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The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a warning about “pig slaughter” – a typology of crypto-crime that Elliptic has been warning about for many months.
In its announcement, FinCEN reported that multiple US law enforcement agencies have estimated losses in the billions of dollars due to these and other crypto investment scams.
This comes as other US agencies such as the Federal Bureau of Investigation (FBI) have also sounded the alarm on pig slaughter, warning that Americans are increasingly at risk from such criminal tactics.
Meanwhile, in the case of suspected pig slaughter attempts, FinCEN urged US financial institutions to file a Suspicious Activity Report (SAR) and/or refer their customers to the Securities and Exchange Commission’s (SEC) Tips, Complaints and Recommendations (TCRs). . system. Furthermore, in the case of elderly victims of such crimes, it urged financial institutions to refer their clients to the Department of Justice’s (DoJ) National Fraud Hotline.
But what exactly is pig slaughter? How can it be detected, what are the red flags, and why are Elliptic’s block analysis tools best positioned to stop this growing threat?
Deciphering the Deception
Originally from China, he took his name from the Chinese Shāz Hū Pánpig slaughter refers to investment scams that use social engineering tricks to repeatedly force victims to lose their money, much like an animal is led to slaughter.
Criminals generally contact their victims online through social media or dating apps pretending to be love interests or friends. Here, the scammer will hide behind an elaborate social media profile and often claim to be a successful crypto-asset investor. After building a relationship with the victim, the scammer will convince them to invest in digital assets.
The unsuspecting victim will then be taken to a fake website designed to mimic a legitimate cryptocurrency exchange platform. After creating an account, they will subsequently transfer their funds to purchase cryptocurrencies on fake sites.
The victim will transfer money via wire transfer to a bank account masquerading as an exchange, but is actually a fake company controlled by criminals.
However, more often than not, victims are told to buy digital assets from a legitimate exchange and then transfer the funds to a crypto wallet that is in reality controlled by criminals.
Using this technique, fraudsters are able to steal the victim’s funds over a period of weeks or even months. They even send fake account statements to users in an attempt to convince them that their investments are increasing in value, which then induces the victim to continue sending more money.
After a period of time, scammers will abruptly cut off contact with the victim, leaving the victim potentially tens of thousands of dollars poorer.
After receiving the illicit funds, criminals will attempt to launder the money through crypto-commingling services to cover the trail of the funds. Alternatively, they can rely on money mules to convert funds into other currencies at Virtual Asset Service Providers (VASPs) located in jurisdictions with weak AML/CFT measures.
How to detect pig slaughterhouses
Fortunately, the transparency of the blockchain can be a critical asset when it comes to detecting criminals who slaughter pigs.
When they scam their victims, these scammers can leave a trail of clues on the blockchain, which analytics tools like those introduced by Elliptic can detect.
After defrauding their victims, fraudsters generally exchange the ill-gotten funds on a cryptocurrency exchange platform. As an example, the image below shows a Bitcoin address belonging to a pig-slaughtering fraudster uncovered as part of the US Department of Justice’s (DoJ) effort to disrupt websites used by criminals.
The image above from Elliptic Investigator shows the flow of funds between a Bitcoin wallet belonging to a pig slaughter scammer identified by the US Department of Justice (marked by the green circle in the lower left) and a wallet belonging to a crypto-asset exchange platform (marked by the green circle in the upper right ).
Fortunately, at this point criminals who slaughter pigs become susceptible to detection. With blockchain forensics solutions like Elliptic Investigator, law enforcement agencies can see that fraudulent funds have been sent to an exchange.
This means agents can now request additional information from the exchange, including know-your-customer (KYC) details that can reveal the identity of those using fake accounts.
Crypto transaction notification tools such as Elliptic Navigator can also allow digital asset exchanges receiving illicit funds to see that they have received funds from the pig slaughter scam. As a result, they can then alert the police to certain transactions or file a Suspicious Activity Report (SAR).
Key red flags
As we pointed out earlier, there are a number of indicators that financial institutions need to be aware of when trying to detect pig slaughter. This includes:
- customers who have no history of using their bank account to fund cryptocurrency purchases, who suddenly start buying large amounts of cryptocurrency from exchanges, potentially in large round amounts, such as four- or five-figure purchases;
- clients suddenly start withdrawing large amounts of cash, and when asked say they plan to make deposits at Bitcoin ATMs to finance crypto investments;
- the client says they were instructed to make wire transfers to crypto exchanges, but analysis reveals that the payments are being made to fictitious companies that do not appear to be affiliated with any legitimate crypto exchanges;
- clients who engage in the behaviors described above are vulnerable – for example, an older client or an individual who has recently gone through a divorce or other major life event; and
- when questioned, the same clients show little familiarity or understanding of cryptoassets.
Meanwhile, red flags that a crypto-business compliance team can identify for pig slaughtering include:
- an individual who opens an account on a crypto exchange suddenly starts buying large amounts of rounded value and immediately transfers funds from the exchange to private wallets;
- vulnerable customers suddenly start using Bitcoin ATMs and make high-value purchases, despite having little or no understanding of the crypto-asset;
- when asked, clients may indicate that they have been contacted by cryptocurrency investors; and
- transactions involving wallets with frequent exposure to high-risk services, such as mixers or mismatched VASPs.
To learn more about how Elliptic can help fight this devastating form of financial crime, you can contact us for a demo.
Alternatively, download our latest Typologies Report below to learn about other cryptocrime typologies so your organization is aware of the latest threats.
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