Pig Butchering: The latest scam to take advantage of digital financial services & defraud victims of millions of dollars

In November 2022, the U.S. Department of Justice seized internet domains that defrauded five victims out of a combined nearly $10 million. This crime was one of thousands of “pig butchering” schemes conducted in recent years. In 2021 alone, the FBI reported losses of over $420 million to these scams.

Crude as it is, “Pig Butchering” is a term used for fattening the pig before going in for the kill. Scammers pose as highly successful traders in cryptocurrency and groom their targets to invest in cryptocurrencies through sham websites controlled by their gang of fraudsters. Once victims invest enough money, the scammers take it all and vanish. 

These scammers have developed creative ways of using financial services from trading platforms, payment providers, and banks, while hiding the true nature of their crimes. It’s critical for industry leaders to stay informed on this issue and take action to prevent it moving forward.

How the scam targets victims

A typical pig butchering scheme is conducted entirely online. Scammers create fake personas and initiate relationships with a suitable victim – the proverbial “pig” – on dating sites, social media, or even random messaging masquerading as a wrong number. After maintaining contact and earning the victim’s trust, they persuade targets to deposit money in digital asset wallets, such as Coinbase, which are legitimate businesses. 

Fraudsters then persuade their targets to connect the funds to falsified cryptocurrency investment websites and apps, fake brokers, or liquidity mining pools (apps that are decentralized). Scammers can use a “Virtual Dealer” plug-in to crypto trading platforms to simulate account balances, profits, or losses, fabricating market performance. 

Once victims join the platform, fraudulent hosts begin stimulating trades that appear to be generating profits. Scammers may even allow their victims to withdraw some “gains” to boost the legitimacy of their operation and allay suspicion. 

As victims gain confidence in their investments, they invest even larger sums of money at the behest of their trusted scammer. Over time, the scammer continues to manipulate victims to keep them investing more and more.

At a certain point, the victim feels they’ve had enough and attempts to withdraw their funds from the platform. This will inevitably trigger an “error” or inform victims that fees or taxes need to be paid in order to cash out. Fraudsters and their platforms then disappear with victims’ cash. Given that the transactions were done through Blockchain, the stolen funds are nearly impossible to recover. 

Shell companies hide illicit activity

Shell companies are increasingly used by criminals to carry out pig butchering operations and hide their identify, often from foreign countries. The study found that “virtual squatters” registered more than 200 companies to a single two-bedroom apartment in east London, unknown to the actual resident. 

The ease at which shell companies are registered online is largely facilitated by regulatory loopholes. ID verification protocols, in the UK for example, are ambiguous for individuals using company service providers, and the cost to register can be as little as £12. 

Such gaps in regulation leave room for potential earnings to be laundered through the financial system, which should be incredibly concerning for banks. Shell companies are frequently used to conceal the true source of funds and hide its beneficial owners, meaning banks may be unknowingly servicing criminal activity.

How human trafficking fuels the scam

Pig butchering is not a problem limited to fraudster networks taking advantage of financial systems and deceiving their targets. Many times, these scam operations are fueled by human trafficking – as in, the criminals operating fake personas are often simultaneously victims.

Originating in China, the scamming strategy spread to organized crime groups across the globe, with particular focus on special economic zones (SEZs) across Indochina, such as Myanmar and Cambodia. People from these regional hotspots are lured by fake job advertisements to scam centers, where they’re forced to perpetrate large-scale online fraud against innocent victims, often at the threat or use of extreme violence. Furthermore, trafficked persons typically have their passports and financial information confiscated by their captors to ensure that they remain stuck in the illicit cycle. 

Cambodian officials estimate that up to 100,000 people are involved in online scam centers. In November 2022, Cambodia’s Interior Minister reportedly stated that authorities’ efforts to crack down on human trafficking uncovered that 95% of human trafficking complaints were indeed factual. 

New regulations to combat pig butchering

While combating human trafficking remains a top priority for authorities across the globe, officials are seeking alternative avenues to disrupt how the perpetrators of these crimes generate revenue. 

Digital currency trading platforms offer the chance for criminals to make a profit while remaining unidentified. Lawmakers are trying to change this. The U.S. is working to approve the Digital Assets Anti-Money Laundering Act. In the UK, the British government has proposed a plan to subject the cryptocurrency sector to the same oversight mechanisms as traditional finance firms. This includes establishing more thorough Know Your Customer (KYC) protocols to verify user identities.

Specific to online romance scams, regulators are seeking to implement background checks and ID verification systems to ensure that users aren’t duped into starting relationships with criminal actors. For example, authorities, victims, and tech companies in Australia have been hosting national dating app roundtable talks to tighten restrictions on who can join the online platforms. 

While increased regulation on digital assets and within online dating apps will not eliminate pig butchering altogether, implementing stricter controls makes it even more difficult for bad actors to infiltrate the online arena. 

What can banks do?

The duty to prevent this super scam from continuing to plague internet users isn’t only limited to individuals and regulators. Financial institutions facilitating the transfer of digital asset payments are also responsible for protecting consumers while also reporting dubious activity to authorities.

This can be achieved by implementing tighter customer verification protocols, including strong KYC policies and thorough vetting of new merchants during the onboarding process. It also should include continuous monitoring for fraudulent merchant activity on your platform, like false URLs, odd purchasing hours, and unusual transaction amounts. 

Banks should ensure they have an immediate response system in place, whether it be through staff review or automated technology, to detect and remove suspicious merchants and ensure criminals aren’t using their services. Doing so will not only help eradicate this illicit practice proliferating across the globe, but will help protect vulnerable consumers from being victims of the scam.

Author Bio: Maya Shabi is a Payments and Risk Specialist with EverC, the world’s first fully automated, AI-driven cross-channel risk management platform. EverC is transforming the internet into a safe and trusted place for ecommerce.

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