Tackling Gift Card Fraud: A Guide for Accountants on AML Compliance and Customer Protection

Tackling Gift Card Fraud: A Guide for Accountants on AML Compliance and Customer Protection

The Extent of the Problem

In recent years, the convenience and popularity of gift cards have unfortunately made them a prime target for fraudsters. This case study delves into the growing issue of Gift Card fraud, especially within the UK. Action Fraud, the national fraud reporting centre, highlighted that in 2023 alone, victims in the UK lost approximately £13.5 million to Gift Card scams. These figures highlight the critical need for increased vigilance and preventive measures to combat this form of fraud. Our analysis is anchored by data and insights from real-life victims, aiming to arm accountants with the necessary knowledge to safeguard their clients against these deceptive practices and recognise where it might be necessary to file a suspicious activity report.

Why are Gift Cards deemed a popular choice by fraudsters?

Gift cards, celebrated for their convenience and versatility, have unfortunately become a lucrative target for fraudsters. Gift cards are essentially untraceable and easier to convert into cash than other forms of payment. Gift cards can also be easily sold or traded on the black market for cash or other goods. They can also be bought in large quantities without raising suspicion, allowing scammers to maximise their profits. Gift cards are not bound by the same extensive regulations as credit and debit card transactions. Fraudsters have two motivations around the use of Gift Cards: staying off the radar and making money. 

HMRC Phone Scam

A particular  scam which involves fraudsters impersonating HMRC officials to deceive victims, often targeting the elderly and vulnerable. Victims are misled into believing they owe substantial tax debts, which they are instructed to settle using digital vouchers and gift cards, such as iTunes vouchers. The scammers then liquidate these cards by selling the codes or purchasing high-value items at the victims’ expense. Over 1,500 cases of this scam were reported between 2016 and August 2023, with losses averaging £1,150 per victim.

The Case of Debbie Horwood

Debbie Horwood’s mother fell victim to a prolonged scam, losing over £115,000 over a 14 month period. She was coerced into making daily transactions of up to £400 on purchasing Gift Cards from her local supermarkets and passing on the codes to unknown scammers who had convinced her it was an old school friend in need of her help. Debbie shared how her mother was impacted by the scam on the Day Time TV show This Morning in February 2024. In Debbie’s opinion, she felt even though retailers are aware of this crime, they are not doing enough to safeguard their customers. It highlights the necessity of educating retail staff on the signs of Gift Card fraud and implementing transaction limits to protect consumers

Other Common Gift Card Scams

  • Impersonation: Fraudsters masquerade as authority figures, compelling victims to buy gift cards urgently and divulge the codes
  • Government Imposters: Scammers posing as government officials dupe victims into using gift cards for non-existent debts
  • Gift Card Refund Fraud: This involves refunding returned goods onto gift cards to launder money from stolen credit cards
  • Physical Tampering: Scammers manipulate gift cards to steal their value before legitimate use
  • Hackers: Using bots to find and exploit gift cards with balances

These scams exploit the anonymity and liquidity of gift cards, making them attractive to criminals.

Measures to Mitigate the Risk of Gift Card Fraud

To combat Gift Card fraud, several control measures can be implemented, focusing on technological and procedural safeguards. These include:

  • Strong Authentication and Verification Processes: Enhance verification for purchases or redemptions that seem suspicious or are of high value
  • Transaction Monitoring: Limit the amount and frequency of transactions to deter large-scale fraud
  • Secure Distribution and Activation Tracking: Protect gift cards from tampering and track their activation and use to identify fraudulent patterns
  • Educate Customers: Raise awareness about common scams and encourage reporting of suspicious activities
  • Use of Secure Technology: Employ encryption to protect Gift Card data and transactions
  • Regular Security Updates: Stay informed about new fraud tactics and update security measures accordingly

Accountants’ Role in Fraud Prevention

Gift card red flags

Accountants and bookkeepers should be aware of the following red flags which could be indicators of gift cards being used fraudulently and as part of money laundering activity:

  • Large Purchases: Unusually large purchases of gift cards, especially if they’re made in cash or with prepaid cards, can be a sign of money laundering. This could be a single large transaction or multiple smaller transactions that are structured to avoid detection.
  • Frequent Transactions: Regular, frequent purchases of gift cards in significant amounts, particularly by the same person or group of people, can indicate an attempt to launder money. It could also be a strong indication that someone has been targeted, such as was the case with Debbie Horwood’s mother.
  • Anonymity: Attempts to remain anonymous, reluctance to provide identification for transactions that typically require it, or providing suspicious or inconsistent information can be red flags. Especially where gift cards are used extensively and for large amounts, a lack of identification tracking implemented by your client could be an indicator of higher money laundering risk.
  • Resale of Gift Cards: If there’s evidence that purchased gift cards are being resold, this could indicate money laundering. The resale often occurs at a loss, which is acceptable to launderers looking to clean large sums of money. Consider controls such as asking Gift Card users how they acquired the Gift Card as part of the redemption process.

It’s important that businesses which offer gift cards are aware of the money laundering risks gift cards present. Ensure that these businesses have robust policies and training in place for employees to mitigate these risks. If they are not, you should consider the client to be at higher risk of money laundering and should consider supporting them to implement better controls or monitor that policies and training is improved.

Supporting your clients

Accountants and bookkeepers are uniquely positioned to guide clients through implementing effective strategies to prevent Gift Card fraud and enhancing Anti-Money Laundering (AML) compliance.

  • Educating Clients: Ensure clients understand electronic card system vulnerabilities and the attractiveness of gift cards to fraudsters
  • Awareness of Fraud Trends: Keep clients informed about emerging scams and their potential impact
  • Implementing Controls: Advise on setting up transaction monitoring, secure technologies, and customer education programs

Suspicious activity reporting

Should you become aware of suspicious activity that relates to gift card usage, you should raise an internal suspicious activity report to your MLRO who will then decide whether it is a matter that needs to be reported as an external SAR. 

If you need help or advice preventing gift card fraud, get in touch with our team today.

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