FinCEN Spotlights Pig-butchering Crypto Scams As Prominent Threat – What To Know?

On September 8, 2023, The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) saw the need to draw attention to a prominent scam technique called “Pig Butchering.” It has recently issued a report that shines a spotlight on staggering billions of dollars in financial losses as a result of this investment scam.

This acts as an alert for law enforcement investigators and financial institutions to stay put and protect against this prevalent threat. Below, we explore the highlights of this important document to understand why it matters.

1. What is Pig Butchering in Fraud?

Before we commence, let’s analyze the rationale behind this peculiar naming choice. “Pig Butchering” isn’t merely a quirky title; it disguises a complex scam similar in approach to fattening a hog before slaughter. Scammers adeptly lure victims, referred to as “pigs” in that context, into a false sense of trust, ultimately pilfering their assets, and inflicting significant financial and emotional damage.

In essence, the perpetrators of this fraudulent scheme invest heavily in cultivating a relationship with their victims, with the primary goal of extracting the maximum financial gain before finally revealing their malicious intentions.

2. Methodology

The scammers initiate contact with potential victims through numerous different channels, often pretending to be investors or even lovers. They create fake profiles showcasing wealth and a luxurious lifestyle, or often similarities with their well-studied targets. 

Some of these channels can be: 

• Instant Messaging Services and Text Messages: Scammers often blindly send unsolicited messages via instant messaging services or text messages. These messages may appear friendly and persuasive, enticing victims to engage in further conversations.
• Professional Networking Sites: Scammers also exploit professional networking platforms to target individuals who may be interested in investment opportunities. They create deceptive profiles posing as successful investors or business professionals to establish credibility.
• Social Media: The place where anyone can be anyone. Scammers craft fake profiles showcasing wealth, luxury lifestyles, and successful investment ventures to gain the trust of potential victims.
• Dating Sites: Some scammers use dating sites to approach victims. They create fake dating profiles and invest time in building emotional connections, further blurring the line between trust and deception.

Once initial contact is established, scammers employ organized techniques to build trust with their victims. They employ psychological manipulation tactics, such as flattery and empathy to make the victims feel comfortable and secure in the fraudulent relationship.

3. The Investment Sales Pitch

Once trust is established, scammers introduce victims to seemingly legit cryptocurrency investment opportunities. More often than not, they direct victims to fraudulent websites and applications that appear legitimate but are controlled by the scammers. They may even request remote access to victims’ devices or encourage wire transfers to overseas accounts.

4. The Promise of Greater Returns

Scammers often use the allure of extraordinary investment returns to draw victims in. They build trust by presenting fake success stories and expert credentials. Victims, enticed by the potential wealth, may invest more money, even liquidating assets or taking loans. However, the promised returns are a mirage, leading to financial ruin and emotional distress when the truth comes out. To avoid such scams, exercise caution, seek professional advice, and stay skeptical of opportunities that seem too good to be true.

5. The Point of No Return

When victims slow down or stop investing, scammers become aggressive, demanding additional payments and inventing reasons for withdrawals. Ultimately, they leave the victims with empty pockets and broken hearts before they disappear.

6. Red Flag Indicators

FinCEN provides a comprehensive list of red flag indicators that investigators, financial institutions, and the public should be aware of to detect, prevent, and report potential Pig Butchering scams. These indicators cover behavioral, financial, and technical aspects, aiding in identifying potential victims and scammers.

7. Estimated Losses and Perpetrators

The document highlights that victims in the United States have lost billions of dollars to these scams, with criminal organizations in Southeast Asia primarily behind these operations. Understanding the scale of the issue is critical for law enforcement efforts.

In 2022, general investment fraud emerged as the leading category for reported losses to the FBI IC3, accounting for a staggering $3.31 billion. The majority of these scams revolved around cryptocurrency, including pig butchering schemes, which witnessed a significant 183% surge from 2021, accumulating reported losses of $2.57 billion in 2022.

8. Reporting Requirements

The document further discusses suspicious activity reporting (SAR) requirements for financial institutions. Financial institutions must file a SAR if they have reason to believe that a transaction involves illicit funds, intends to conceal illegal funds, evades regulatory rules, lacks a lawful purpose, or aids criminal activities, such as pig butchering schemes. 

To facilitate reporting related to “pig butchering” scams, FinCEN recommends a few procedures in the document and that FIs provide detailed information about the suspicious activity, including account details, involved entities, beneficial owners, and connections to other domestic and foreign financial institutions.

Additionally, technical cyber indicators related to cyber events should be included in the SAR, such as chat logs, email addresses, virtual currency details, and URLs.

In the ongoing battle against financial crime, vigilance is key. Pig-butchering and romance scam schemes have proved to be a genuine threat. To learn more, check out our must-read blog on romance scams and everything you need to know to investigate them here.Discover how Blockchain Intelligence Group can equip you with the necessary tools to investigate crypto fraud.