A senior U.S. immigration official has said that money stolen from gift card fraud victims was being funneled to China’s military, following the dismantling of a fraud scheme involving Chinese nationals residing in the United States illegally.

Todd Lyons, acting director for Immigration and Customs Enforcement (ICE), testified on the issue before a House Appropriations subcommittee on April 16. During the hearing, he was asked by Rep. Ashley Hinson (R-Iowa) about “bad actors” such as the Chinese Communist Party (CCP).

“The CCP is a huge threat, as well as their transnational criminal organizations that have come over here to just wreak havoc,” Lyons said.

He cited a case involving ICE’s Homeland Security Investigations (HSI).

“HSI actually broke the largest gift card fraud case ever, and it was from transnational gangs within the CCP that were sending that money back to military units in China. And that all came from gift card fraud here in the United States,” Lyons said.

In response, Hinson said, “So, we’re literally funding our own adversaries through that fraud.”

Lyons said that “military-aged Chinese males who entered [the United States] under the last administration” were involved in the gift card fraud.

“[They] were just supplying small amounts, whether it be $20, $15, back to the People’s Republic of China,” he said.

Lyons is set to leave the agency at the end of May for a private sector job.

HSI’s initiative, Project Red Hook, is a collaboration between the agency, law enforcement partners, and businesses. It is focused on the exploitation of gift cards by Chinese organized crime groups for money laundering.

Gift card fraud often funds illicit activities such as fentanyl production and smuggling, illegal immigration, and human trafficking, according to HSI.

“Gift card fraud perpetrated by Chinese organized crime groups is spreading across the globe and can be attributed to losses in the hundreds of millions of dollars,” HSI said in a statement on the ICE website.

“Chinese organized crime groups are combining key characteristics of organized retail crime, victim assisted fraud, and trade-based money laundering to commit gift card fraud.”

Retail crimes often involve gift card tampering. According to HSI, criminals are known to target gift cards in stores by stealing their information before putting them back on store shelves. When a consumer buys a tampered gift card and loads money onto it, the criminal can immediately drain the funds.

Criminals are also known to gain access to online gift card accounts through hacking or phishing, according to HSI.

Victim-assisted fraud involves criminals using telemarketing scams to trick people into purchasing gift cards and sharing the redemption codes, according to HSI. The scammers often impersonate authority figures or loved ones in distress to gain trust. Once they have the codes, the criminals sell the information to organizations that use the stolen funds or store credit to buy goods in the United States and ship them overseas for resale.

U.S. prosecutors have convicted several Chinese nationals in recent years for their involvement in gift card fraud schemes.

In April 2025, three Chinese nationals—one of whom was an illegal immigrant residing in Nashua, New Hampshire—were sentenced to prison terms ranging from two years to five years for their involvement in running a cell in New Hampshire tied to a Chinese transnational criminal organization. Their scheme involved illegally obtaining gift cards, then using the funds to purchase high-value electronics, which were subsequently shipped to China, Hong Kong, and other locations.

In another instance, Xue Ming, from Fujian Province, China, entered the United States illegally in September 2023 and was indicted in Columbus, Ohio, in January 2024, according to Ohio Attorney General Dave Yost.

Investigators alleged that Xue had stolen unloaded gift cards, altered them, and returned them to store displays. When unsuspecting consumers purchased the altered cards and loaded money onto them, Xue and his associates stole the funds.

When Xue was arrested at a Walmart in Coshocton, Ohio, on Dec. 5, 2023, local authorities found gift cards on him and hundreds more in his car.

Yost announced in May 2024 that Xue had been sentenced to between four years and six years in prison.