Chop Chop: Stopping Pig Butchering Scams

Pig butchering, a cruel and deceptive tactic used by criminals, has become increasingly prevalent in recent years. This disturbing trend employs a calculated and often lengthy process to manipulate targets, leaving them with nothing. Combating this scam will require a holistic approach to monitoring customer behavior and unifying all industries to share pertinent information.

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Down to Basics: What is Pig Butchering?

Pig butchering gets its name by referring to a scam where the victim is “fattened up” before being taken to “slaughter.” In the plainest sense, it’s a long-term, slow play where scammers spend weeks or months cultivating trust with their victims before defrauding them. It typically involves cryptocurrency, but it is not limited to crypto.

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After the point of contact, whether by SMS or some social media platform, the victim winds up being sent to an exchange and purchasing crypto on the US side using Fiat (currencies backed by a government). Once that money is introduced into the US exchange, the scammer has the victim attach that money to a DeFi wallet such as crypto.com, etc. DeFi stands for decentralized wallet and is a non-custodial wallet that allows users to store, buy and sell cryptocurrency assets. They are interchangeably operating on a scam platform that looks and functions like a trading platform, but organized crime groups control the domain. Any market changes that are fluctuating that the victim observes are accurate. The victim will see bitcoin dollar amounts moving correctly, but they will also see their profit inflation going up, a number manipulated by the scammers. That’s when the victim becomes excited and wants to invest more.

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Scammers sometimes allow victims to withdraw profits, roping them in to invest more. Once they see profits and can successfully withdraw money, it tricks people into deeming the site safe and accurate. Victims have gone as far as taking out HELOCs on their homes, maxing out credit cards, and borrowing from family and friends. Months after the scam, they want to withdraw funds. The scammer will either tell them they would have to pay taxes on their investment or that they haven’t met the minimum investment amount, enticing them to invest or borrow more money. The entire time the scam is going on, their money is moving along the chain, being obfuscated as best it can.

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A Global Network: The Organized Crime Behind Pig Butchering

Numbers from the FBI, which investigators in the field have corroborated, estimate that billions of dollars are being lost by this scam annually. The FBI estimated $5 billion worth of complaints in 2023. Tens of thousands of victims around the world are related to pig butchering. Of course, this is just what is reported. Victims often don’t report because they are either ashamed or unsure where or how to report these types of scams.

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In Southeast Asia, where this scam originated, a huge amount of infrastructure is going up to support this. What once was plain land three years ago has been developed into massive compounds where people are being held in modern-day slavery, forced to perform the scam on other victims. The human trafficking side of pig butchering makes this more than just fraud; it’s a worldwide crisis. In terms of the amount and scale of money movement and the amount and scale of victims being hit on both sides of this problem is astronomical.

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This isn’t some “rinky-dink, "one-person fraud shop. It’s an extremely sophisticated, hierarchical business operation. A c-suite of bad guys, money launderers, and people tasked with creating the websites and domains are all involved in this business. It’s also not just one victim; it’s very much interrelated. We see the funds ending up in the same commingled wallets, in the same exchanges overseas, and likely belonging to the same entities. This is a large-scale, transnational crime.

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Hamstringing the Scam: Red Flags and a Holistic Defense

Financial institutions and fraud fighters must understand the various schemes and the associated red flags to combat them. What’s interesting from a banking perspective is how the money is moving when it relates to pig butchering. A recent case involved an elderly woman who went to the bank asking to withdraw $100,000. She wanted to wire the money to a Thai bank to buy real estate in Thailand. Many times, the stories involve things such as remodeling projects, etc. However, it’s important to consider whether this is normal for the customer and ask questions when their stories don’t add up.

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The fear is that this will continue to become more advanced. Soon, customers will be wiring money to Western Europe or elsewhere in the United States. Scammers will continue to change tactics, making it essential to learn the typologies and stay on top of the trends. Often, anti-money laundering programs are updated annually, but FIs don’t have the luxury to do that anymore, even if that’s all required from a regulation perspective. FIs should take a risk-based approach based on guidance from the Financial Action Task Force. The days of relying on old guidance are gone, and things should be done daily to protect customers.

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Many institutions still rely on transactional monitoring. By design, these systems are meant to detect whether a customer initiated a transaction, and with this scam, that type of monitoring is not enough. This is a long game; financial institutions must see customers as assets because that’s how fraudsters view them. With pig butchering, you may not catch it at the onset, but when you see this asset being drained and whether this is normal day-to-day activity, you can stop it when you see it start to scale.

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The key to success is understanding the full profile of the user. When do they typically access your systems and how? What actions do they normally take? If a customer initiates a link between their account and a third-party crypto exchange, that is a red flag. FIs need to look at the entire customer lifecycle and the user's journey and find anomalies that aren’t necessarily related to transactions.

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It’s important that institutions and fraud professionals engage in continuing education. FIs need to know who their customers are and what fraud schemes are circulating, as well as ensure compliance programs are up to snuff. There’s a lot in the news about consent orders against various crypto exchanges and FIs not having compliance programs up to snuff.

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The Consortium Boom: Importance of Information Sharing

We have a significant problem; the best way to combat this is to join forces. The Crypto Coalition is a group of law enforcement professionals who try to understand how to be helpful to the victim on the ground level. There’s also Operation Shamrock, the first cross-industry information-sharing group dedicated to transnational organized crime. This group looks at the entire lifecycle of pig butchering from when the victims are meeting scammers on social media, to financial institutions, to cryptocurrency exchanges, law enforcement at every level, diplomacy and state department activities, as well as NGOs on the ground in Southeast Asia, plus victims themselves.

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Operation Shamrock brings everyone together to discover how to share information to attack this growing problem as a unit better. The only way to combat this is to share information amongst all related parties. This is not just a local, state, or federal issue. This is going overseas where we don’t necessarily have jurisdiction, so we need to look at this holistically and see how to effect change using every piece of arsenal in our weaponry. There needs to be a connection to industry, cryptocurrency, and victim advocacy. We must effect change at a larger scale, recognizing how big the problem is and how well-funded the organized crime group is.

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The question is, how do we take global network sharing to the next level while keeping the identity of our customers safe? The goal is to share the right information in the right manner to ensure that we have greater visibility into what is happening when fraud is happening. Whatever comes after pig butchering will be more advanced. We must work together to examine the existing problems and discover how to make positive changes to make the world safer. 

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You can hear the full discussion from the Fraud Fighter Virtual Summit in this session recording.