This guest post by Brendan Cochrane and Katya Gozias explains the rise of “pig butchering” scams, where scammers lure victims in with the promise of romance, and how cryptocurrency exchanges and regulatory agencies can help protect people from these scams.
Pig butchering scams are becoming more common, with victims losing a reported $250 billion in cryptocurrency in the last year. These scammers use social media platforms such as dating sites, Instagram, Discord, Telegram, YouTube, Facebook, and LinkedIn to contact potential victims, pretending to befriend them or even romance them from afar. They then ask the victims to invest in cryptocurrency, sending them a link to a legitimate-looking cryptocurrency exchange website or app.
Scammers discourage victims from withdrawing funds through threats of “taxes” and “processing fees,” and may even return what appears to be a portion of the victim’s investment to maintain trust. In many cases, victims do not even realize they have been scammed until it is too late.
The Psychology of the Scam
These scams prey on the basic human need for companionship and love, and the scammers can easily gather information to construct personae victims will empathize with. Victims are often women between the ages of 25-40, though anyone can fall victim to a pig butchering scam.
The Role of Regulatory Agencies and Exchanges
Prosecuting pig butchering scams is complex, involving local, state, and federal law enforcement and regulatory agencies. Many of the perpetrators are located in countries with no extradition treaties, or which are difficult to extradite from, such as China, Cambodia, Myanmar, and the United Arab Emirates. The FBI recently warned that people traveling to Southeast Asia are being lured into the hands of criminal organizations by false job offers and then forced to perpetrate the scam.
Exchanges and other cryptocurrency firms have a role to play in protecting people from these scams. They should refuse to host wallets associated with suspicious activity, flag them for law enforcement, and cooperate with US law enforcement requests. Public-private partnerships and information sharing are also key to disrupting these operations.
Santa Clara County, CA, deputy district attorney Erin West has built two organizations, the Crypto Coalition and Operation Shamrock, to educate law enforcement and the public about pig butchering scams, seize stolen money, and disrupt the scammers’ operations. West is also teaching lower-level law enforcement agencies how to create a government-controlled wallet to receive funds, and how to notify victims and transfer the funds back to them.
Third-party consultants such as Chainalysis and QLUE (created by Blockchain Intelligence Group) can help victims trace the movement of funds to an exchange. Exchanges that cooperate with US law enforcement can then be subpoenaed for “Know Your Customer” information, which can be used to attempt to claw back the funds.
Katya Gozias is a Managing Director at Guidepost Solutions. She works with blockchain companies to develop a roadmap and framework for the addition of fully operable blockchain technology solutions for enterprise clients, to include configuration for KYC, cyber security, anti-fraud, and supply chain tracking. She also assists pig butchering victims with tracing the movement of funds to an exchange and liaising with law enforcement.
Brendan Cochrane is a partner at YK Law LLP, where he focuses on blockchain and cryptocurrency issues, and an adjunct professor at Suffolk University Law School teaching “Blockchain, Cryptocurrency and the Law.” He is also the principal and founder of CryptoCompli, a startup focused on the compliance needs of cryptocurrency businesses.
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