Gift Cards for Drugs: Fighting Fraud with Technology

February 2, 2018

In 2016, retail giants such as Walmart, Lowes, Target, and Home Depot lost $200 million worth of stolen goods to organized crime in Tennessee alone. This amounted to $14 million in lost sales tax revenue for the state, so the legislature took notice. What they discovered was a network of criminals using gift cards to fuel drug addiction.
Gift cards are the “primary driver” for the opioid epidemic, says State Representative Jason Zachary. For example, in Knox County, Tennessee, 16 of 19 drug overdoses during a one-month period were linked to the sale of gift cards. In the city of Knoxville alone, over a three-month period that number was nearly 100.
The operation is sophisticated, yet simple. First, a criminal robs a victim. Then, another criminal takes the stolen goods and returns them to the store where the victim first purchased the items. The clerk, assuming that the criminal legitimately purchased the products, exchanges the returned goods for in-store credit in the form of a gift card. Finally, a third criminal takes the gift card to a third party, like a pawn shop, and receives cash in exchange. A $100 gift card can sell for as little as $10. The cash is used to buy opioids, and the gift cards are usually sold online.

Although the operation has been characterized as organized crime, testimonials from abusers of heroin and oxycodone describe finding receipts, stealing items on the receipt from the store, and returning later to exchange the stolen goods for gift cards.

In 2017, the Tennessee legislature passed a bill requiring these third-party buyers and sellers of gift cards to register their sales. However, State Senator Richard Biggs, who introduced the bill, blames the lack of punishment attached to a violation as the cause of the lack of success of the law. Now, he is making another go at it, this time including penalties that will make the law effective.
Technology, too, is a focus of the new law. Knox County is currently employing technology that tracks the gift cards, but the tracking does not cross county lines. The new bill hopes to make the technology statewide, and the Tennessee Bureau of Investigation is expected to become very involved in the gift card fraud.
The retail stores themselves are combatting this issue in their own ways. Home Depot’s store credit cannot be used online, decreasing their resale value. The company also requires “proof of ID when store credits are redeemed at checkout,” says spokesman Matt Harrigan. Target limits the number of returns one can make without a receipt.
These retailers are also spending billions of dollars on loss prevention and are tracking chronic illegal refunders by hiring companies like Retail Equation. Retail Equation, which claims to process more than 10% of all general merchandise retail sales transactions, can alert its customers to potential fraudulent returners. The retailers can then ban the returner from making purchases at its stores.
Nonetheless, these retail giants have been criticized for their efforts, or lack thereof. Judge Meagan Bilik-DeFazio of Westmoreland County, Pennsylvania, chided Wal-Mart specifically for its response to fraud. The judge says that 80 percent of drug pleas are cases from Wal-Mart, and that opioid-related cases from other retailers “pale in comparison” to the retail giant.
Despite the policies of retail giants, other states affected by the opioid epidemic, such as Georgia and Florida, are watching closely as Tennessee lawmakers fight gift card fraud. Senator Briggs is hopeful that sometime soon a regional network of states can work together to track gift cards over state lines and fight what he calls “the most serious problem we have” in Tennessee.