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Scams and scams involving cryptoassets can take a devastating toll on their victims – in the worst cases resulting in lost savings and financial ruin.
Unfortunately, crypto fraudsters sometimes target their crimes at some of society’s most vulnerable members: the elderly.
Cracking down on fraud in the crypto space is increasingly important to the fight against elder financial exploitation (EFE). And a key tool available to investigators looking to prevent fraudsters from exploiting the elderly is the ability to trace the flow of fraud funds on the blockchain.
Elder Abuse: A Devastating Form of Crime
EFE is not a new problem; has existed in the financial sector for decades.
Elderly people are frequent targets of fraud because they often have significant financial resources, can be trusting and friendly, and are unlikely to report being a victim of fraud for fear that it could cause their family members or guardians to limit their financial independence. Some older people may also suffer from cognitive decline, which increases their vulnerability.
The rise of online banking and other digital financial services has also created new opportunities for abuse of the elderly, who may lack an understanding of digital financial services and may be coerced by fraudsters who attempt to exploit their lack of knowledge and understanding.
EFE can take many forms. Fraudsters may target the elderly as part of trust or love scams, seeking to take advantage of divorcees or widows who are emotionally vulnerable. Scammers may also pose as representatives of pension providers or social security agencies seeking payment from elderly victims.
The elderly can also be exploited by those close to them, such as caregivers or even family members, who may force the elderly close to part with their money.
And because seniors are often retired, fraud can sometimes lead to them parting with their remaining savings, with little prospect of recouping their earnings for the rest of their lives.
Law enforcement agencies are focusing more and more attention on the growing problem of elder abuse. The US Department of Justice (DoJ) has established the Elder Justice Initiative, which aims to combat EFE. In April 2022, the US Federal Bureau of Investigation (FBI) released a report on elder fraud, which stated that EFE targeted more than 92,000 victims in 2021 alone and resulted in financial losses of more than $1.3 billion – which is an increase of 74% compared to the previous year. What’s more, the average victim of an EFE scam loses more than $18,000.
In response to the growing issue of EFE, in June 2022, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) also released advisories on elder abuse to assist US regulated financial institutions in detecting transactional and behavioral indicators of activities related to EFE.
EFE in crypto scams
When it comes to EFE committed with cryptoassets, fraudsters can target elderly victims as part of pig slaughtering investment scams.
In hog slaughter schemes, victims are targeted through social media platforms, dating apps or other online approaches by scammers who often pose as potential romantic partners and claim to be successful crypto-asset investors. Gradually, over weeks or months, the scammer will convince the victim to walk away with their money, ostensibly to invest it in a crypto-asset.
Most pig slaughter scams target individuals between the ages of 30 and 49, who are highly connected on social media and may be more aware of cryptocurrency than the elderly. However, the elderly are increasingly victims of pig slaughter. According to the FBI, in 2021 alone, elderly victims in the US lost a total of $123 million to hog slaughter schemes involving cryptocurrencies, and these numbers are growing.
Pig slaughter scammers may target elderly victims who are grieving a life event such as divorce or the illness or death of a partner.
The elderly can also be prime targets for government scams involving cryptocurrencies. In these scams, fraudsters may pose as a representative of a law enforcement or tax agency, social security or pension agency, public utility company or other similar entity, claiming that the victim needs to make a payment in cryptocurrencies to settle an outstanding debt or the like. The victim is instructed to buy cryptocurrencies and transfer them to the fraudsters.
In March 2022, the Department of Justice announced that it had disrupted a government scam involving cryptoassets. In that case, fraudsters posed as law enforcement agents and contacted an elderly North Carolina man, claiming to have discovered that his identity had been stolen by drug traffickers to facilitate money laundering activity.
The scammers told the man he had to transfer his funds to cryptocurrencies so the government could temporarily freeze his assets while the alleged investigation was ongoing. The man then used his retirement savings to buy more than $575,000 worth of cryptocurrency on Coinbase – funds he then transferred to accounts belonging to the fraudsters.
The elderly can also be targeted for Bitcoin ATM scams. In these cases, scammers may perform government fraud or pig slaughter scams, but will direct victims to deposit cash at Bitcoin ATMs, where the funds are then transferred to a wallet belonging to the scammers. In one case last year, a retired nurse in New York transferred $43,000 to fraudsters through a Bitcoin ATM.
Red Flags and Indicators of Senior Crypto Fraud
Where cryptoassets appear in EFE schemes, certain red flag indicators may be present that suggest fraud is taking place For example:
- An elderly person suddenly opens an account on a crypto-asset exchange and shows little or no knowledge of crypto-assets. The individual then makes numerous transfers to an unrelated crypto wallet for no apparent reason.
- An elderly person suddenly starts using their debit or credit card for frequent and/or large purchases of cryptoassets.
- An elderly person claims to have been ordered by a government department or utility company to settle a debt or make payments in cryptocurrencies.
- An elderly person finances his purchase of a crypto asset with a large amount of funds from a retirement account.
- An elderly person suddenly begins withdrawing large amounts of cash from his bank account, and when questioned about this activity, indicates that he intends to deposit the funds at a Bitcoin ATM.
- An elderly person informs family members and friends that they have been approached via social media about crypto-asset investment opportunities.
- An individual caring for an elderly person or individuals may suddenly start trading cryptoassets in inexplicably large amounts.
Organizations such as Elder Abuse Prevention Ontario have published additional indicators and warning signs of EFE involving cryptoassets that can help identify this type of activity. It was by understanding these types of indicators that Coinbase staff were able to identify the government fraud case described earlier – allowing law enforcement to seize the fraudulent funds and return them to the victim.
Monitoring the flow of funds from fraud on the blockchain
There is another important tool that can help fight EFE in cryptoassets: the ability to trace the flow of funds on the blockchain to identify wallets associated with fraudsters.
For example, if fraudsters instruct an elderly person to buy cryptocurrency on an exchange, then they can be instructed to send the crypto they buy to a wallet controlled by the fraudsters.
As illustrated in the image below, by using crypto-forensics capabilities like Elliptic Investigator, you can visualize the flow of funds as they are transferred to fraudsters’ wallets – intelligence that can be vital in identifying those behind fraud, and in recovering funds that will be returned to the victims.
The image above from Elliptic Investigator illustrates the flow of funds from a cryptoasset exchange service to a wallet associated with a known fraudster, after the funds are sent through two intermediary wallets (represented by the white circles). With this information, investigators can obtain information from the crypto exchange about fraud victims and can track the flow of funds through the blockchain as the fraudster tries to launder them, potentially helping to recover the funds.
EFE is a devastating form of financial crime that targets some of the most vulnerable individuals in society. But with the right skills, investigators can succeed in disrupting these crimes.
Contact us to learn more about how Elliptic’s blockchain analytics capabilities can help detect fraud and cryptoasset fraud.
