Gift cards, often seen as simple retail products, have emerged as crucial components in a sophisticated billion-dollar money laundering operation. According to agents from Homeland Security Investigations, these cards are being exploited by Chinese organized-crime groups to transfer U.S. wealth to China. The network utilizes U.S. retailers, mobile wallets, and cryptocurrency to facilitate the illicit flow of funds.
Operatives within the United States drain compromised gift cards, purchasing high-value items such as iPhones and laptops. These goods are then shipped to China, where they are resold at significant profits. The money generated from these sales is converted into digital currency and funneled through Chinese payment platforms, creating what investigators term a “hidden pipeline” of American capital leaving the country.
Adam Parks, an assistant special agent in charge with Homeland Security Investigations, stated, “The end goal is to cash out stolen money from fraud or other criminal activity. When you’re talking about China, the trade relationship gives them the perfect exit.” This criminal operation, known as Project Red Hook, has unveiled a complex web of organizations in China leveraging stolen card data and digital wallets to transform everyday U.S. consumer spending into a revenue stream.
Investigators have identified over $1 billion in fraud losses linked to these groups in the past two years. Criminals purchase stolen card numbers in bulk through Tencent Holdings Ltd.’s WeChat app, paying with cryptocurrency and loading balances onto mobile wallets. Teams operating within the U.S. use these wallets to acquire electronics and other high-demand products, which can be sold for two or three times their original value in China.
“The system operates with the efficiency of a supply chain,” said Dariush Vollenweider, a senior Homeland Security agent involved in the investigation. “You have the takers, the tampers, the placers, the redeemers, the supporters. By the time a consumer loads money onto a card, that balance is already gone.”
Investigators have also linked these networks to large-scale text-message scams designed to facilitate the card-draining operations. Victims receive messages that masquerade as highway toll, postal fee, or delivery notifications, directing them to fraudulent payment sites. Those who enter their information unwittingly provide the data used to steal funds.
According to Parks, criminals in China monitor these spoofed sites in real time, loading victims’ card details into mobile wallets to make purchases in the U.S. through controlled phones. Investigators have discovered what are known as SIM farms—rooms filled with devices capable of sending thousands of text messages simultaneously by cycling through mobile phone SIM cards. These setups enable the mass distribution of phishing messages, with some operations based within the U.S.
In a notable case in New Hampshire, three Chinese nationals were sentenced to two to five years in federal prison for conspiracy to commit wire fraud after agents uncovered a warehouse filled with Apple products purchased using stolen electronic gift cards. In Florida, another individual received a sentence of 33 months in federal prison for possessing unauthorized access devices after agents discovered over 6,000 altered gift cards linked to a nationwide retail fraud scheme.
In September, federal agents dismantled a covert network near the United Nations in New York, uncovering more than 300 SIM servers and 100,000 SIM cards, according to the Secret Service. Initially, investigators feared the equipment might be linked to a potential threat against former President Donald Trump, who was visiting New York for a speech at the U.N. However, it was later confirmed to be associated with the ongoing financial scheme.
For financial institutions and retailers, the threat is particularly insidious due to the seemingly innocuous nature of gift cards. They are often displayed near cash registers, and transactions occur through familiar processors. Losses tend to be dispersed across numerous small purchases, making them easy to overlook until patterns emerge.
“It looks small until you add it up,” Vollenweider explained. “Every time someone loads money onto a compromised card, a piece of that money leaves the country. Multiply that by millions of transactions, and you start to see what we’re dealing with.”
The evolving landscape of financial crime continues to pose significant challenges for law enforcement and financial institutions alike, as criminal networks adapt to exploit everyday consumer practices.
