I suspect the underlying problem is that the gap between legitimate use of gift cards and fraudulent use of gift cards is just not very large...
Years ago I briefly played around with "manufactured spend" (on credit cards, to earn frequent flyer miles).
There was one specific loophole, with one specific gift card provider, and it was a doozy. You could earn credit card points on spend, plus supermarket loyalty points on spend, by buying gift cards from one specific provider which could be cashed out at face value (ie no fee at all) immediately to a specific type of savings account.
So, of course, world+dog was buying these things like it was the end of the world.
As I sat in a hotel room one evening rubbing the security codes off the latest batch of cards before redeeming them one-by-one into my savings account, it dawned on me that what I was doing was basically indistinguishable from money laundering. Of course it was NOT money laundering, but it would take some time to explain exactly why not...
The loophole was closed relatively quickly, and the gift card provider gave up.
I did this ages ago to build up airline points and take a nice trip to the EU.
Back then, the trick was to get a generic Vanilla Visa or other prepaid credit card. A recent legal ruling meant they had to be run as a debit card for... reasons... I forget them.
But a lot of grocery stores would sell you a money order up to 500 bucks for under a dollar with a debit card (not a credit card).
So you'd call up the issuer and have them issue it a PIN. Then you'd run it as a debit card and buy a 500 dollar money order.
Subtract ~$5 for the GC and ~$1 for the MO and you could manufacter about 500 bucks in spend. And the best part? You could take that money order to your bank, deposit it, get the funds immediately, pay off your balance, then rebuy.
In one afternoon I earned enough points for a first class flight to a fancy European city, and eternal side eye from the grocery store clerks who were convinced I was up to something put couldn't put their finger on what.
>Back then, the trick was to get a generic Vanilla Visa or other prepaid credit card. A recent legal ruling meant they had to be run as a debit card for... reasons... I forget them.
Interchange fees, probably. Otherwise the credit card companies is taking a 2-3% cut.
>So you'd call up the issuer and have them issue it a PIN. Then you'd run it as a debit card and buy a 500 dollar money order.
I don't know how this ever could have worked considering that "cash-like transactions" are counted as cash advances, same as if you were to use your credit card at an ATM.
> considering that "cash-like transactions" are counted as cash advances, same as if you were to use your credit card at an ATM
Afaik, gift cards are more like fixed balance debit cards that happen to be runnable over a specific payment network (e.g. VISA, MC, AMEX) as credit cards
But at least a fair number of them will allow you to set a PIN, which then allows their use as normal debit cards
You're not running it as a credit card, and it's not a credit card -- you can't do a cash advance on a gift card. But they sold ones that were accepted anywhere visa or MC is accepted rather than specific stores.
> but it would take some time to explain exactly why not...
Not really:
"I'm churning credit cards for the rewards points. Here is the receipts where I use $10k from account A to purchase $10k worth of gift cards. Here is the statements where I deposit $10k of gift cards into account B. Here is the statement for the $10k wire from B to A. And here are the receipts for the next round of gift cards I purchased. Any further questions? I have $10k of gift cards to redeem."
The time will be taken with your accounts frozen, the bank non responsive, and probably before of a judge to help you restore them.
> the gap between legitimate use of gift cards and fraudulent use of gift cards is just not very large.
And many legitimate uses of gift cards may actually have been fraudulent somewhere up the chain.
Imagine a scammer which sells their cards to real users (perhaps through one or more less-than-scrupulous intermediaries willing to buy them in crypto without asking too many questions). If the victim comes to their senses and somehow gets those cards reported and blocked as fraudulent, unsuspecting users will get into trouble.
> it dawned on me that what I was doing was basically indistinguishable from money laundering. Of course it was NOT money laundering
But it is money laundering, that's what manufacturing spend is. It's not money laundering to hide evidence of a crime, but it is money laundering for the purpose of hiding the fact that you didn't engage in commerce in the process of spending money on a credit card to earn a reward. It's indistinguishable, only because we criminalize behavior not only on its base but due to its intent.
They call it laundering because it takes "dirty" money and makes it "clean". That's not what happened here. The money was perfectly clean to begin with.
Which law do you think was being broken? I think the person is pretty clearly not defrauding the bank. Maybe the credit card company doesn't like it, but they almost certainly don't have that in writing because if they'd considered this possibility, they wouldn't have allowed it to be possible in the first place.
That's not what money laundering means. Where was the illegal activity that led to the money's existance? He just used a rewards loophole, didn't clean anything of actual "dirty" origin.
Not engaging in commerce to earn rewards isn't illegal, it's just an oversight on their part.
We criminalize behavior based on whatever we feel like, based on our cultural expectations of what is allowed. That's what "we criminalize behavior not only on its base but due to its intent" and "considering the context" is all about. That's why we have juries. We reserve the right to break the rules if public opinion allows, based on our feelings. It turns out that justice in practice is not so blind.
For example, we feel like it is fair for credit card companies to monopolize payment systems, charge fees to businesses, and use a portion of the money from this scheme to set up this bullshit reward point system.
But to undermine this system is criminal, because the system is established, but undermining it is novel and therefore disallowed. Any new way to play the game is breaking the rules, because the purpose of the system is what it does.
I wasn't trying to write a fully formed political dissertation, so I'm not really sure what you were expecting in response to this comment? My point was that the GP was describing their behavior as "indistinguishable from money laundering", because it technically is a form of money laundering (the act) even if it's not money laundering (the crime). Intent is what turns the act into a crime, specifically in the case of money laundering.
It's not illegal to buy a few beers every evening from a bar you own out of your own pocket, and then book that revenue, pay taxes on it, and then ultimately collect a distribution of the profits as the owner of the business. It is illegal to do the same thing if the money you took out of your pocket came from selling drugs.