By Ron Marden, Ph.D., Educator Associate, CPA, CIA;Randy Edwards, Ph.D., CPA
Gift cards are the perfect solutions for birthdays and holidays. Unfortunately, they're also becoming the perfect tool for money launderers and they're not interested in giving. Here are the facts for fraud examiners who need to know about the newest scam.
When Grandma doesn't know what to get for little Susie's birthday it's a quick trip to just about any store you can think of or a simple walk over to the computer to purchase a gift card. The result is that Susie (and anyone else who Grandma wants to give a card to) can now get whatever she wants and she's happy. And the amount Grandma puts on the card is whatever she can afford depending on how many brothers, sisters, sons, daughters, nieces, nephews, and grandchildren she has. It's the perfect gift - what could be simpler and easier to give and use?
The problem is that gift cards might be a little too easy to use. Consider the potentially sinister side. According to Jeffery Ross, a senior adviser with the U.S. Department of the Treasury's Office of Terrorist Financing and Financial Crime, terrorists and money launderers might find it easier to escape detection by using gift and other prepaid cards.
Ross says that criminals are increasingly using the cards, some of which are bought with "digital currency" via the Internet, to avoid leaving financial fingerprints. The Department of the Treasury is considering new regulations to help monitor the $163 billion (U.S.) stored-value industry, which includes gift, long-distance, transit, payroll, and money cards redeemable at automated teller machines.1
While casinos and banks are among the most established means for laundering, money launderers are increasingly turning to such methods as online payment services and gift cards to move their illicit funds because they provide anonymity.2
The scheme is so new that there's a dearth of known case histories.
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FAQs
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.
Are prepaid cards a risk of money laundering? ›
Prepaid cards' global reach enables cross-border transactions, making them attractive to money launderers seeking to move funds discreetly between different jurisdictions. Transactions that involve loading funds in one country and withdrawing cash in another may signal potential money laundering activity.
What is the limit on gift card purchases? ›
Yes, members can purchase a maximum of $10,000 worth of gift cards per day. Some individual brands also have a limit on the quantity of cards or total dollar amount that can be purchased in a certain time period.
What is the prepaid access rule for gift cards? ›
The Prepaid Access Rule requires providers and sellers of “prepaid access” such as stored value cards, gift cards, and other prepaid products to develop and implement an anti-money laundering program (“AML”), file suspicious activity reports (“SARs”), comply with recordkeeping and data collection requirements, and ...
Can gift cards be tracked by IRS? ›
No, gift cards cannot be tracked by the IRS. When it comes to the IRS and gifting, reporting gift cards is done using the honor system.
Can gift card transactions be traced? ›
Can gift cards be traced? Yes, depending on the seller and what detection methods they have in place. While most gift cards don't require personal information to buy, retailers can keep records of when and where each card was bought. So if a serious crime occurs, gift card data can be traced back to a physical store.
Can you put $1,000 on a gift card? ›
Visa Gift Cards
Because it's a prepaid card, spending is limited to the initial amount of money you place on the card at the time of purchase. Cards may be loaded with amounts from $10.00 - $1,000.00.
Can you put 5000 on a gift card? ›
These cards can be used for travel, gifts, and much more! Reloadable Visa Cards can be personalized or non-personalized, with amounts of $10-$5,000. The non-personalized can be reloaded a maximum of 4 times.
Can you buy a Visa gift card for more than $500? ›
Buy a Visa Gift Card for $10, $100, $500, $1000, or any amount in between.
What is the federal law on gift card purchases? ›
Federal Law Offers Protections
Bank gift cards, which carry the logo of a payment card network (e.g., Visa, MasterCard), are also subject to Credit CARD Act protections and can be used wherever the brand is accepted. Under the law, a gift card cannot expire until at least five years from the date it was activated.
Can Gift Cards Be Traced? Gift cards tied into credit card networks, such as Visa prepaid cards, can be traced.
What are the accounting rules for gift cards? ›
Revenue recognition rules for gift cards
The cash received from the sale is paid upfront but does not qualify for revenue recognition as no goods or services have been exchanged. Gift card purchases are recorded as deferred revenue and subsequently recognized as revenue as the gift card is redeemed in the future.
Is buying gift cards suspicious? ›
Only scammers will tell you to buy a gift card, like a Google Play or Apple Card, and give them the numbers off the back of the card. No matter what they say, that's a scam. No real business or government agency will ever tell you to buy a gift card to pay them.
Are gift cards considered money? ›
The Internal Revenue Service considers gift cards, gift certificates, and stored value cards to be cash equivalents. When given to individuals, cash equivalents create the same tax implications as a distribution of cash.
What kind of liability is a gift card? ›
Financially speaking, a gift card is essentially an interest-free loan from the consumer to your company. From a revenue recognition perspective, the funds received from customers amount to deferred revenue (a liability).
Can government track prepaid cards? ›
Currently, law enforcement agencies can't identify or suspend funds from prepaid cards that may be used in support of criminal activities. To assist law enforcement personnel with this task, a technology is needed that can quickly scan prepaid cards and identify the funds associated with the cards.
