Pig-Butchering Scam: A $75 Billion Global Menace
Pig-butchering scammers have become a prevalent threat, having swindled victims worldwide out of an astonishing $75 billion, according to a groundbreaking study. The scale of this fraud is far greater than previously estimated and demands immediate attention.
Uncovering the Extensive Scam Network
The study was conducted by John Griffin, a finance professor at the University of Texas at Austin, and his graduate student, Kevin Mei. They collected crypto addresses from over 4,000 victims who fell prey to this scam, which has seen a surge in popularity since the onset of the pandemic. Utilizing blockchain tracing tools, the researchers were able to trace the flow of funds from the victims to the scammers, who are predominantly based in Southeast Asia.
Over a span of four years, from January 2020 to February 2024, these criminal networks transferred an astounding $75 billion to various crypto exchanges. Griffin, an esteemed author on fraud in financial markets, suggested that a portion of this sum might originate from other illegal activities.
The Resilience of Organized Networks
“These are large criminal organized networks, and they’re operating largely unscathed,” emphasized Griffin during an interview. Victims of the pig-butchering scam are often contacted with a deception that begins as a wrong-number text message. Once lured into the scam, unsuspecting individuals invest their funds in cryptocurrencies. However, these investments turn out to be fraudulent, and once victims transfer enough money, the scammers vanish. Astonishingly, victims routinely lose hundreds of thousands, and in some cases, millions of dollars. One case involved a Kansas banker charged with embezzling $47.1 million from his bank as part of this scam.
The individuals who initiate these messages are often victims themselves, trapped in a cycle of human trafficking originating from countries across Southeast Asia. These victims are deceived with promises of high-paying jobs, only to find themselves trapped, coerced into scamming, and subjected to physical abuse. Shockingly, the United Nations estimates that over 200,000 individuals are being held in such scam compounds.
Crypto Flows Financing Slavery: The Study’s Findings
The study titled “How Do Crypto Flows Finance Slavery? The Economics of Pig Butchering,” was released on Thursday. Griffin and Mei’s research revealed that $15 billion was funneled from victims through five exchanges, including Coinbase, which is commonly used by victims in Western countries. The scammers predominantly converted the illicit funds into Tether, a popular stablecoin, with 84% of the transaction volume involving Tether.
Griffin highlights the ease with which these funds can be moved within the current financial system. “In the old days, it would be extremely difficult to move that much cash through the financial system. You’d have to go through banks and follow ‘know-your-customer’ procedures. Or you’d have to put cash in bags.”
Tether’s Response
Paolo Ardoino, the chief executive officer of Tether, refuted the report as false and misleading. Ardoino emphasized that Tether operates with transparency, traceability, and cooperation with law enforcement agencies to combat criminal activities. However, it is important to note that scammers often cash out before the crime is even reported, making it challenging to recover the stolen funds.
Chainalysis Inc., a blockchain analysis firm, also expressed doubts about the study’s conclusions, suggesting that the totals might be inflated. Maddie Kennedy, a spokesperson for Chainalysis, stated that it is challenging to accurately quantify funds earned through pig-butchering scams due to limited reporting.
Decentralized Crypto Exchange: A Facilitator of Fraud
Many of the victims’ blockchain addresses were obtained by Chainbrium, a Norwegian crypto investigations firm. Chainbrium conducted an independent analysis of the data and discovered that a significant amount of the funds flowed through a supposedly decentralized crypto exchange called Tokenlon. Scammers exploit this exchange to obfuscate the origin of the funds. Remarkably, Tokenlon did not respond to requests for comment.
Jan Santiago, a consultant to Chainbrium, highlighted the direct flow of funds from the United States to Southeast Asia, perpetuating an underground economy that sustains these criminal networks.
The Role of Crypto Exchanges in Cashing Out
Ultimately, the scammers transfer the fraudulently obtained proceeds to centralized crypto exchanges to convert them into traditional fiat currency. Binance, despite its founder and the company pleading guilty in November to criminal anti-money laundering and sanctions charges, remains the most popular exchange.
“Binance is the place where they can move large amounts of money out of the system,” asserts Griffin. Despite this, Binance has worked with law enforcement in some instances to freeze accounts connected to fraud and return funds to victims. Simon Matthews, a spokesman for the company, affirms their commitment to collaborate with authorities in combating scams, including pig-butchering cases.
Battling the Pig-Butchering Scam
The staggering magnitude of the pig-butchering scam demands concerted efforts to curb its spread. By raising public awareness and collaborating with law enforcement agencies, steps can be taken to dismantle the organized networks behind these scams.
To read the original Time article, “The Enduring Nightmare of Trafficked Scammers,” and access the study, click here. For more insightful articles and updates on various economic topics, visit Business Today.