GIFT CARDS NEW CURRENCY OF CRIME

RCMP: Booming Business Tool Proving To Be A Hit With Crime Syndicates

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, the RCMP says.

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
Det. Insp. 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 U.S. 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, Det. Insp. 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, Mr. 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,
Det. Insp. 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.

A person can apply for a card at various retail locations across
Canada, such as convenience stores and payday-loan outlets. Once he
or she completes the registration online, the card is mailed to him
or her. The card can be loaded and reloaded 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," said 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. "We've put some
pretty tight controls around this so it's not an attractive option
for money laundering," he said.

Det. Insp. Sullivan said prepaid cards only recently appeared on 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."