According to the Council of Foreign Relations, numerous criminal organisations, primarily originating from China, have established sophisticated cyber centers in Southeast
Asia that are specifically dedicated to conduct fraudulent activities. These call centers carry out a form of fraud known as ‘pig butchering’, combination of romance
and investment scam. A study from the
University of Texas shows that an astonishing $75 billion has been lost to pig butchering scams in the last four years. Furthermore,
Chainalysis confirms that cryptocurrency criminals are successfully pivoting from Ponzi schemes to pig butchering, which has one of the become the most lucrative scam of 2024.
What is pig butchering?
Pig butchering is a translation of the Chinese phrase "Shā Zhū Pán" and is one of the most devastating form of scam, targeting victims worldwide through sophisticated social engineering techniques, dating apps, social media websites, deepfakes, and more.
They will try to form a romantic relationship with their victim known as the method of ‘fattening’ victims with trust, before ‘butchering’ them for a financial gain that is luring them into making a series of crypto investments.
This article discusses strategies banks can adopt, highlights key warning signs, and stresses the importance of collaboration to tackle these challenges.
The mechanics of pig butchering
The romance scam element: Pig butchering scams often involve a romance scam element, where scammers exploit victims' loneliness and emotional vulnerability by convincing them they are in a genuine relationship. They use tactics like love bombing
and mirroring interests to build trust, leading victims to become emotionally dependent. This emotional attachment makes it easy for victims to overlook warning signs and deny being defrauded, even after significant financial losses, which can result in further
financial ruin.
Cryptocurrency as a weapon of deception: Scammers use cryptocurrency to hide stolen money because transactions are hard to trace and often unregulated. They create fake trading platforms to trick victims into believing their investments are growing.
When victims try to withdraw funds, they find obstacles like extra "fees." Sometimes, the platforms vanish entirely, making it nearly impossible to recover lost money.
Human trafficking and forced labor: Pig butchering scams are dangerous because organised crime groups often use human trafficking victims to commit fraud. Many of these operations are in Southeast Asia, particularly Cambodia, Myanmar, and Laos.
Victims are tricked into fake jobs and forced to scam others under threats of violence, facing severe punishments for noncompliance.
Why do pig butchering syndicates use human trafficking?
The link between financial fraud and human trafficking adds a disturbing layer of exploitation to pig butchering scams. Pig butchering is a profitable crime, making billions annually. Criminal groups use trafficked victims because they need skilled workers
for large scams, it costs less than hiring real employees, Not only do these scams devastate victims financially, but they also fuel a criminal industry that profits from human suffering.
How can banks prevent and detect these scams?
Pig butchering scams represent a sophisticated amalgamation of various fraud schemes and money laundering typologies, such as romance fraud, cryptocurrency scams, and human trafficking. While banks and financial institutions have individually identified
these typologies for years, pig-butchering scams stand out due to their hybrid nature. These scams tend to be more complex and sophisticated and it is getting tough to detect.
To address fraudulent activities effectively, banks and financial institutions should adopt comprehensive monitoring strategies. This involves gaining a deep understanding of their customer base and the geographical locations of transaction involved. Additionally,
employing real-time transaction monitoring and implementing robust fraud prevention measures are essential steps in safeguarding against these threats.
1. Transactional red flags
- Strengthening KYC and Customer Due Diligence (CDD): Banks/FI’s should conduct enhanced due diligence (EDD) for customers engaging in large crypto transactions, especially with unregulated entities. Banks and crypto exchanges should share blacklists
of known scam-related wallets and freeze fraudulent transactions where possible.
- Unusual crypto transactions: Look out for unusual crypto transactions such as first-time cryptocurrency purchases by customers with no prior history/knowledge of crypto trading. In my previous roles, I have come across such cases where the third
parties send funds to the customer, who further invests in crypto; however, the funds do not find their way back to the senders.
- Unregulated crypto exchanges: Frequent transactions to unregulated crypto exchanges or payment platforms based in high-risk jurisdictions. Transfers to multiple crypto exchanges in quick succession.
