When a fraud victim sends money to a con artist, you’d think the criminal’s work would be mostly complete. But what comes next might be the most difficult and complicated part of the transaction, particularly if the criminal is outside the United States: getting the money into their hands in a way that’s untraceable by law enforcement, banks or anyone else.
Welcome to the underground financial world of money laundering — where gift cards, wire transfers, cryptocurrency and other payment methods are converted into “clean” cash; and banks, credit cards and other legitimate financial institutions are avoided at all costs. It is often a labor-intensive process, involving many people and enterprises along the way, each taking a cut of the proceeds.
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How to Stay Safe
- Never buy gift cards for any purpose other than to give as a gift. A request for payment via gift card is very often fraudulent. Government agencies will never solicit payment this way.
- Use credit cards for all online transactions. They come with protections to recover your funds if you are defrauded.
- Don’t pay for goods or services with cryptocurrency unless you have a trusted relationship with the seller. Crooks are trying to coerce payments from Bitcoin ATMs.
- Never send cash through the mail to pay for something bought online or from a phone solicitation. Legitimate businesses accept credit cards.
A case unfolding in California courts gives a vivid picture of how effective this underground financial system can be. According to court documents, a 66-year-old man in Streamwood, Illinois, was talked into buying $1,000 in gift cards as a way to pay for some bogus service. The man read the gift card redemption codes over the phone to a scammer, who then instantly gave the information to criminals in Southern California via a Chinese-owned messaging app called WeChat. That team dispatched a runner to use the gift card information to buy an $862 tablet at a department store in Chino, California. The time from the initial gift card purchase to buying the tablet? A mere 13 minutes.
What next? The California operation would accumulate electronics purchased with the gift cards, then resell some goods in the U.S. and ship others to recipients in Hong Kong. Even if the electronics were resold for less than 50 cents on the dollar, that would be almost pure profit for the ringleader. After paying off everyone along the way — as well as the person who made the call that defrauded the Illinois man — the crime would still be lucrative.
Charges against four people awaiting trial in this California case say that the money-laundering chain obtained gift cards from fraud victims in 14 states. Over $2.5 million in payments via gift cards were used to buy popular high-tech products like tablets, smart watches and gaming consoles.
According to court documents, the runners were instructed to use self-checkout lanes to avoid scrutiny by store clerks. A busy runner could hit more than a dozen stores a day, spreading out purchases to avoid suspicion. One runner told law enforcement officers she got the job through an online ad and eventually was spending $10,000 worth of gift-card codes a day. Her cut? About $200 to $300.
While gift cards are particularly popular among scammers these days, crooks launder money in several other ways. Increasingly, they get targets to use cryptocurrency, digital funds like Bitcoin that are easy to hide and almost impossible for authorities to trace. Scammers direct their marks to go to one of the increasingly available cryptocurrency ATMs popping up in supermarkets, pharmacies and convenience stores, says John Buzzard, lead fraud and security analyst for Javelin Strategy and Research. Those funds can be laundered on the digital ledger that tracks cryptocurrency transactions, called the blockchain, and can easily be hidden from authorities, Buzzard adds.
Cash remains popular with many crooks. “There are countless ways” for criminals to launder hard currency, says anti-money-laundering specialist Jack D. Smith, who teaches at George Washington University Law School. Front companies that handle lots of cash — from nightclubs to car washes or laundromats — can be used to commingle cash from frauds with legitimate revenue. Or money can be smuggled overseas.
Other crooks convince targets to wire the money via Western Union or other such companies. Once it is sent, the scammer on the receiving end picks up the funds and walks away. It is illegal for any telemarketer to ask you to pay via wire transfer, the Federal Trade Commission notes. If someone tries to talk you into sending a wire to buy something, hang up the phone.
Katherine Skiba covers scams and fraud for AARP. Previously she was a reporter with the Chicago Tribune, U.S. News & World Report, and the Milwaukee Journal Sentinel. She was a recipient of Harvard University's Nieman Fellowship and is the author of the book, Sister in the Band of Brothers: Embedded with the 101st Airborne in Iraq.