ORLANDO, Fla. -- A Target executive reported the company has had greater success in fighting gift card fraud since it began partnering with online auction sites, the FBI and the U.S. Postal Service.
Marie Schwein, senior investigator for Target, said the retailer's investigations into, and prosecutions of, gift card fraud -- in-store and online -- were not as effective before company executives started looking into the problem two years ago. This effort led Target to seek out partnerships with other organizations.
Schwein made these comments at the National Retail Federation's Loss Prevention and Risk Management & Control Conference here late last month.
"Sometimes local law enforcement doesn't know [how to investigate Internet fraud], so we partnered with the FBI," Schwein said. "Now we are successfully investigating Internet fraud."
Schwein said the FBI and other law enforcement agencies have helped Target investigate "the more serious criminal groups that are impacting our stores." She declined to provide specifics.
For its part, the FBI wants to work with retailers to combat online fraud. "Businesses are going to see it on their system first before it comes to us," said Dale Miskell, an FBI agent who spoke at the meeting. Cyberfraud is one of the agency's top priorities, he said, noting that the agency's Internet Crime Complaint Center logs 17,000 complaints a month.
The FBI's Operation RELEAF (Retailers and Law Enforcement Against Fraud) allows the agency to help retailers, not just citizens, who are victims of fraud, he added.
In addition to stronger law enforcement alliances, Target has established a partnership with eBay, which has changed its gift card sales rules, said Schwein. It no longer allows presales of gift cards. Sellers cannot sell more than $500 worth of gift cards, and they can only sell one at a time. Sellers are also required to submit their gift card numbers to eBay, which forwards them to the retailer.
Target has also partnered with other retailers whose gift cards were being sold fraudulently. Target has worked most with Lowe's and The Home Depot. It has not had the opportunity to partner with food retailers, Schwein said.
It is important for Target to crack down on gift card fraud because gift cards are a big business for the retailer, said Schwein. She cited industry figures showing that shoppers spend about 40% more than average when using a gift card, adding that the percentage of shoppers buying gift cards grew to 45% in 2003, from 23% in 2002.
Gift cards also increase loyalty to the merchant, Schwein said. They can be tied to promotional programs with vendors, and used as corporate incentives and awards. Despite fraud, gift cards are still more secure than paper gift certificates, Schwein pointed out. "It makes it harder for someone to copy it."
In most cases, criminals buy a large number of gift cards via check or credit card fraud, she said, adding that the street value of the cards is usually 50 cents or more on the dollar. The cards are transferable because no signature is required, and there is no presumed paper or audit trail.
When Target began investigating online gift card fraud, it wanted the process to be transparent so fraudsters would not know that communications originated with Target. The retailer set up an e-mail account with a third-party Internet site instead of Target's server, and established a post office box not tied to a Target address.
Target employees then started conducting Internet searches for gift cards for sale, focusing on three primary sites: eBay, Yahoo and Amazon. Using the anonymous e-mail account, Schwein posed as a potential buyer of gift cards, and e-mailed fraudulent eBay sellers innocently worded questions about buying cards so they would explain the process. "They responded [in writing], and you can present that to law enforcement," Schwein said.
On eBay, Target executives searched only for sellers of multiple gift cards, those who usually sold gift cards from 10 to 15 different retailers, and those who sold high-ticket gift cards. For example, some sellers on eBay would advertise $500 gift cards from Target, which were actually gift cards for smaller amounts, sold in packs of 20.
Employees would purchase the cards so they could track the gift card numbers back to the purchaser, and determine how they were purchased (by check or credit card fraud).
In some cases, Target has been able to track a seller through his Internet protocol (IP) number, or has tracked down a seller's mailing address through the post office or through an online search service, such as AutoTrack.