- Muling patterns: Victims deposit small amounts first, for example: £1 followed by a large value transaction. Mules are required to move the proceeds of crime quickly. Tune in your transaction monitoring systems to detect the activity.
- Transfers via Money Service Business (MSBs): Many traditional banks have ceased processing crypto payments due to their risk appetites. As a result, these funds are now routed through MSBs. Are these transaction alerts triaged and reviewed to ensure
they are genuine or not?
- Cash deposits: Cash deposits are made in rounded amounts, and these deposits are immediately transferred to various cryptocurrency platforms, fintech bank accounts, or sent to foreign bank accounts.
- Payment references: Lookout for these references “investment,” “loan,” or “gift” to high-risk jurisdictions, unclear purpose of the payments.
2. Customer behavioral red flags
- Sudden changes in financial behavior: Fraudsters manipulate victims into making financial decisions that deviate from their typical banking behavior. Customers with no history of investment activity suddenly start large crypto or overseas
transactions. Older individuals opening crypto accounts or frequently sending digital asset transfers. Customers ignoring fraud warnings from the bank, often stating they ‘trust’ the recipient.
- Psychological pressure and scripted responses: Customers appear coached and insist they are in control despite clear fraud indicators. Some refuse to provide the beneficiary details or the purpose of the transactions. Statements like, “I
met someone online who is helping me invest.”, “My friend recommended me this trading platform.”, and “I need to transfer money to unlock my funds.”
What needs to change?
- Implementing advanced AI and blockchain analytics: Advanced blockchain analytics tools track stolen cryptocurrencies by identifying patterns and linking transactions to specific wallets, assisting law enforcement and financial crime teams in disrupting
scams. Use of AI and machine learning to analyse vast amounts of transaction data and to detect anomalies that may indicate fraudulent activity.
- Customer education and building awareness:
Operation Shamrock continues to raise global awareness about the issue of pig butchering and the use of trafficked human labor involved in this practice. They are actively present in countries such as Cambodia, Thailand, the Philippines, and the United
Arab Emirates, where they share the alarming and ongoing growth of the scam industry. It is required to send real-time alerts and warnings when customers attempt to transfer funds to high-risk platforms, thereby preventing potential fraud before it occurs.
Implementing a 24–48 hour delay on first-time large cryptocurrency investments gives customers time to rethink before making irreversible transfers.
- Banking protocol: Any staff member or a bank branch in the UK can get a priority attendance from the Law Enforcement by invoking the banking protocol. When the customers receive high value payments and they are continuously sending it to
the crypto exchanges, triage these accounts and run additional checks. Use the banking protocol approach effectively. In my previous work experience, I have prevented many customers from sending such payments. According to UK Finance, £24.7 million of fraud
has been prevented and 197 arrests have been made under the Banking Protocol Scheme.
- Training: Focus on training the first line of defence (1LOD) when the payments are flagged. Are they asking the right questions? Look for accounts receiving high-volume deposits from multiple victims. Monitor salary payments from unregistered
companies operating in scam-prone countries. Train fraud analysts to recognise money mule accounts used in human trafficking.
- SAR filing: Report suspicious activity to the relevant FIU’s (Financial Intelligence Unit) using the right glossary codes for human trafficking and cryptocurrency.
- Call for collaboration: Due to the global nature of pig butchering scams, cross-border investigations are crucial. Law enforcement agencies do collaborate internationally to trace and recover stolen funds using crypto-forensic techniques. Tackling
these scams requires cooperation from financial institutions, tech companies, and law enforcement, as this unified effort is vital in addressing the national security risks they pose.
As technology evolves, so do the tactics of fraudsters, highlighting the need for individuals to stay vigilant. Enhancing awareness, strengthening regulations, and promoting international cooperation are vital to combating these scams and protecting both
financial consumers and trafficking victims from exploitation.
Disclaimer – The views expressed in the content are my own and do not necessarily reflect the views of my employer or other associated parties.