a kilo of cocaine is sold for $30,000 on the market. Well, you come in with 15 cards loaded with $2,000, and you pay for that commodity,'' said Stephane Sirard, an intelligence analyst with the RCMP's criminal-intelligence directorate.

The cards are also useful for transferring money across the border, because they don't qualify as "monetary instruments'' and aren't subject to reporting limits, he said. Individuals crossing the border with $10,000 or more must file a report with Canadian border authorities.

Internet-savvy crooks could also launder money by converting it into gift cards, then sell the cards online for less than the value stored on the card, Sirard said.

An informal search of Ebay.ca found more than 2,000 gift cards on sale in Canada, many at asking prices below face value.

Gift cards are an attractive option for crime groups because they can be obtained without going through the "mainstream'' banking system, Sullivan said.

MasterCard Canada, for example, offers a gift card that can be loaded up to $2,500. A website that promotes the card said applicants require no credit check, security deposit, employment or income verification.

Applicants can apply for a card at various retail locations across Canada, such as convenience stores and payday-loan outlets. Once they complete the registration online, the card is mailed to them and they can load and reload it with cash at any of the retail locations.

MasterCard Canada didn't return a call for comment.

When poorly managed, prepaid-card programs can be a "vehicle for money laundering and terrorist financing,'' conceded Gord Jamieson, director of risk management and security at Visa Canada.

But he said his company has taken a number of steps to prevent its cards from being used for criminal purposes. Prepaid Visa cards available to individual applicants have a deposit limit of $500 in Canada and cannot be reloaded or used at an ATM.

The company does offer a prepaid card with no deposit or reloading limit, but cardholders typically apply through their employers. Visa also tracks purchasing to ensure the card isn't used in countries known as money-laundering havens, he said.

"We've put some pretty tight controls around this so it's not an attractive option for money laundering.''

Sullivan said prepaid cards only recently appeared on the RCMP radar. He declined to comment on specific cases where gift cards have been seized, but said the Mounties' assessment is based on ``more than just anecdotal evidence.''

Ottawa Citizen

© CanWest News Service 2006

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