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The US Financial Crimes Enforcement Network (FinCEN) has warned against a fast-growing crypto scam known as "pig butchering", which involves the financial fattening of the victim.
According to data from the FBI, Americans lost $2bn to pig butchering scams in 2022.
“This scam has impacted far too many Americans, which is why FinCEN is sounding the alarm and asking financial institutions to report suspicious activity indicative of this scheme,” said FinCEN acting director Him Das.
In a pig butchering scam, the victim is enticed into investing in a supposedly legitimate crypto platform before they are conned out of their money.
Scammers use fictitious identities, offers of potential relationships and elaborate storylines to “fatten up” the victim into believing they are in a trusted partnership.
These scams are also called “confidence scams”, or in some cases “romance scams”, because the bad actors first gain the confidence of their victims before making them invest in fraudulent crypto offerings.
FinCEN said the scams are largely carried out by criminal enterprises based in Southeast Asia that use victims of labour trafficking to approach people around the world.
Last Friday (September 8), the agency issued an alert to highlight this “prominent” virtual currency scam and help financial institutions identify red flags.
How pig butchering scam works
According to FinCEN, the scammer typically reaches out to the potential victim through text messages on social media or other messaging apps, pretending that they accidentally reached the wrong number or tried to re-establish a connection with an old friend.
The scammer, often posing as an investor whose social media profile showcases wealth and an enviable lifestyle, will then keep contact with the victim to establish trust and build a relationship.
As soon as the scammer gains the victim’s trust, they convince the victim to invest in crypto platforms that are ultimately owned by the scammer.
Once the victim invests with the scammer, the scammer will show them “extraordinary returns” on the investment that have been fabricated, the alert noted.
When the victim’s appetite to invest slows or stops, the scammer may use more aggressive tactics to get more money from them.
When the victim is unable or unwilling to pay, the scammer will suddenly cease communication, taking the victim’s entire investment with them, FinCEN said.
Red flags
The alert highlights 15 behavioural, financial and technical red flags that financial institutions should consider when they suspect that a customer may have fallen victim to this type of scam.
For instance, it may raise suspicions if a customer who has no history of using virtual currencies tries to exchange a high amount of fiat money for crypto or attempts to initiate high-value transfers to a crypto exchange.
A financial red flag could be when a customer “uncharacteristically” liquidates savings accounts prior to maturation and then exchanges or sends that money to a crypto exchange.
Meanwhile, it may trigger a technical red flag if the customer’s account is accessed repeatedly by unique IP addresses, device IDs or geographies inconsistent with prior access patterns.
Or if the customer says they downloaded a crypto app on their phone directly from a third-party website rather than from the Apple or Google app store.
The alert was issued to money services businesses as well as casinos, depository institutions and other financial institutions.
