Inside the Chinese fraud rings stealing billions from banks and retailers

Key PointsDigital forms of theft such as tap-to-pay schemes and app fraud are shaping the next wave of organized retail crime and fueling solo thieves to Chinese gangs, which earn as much as $1 billion annually from the crime, police say. Instead of clearing out shelves inside big box stores, fraudsters are using stolen credit cards and tap-to-pay to purchase gift cards that can be resold at a discount or used to buy high value goods for resale in China. CNBC examined nearly a dozen cases across the country involving a wide array of retailers, including Lowe’s and TJX Companieswatch nowVIDEO6:2606:26Tap, pay and steal: Inside the Chinese fraud rings targeting retailersRetailWhen a man in a black Air Jordan T-shirt walked up to a self-checkout kiosk at a Louisiana Lowe's last spring, he looked like any other customer.

Over the course of about seven minutes, he methodically rang up different gift cards for $95 each, using his phone to tap-to-pay for each card as a red-vested associate circled nearby, surveillance video showed.Unknown to the employee, the man was part of a sprawling Chinese crime ring, using stolen credit cards to buy the gift cards while a Southeast Asian scam compound coached him through each transaction through the wireless headphones in his ears, police say. "We know that there are hundreds of individuals at any one time doing this across the country," said Adam Parks, an assistant special agent in charge with U.

S. Homeland Security Investigations, who investigated the case. "Even though you think that's $95 every transaction, that adds up to a lot of money."

A suspect that police said is connected to a Chinese organized crime ring using stolen credit cards to purchae gift cards at a Lowe's in Hammond, Louisiana.HSIAfter the man left the hardware store, he purchased more gift cards with stolen credit card information at other retailers only to return to the original Lowe's the same day to repeat the act, Parks said. He was not arrested and is still a suspect, he added.

Lowe's didn't respond to repeated requests for comment from CNBC. While credit card theft and fraud isn't new, with the proliferation of tap-to-pay and growing use of retail apps, these digital thefts are shaping the next wave of organized retail crime and earning Chinese gangs as much as $1 billion annually, police said. Unlike typical retail theft operations — where criminals clear out shelves in big box stores and resell merchandise piece by piece on online marketplaces — the crimes can be carried out right under a store employee's nose or from a computer anywhere in the world."

It's very low risk for the bad actors," said Scott Glenn, vice president of asset protection at The Home Depot. "It's not the same thing as walking into a Home Depot, filling up a cart full of power tools, and then walking out. It's just not as visible, it's not as obvious to what's happening out there and so it's become a more preferred method over the last several years."

Fraudsters have selected retailers as their targets because their platforms carry sensitive information such as stored credit cards and personal data but they do not have the same level of security as banks, according to industry experts and law enforcement. A man police say participated in a tap-to-pay fraud scheme at a Target store self- checkout in TennesseeSource: Knox County Sheriff’s OfficeThere's no firm data on how much retailers are losing from digital forms of retail crime, but CNBC found around a dozen criminal cases across the country affecting a wide variety of retailers that police said involve a combination of organized groups and low-level fraudsters.The cases are complex and often hard for local authorities to handle, said Capt.

Matt Lawson of the Knox County Sheriff's Office in Tennessee, who said he's been investigating a fraud ring with ties to Chinese organized crime. Unless the theft hits a certain dollar threshold or rises to the level of a federal crime, "it's kind of like they get away with it almost," he said. Unpaid toll bills and pending criminal judgments Tap-to-pay fraud, which involves a fraudster adding a stolen credit card to their digital wallet and using it to buy gift cards or merchandise, often starts with a familiar text message and can end with an unwitting consumer's identity up for sale on platforms such as Telegram.

Fraudsters send out mass text messages warning about unpaid tolls, expiring car registrations or pending arrests that are designed to scare consumers into providing their credit card information, email credentials or other sensitive data. AI has only made the schemes easier, as crime groups can scale the scams more quickly and make the messages appear more legitimate, experts said."Once a fraudster has a person's email password and credit card, they can load that credit card into a device that they control," said Jeff Otto, the chief marketing officer of Riskified, a tech company that works with retailers including Macy's, Pelo