When I explain manufactured spending to people, one of the most common responses I get is “isn’t that money laundering?” or “that sounds illegal.” It took me aback the first few times I heard it, but it’s understandable that people who are unfamiliar with manufactured spending would think that. It sounds shady and invokes images of a middle-aged high school teacher pondering ways to legitimize his meth fortune. So is manufactured spending illegal? Absolutely not. Do criminals use these methods to launder money? Yes, some do. But it’s not the method that is illegal – it’s the purpose behind it as well as the way the funds are obtained that make it so.
There is a huge distinction to be made between manufactured spending and money laundering. The IRS defines money laundering as follows:
“…activities and financial transactions that are undertaken specifically to hide the true source of the money. In most cases, the money involved is earned from an illegal enterprise and the goal is to give that money the appearance of coming from a legitimate source.
Basically, it refers to making illegally obtained funds appear legitimate. And it doesn’t just extend to gift card churning. Remember how in Breaking Bad Walter White bought a car wash to make his income seem legitimate? Owning a car wash isn’t illegal. Using it to make “dirty” money appear “clean,” is.
I told you all about my run-in with a Walmart Asset Protection Associate last year. The associate had been watching me and restricted my money order purchases at a different store. It became clear to me, based on past incidents, that he suspected me of doing something illegal. So I explaine to him how I obtained my cards and why. It ultimately worked out because he was familiar with this hobby and believed my explanation. He pointed out that while it was ok for us to earn miles this way, he had to keep an eye out for criminals who utilized the same methods to cash out funds from stolen credit cards. In the end, I was allowed to continue buying money orders with Visa gift cards at this location because they understood I wasn’t using stolen funds to pay for them.
That’s really what it comes down to: Whether the funds utilized in the transaction are “clean” or not. In our case, we’re using Visa gift cards purchased with our own credit cards and then paying those cards off. Nothing about that is illegal, nor is buying money orders with a Visa gift card. My local Walmart store is fully aware and ok with it. I’m not violating their store policy and the funds I use to buy the money orders are legally obtained (i.e. via credit cards I pay off every month).
So the next time a family member or friend looks at your funny and utters the “m-word” make the distinction for them: It’s not the method but rather the way funds are obtained that determines whether manufactured spending is illegal or not.
Do you often encounter people who think what you’re doing with gift card churning is illegal? How do you explain it to them?
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