Pig butchering scams involve scammers contacting potential victims and gaining their trust by befriending or flirting with them. Gaining a victim’s trust can often take several months, depending on the perpetrator’s commitment.
A pig butchering scammer usually creates a fake social media account on the platforms to contact potential victims. Their goal is to find a victim and become their “friend” or “lover” through loving conversations or “love bombing.”
One of the most lucrative of these is being run by criminal gangs across Southeast Asia, called the “pig butchering romance scam.”
The scammers refer to their victims as pigs, whom they fatten to be “butchered” – or conned, out of as much money as possible.
The victim is gradually convinced to invest in crypto as much as possible before the fraudster takes the money and disappears.
The scammers pressure victims to invest more money and tie it to their relationships. When the victim tries to withdraw funds or shows signs of ending their investments, the account is closed, and the money is gone. Some victims are asked to pay extra fees to withdraw money, while others are simply ignored and locked out of their accounts.
Pig Butchering works by criminal networks placing fake job advertisements to attract young people from China and other countries. These individuals are then held, against their will, in secure compounds where they are forced (under threat of violence) to commit cyber-enabled fraud against victims primarily located in Western countries, including the U.S. and Europe.
The typology is controlled by organized criminal gangs operating from Southeast Asia, including Special Economic Zones (SEZ) in countries, like Myanmar, Laos, Cambodia, and Thailand. In 2022, U.S.-based victims alone lost approximately $3.3 billion to crypto-related investment frauds.
Red Flags Indicators of Pig Butchering Scam
1. Unexpected Contact
Never respond to unwanted messages from unknown contacts, even from seemingly benign subjects, primarily through text messages and encrypted messaging programs.
2. Rejecting Video Chats
If someone you’ve been messaging consistently refuses to engage in face-to-face interactions, they probably aren’t the person in their profile picture.
3. Request for Financial Information
Do not share personal financial information with people you have never met in person. If a new virtual friend or romantic connection starts asking financial questions, put the brakes on the relationship.
4. Invitation to Invest in Certain Financial Products
Beware of unsolicited investment tips or advice, especially from someone you’ve only spoken to online, even if they recommend you trade with their account. Always ask what the source stands to gain by sharing tips with you and whether the deal fits your financial goals and investment strategy.
5. Unknown or Confusing Investment Opportunity
Carefully evaluate the product and the person and/or company seeking the investment. In addition to the standard search, try additional words such as “fraud” or “fraud” to see the results. Consider referrals from a third party or investment professional who has no interest in the investment to see if the promoter is a registered investment professional.
6. Unknown Trading Systems
Do your research before transferring money, especially in emerging markets like cryptocurrencies, where there are hundreds of exchanges and new ways of trading are constantly evolving. Who controls the platform? What are the security measures? How to withdraw money if necessary? If you don’t know the answers to these questions, don’t put your property there.
7. Extravagant Claims and Heightened Emotions
Take a closer look at any investment that offers many higher-than-average returns or is advertised as “guaranteed”. Scammers also often use information about you to appeal to your emotions—for example, “Don’t you want money to send your kids to college?”
8. A Sense of Urgency About an Upcoming News Release or Stock Price Increase
Remember that insider trading is illegal, and you should never trade a company’s stock based on material, non-public information.
Pig Butchering Tactics
The following is a list of tactics, drawn from law enforcement investigations, employed by organized crime gangs to target their fraud victims:
- Pig butchering perpetrators operate as an organized structure of phone scammers, website designers, and money mules.
- Targeted social engineering is used to engage victims and build trust.
- Perpetrators develop meaningful relationships with victims over months and engage with victims on dating applications, social media platforms, and voice-over-Internet protocol (VOIP) chat applications (e.g., Facebook Messenger, WhatsApp, or Apple’s iMessage).
- Geolocation services may also be exploited to make it appear that the scammer(s) is in the same location that the victim claims to be located in.
- Introducing high-yield investment opportunities in virtual assets such as cryptocurrency, foreign exchange, or other commodities.
- Victims are often instructed to open accounts through online investment websites (via Android or iOS) or virtual asset service providers (VASPs), such as cryptocurrency exchanges.
- Perpetrators often control the websites, using software that mimics investment portfolios or well-known crypto asset exchanges, appearing to show high investment gains. Victims are provided with instructions to deposit money via wire transfer to shell companies, or direct cryptocurrency transfer.
Mitigation and Measures to Combat Financial Crime
The Financial Action Task Force (FATF) recommendations outline a comprehensive and consistent framework of measures for the banks and financial institutions to combat financial crime, such as “Pig Butchering.”
- FATF Recommendation 5 states that financial institutions should be required to implement customer due diligence (CDD) measures to ensure that anonymous accounts or fictitious names are maintained.
- CDD initiatives may include customer and/or beneficial owner identification and ongoing business relationship due diligence and review of transactions during the relationship.
- Recommendation 20 of the Financial Transactions Task Force requires that “if a financial institution suspects or has reason to suspect that money has been derived from criminal activity, it should be required by law to report its suspicions to the Money Laundering Investigation Center (FIU) without delay.” Such reports are often referred to as a Suspicious Event Report (STR) or a Suspicious Event Report (SAR).
- Furthermore, financial institutions can deploy a range of financial crime controls and mitigations as relevant to their country of registration.
Examples of Generic Controls and Mitigating Activities to Identify Pig Butchering
- Enhanced monitoring of Know Your Customer (KYC) requirements for new clients opening accounts with investment firms.
- Application of the Enhanced Due Diligence (EDD) principle to business relationships and transactions with natural persons/legal entities in high-risk transactions across risky jurisdictions.
- Establish jurisdictional practices to prevent the flow of victims’ funds, allowing accounts to be frozen while investigations into possible fraud are carried out.
- Determining the appropriate jurisdictional procedures applicable to account holders suspected of fraud. This may include requesting support documents such as invoices, investment certificates, or wallet addresses where the money was transferred.
- Contact recipients of outgoing transactions to raise awareness of fraud and seek clarification to ensure transfers are legitimate.
- Applying behavioral analysis techniques to identify and report deviations from normal customer behavior to reduce risk and protect customers from becoming victims of fraud.
- Leverage blockchain analytics, machine learning tools, and alerting software.
- Implementation of appropriate training for all relevant staff to raise awareness and consult on suspicious activities related to pig slaughter.
Examples of Specific Mitigation Measures Used by US Financial Institutions
- Leveraging Section 314(b) of the Bank Secrecy Act or related domestic information-sharing regulations if the account holder is suspected of hog slaughter.
- Using EDD procedures to ensure that businesses and individuals have legitimate websites and are registered with the appropriate state and federal enforcement agencies: Securities and Exchange Commission (SEC); Commodity Futures Trading Commission (CFTC), Financial Industry Regulatory Authority (FINRA), etc.
Conclusion
To effectively tackle frauds, including pig butchering, financial institutions and VASPs alike should assess their potential exposure to this typology. Law enforcement agencies must collaborate globally on investigations, and public and private sectors must continue to collaborate through information sharing mechanisms.
Anaptyss as a strategic partner helps banks and other financial institutions strengthen their financial crime compliance (FCC) capabilities through domain expertise and intelligent AI and ML-powered digital solutions to detect financial crimes while reducing false positives.
Interested in more specific guidance for Financial Crime Compliance (FCC)?
Write to us: info@anaptyss.com
Tasneem Abdulrahman
Manager - AML Compliance
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