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Recently, a form of investment fraud involving cryptocurrencies has become among the top fraud concerns of law enforcement agencies around the world: pig slaughter.
Pig slaughter scammers are raking in ever-increasing sums in Bitcoin and other crypto-assets, with devastating effects on their victims.
However, blockchain transparency can serve as a key weapon for law enforcement agencies and financial crime compliance teams to stop these fraudsters.
In this post, we describe how blockchain analytics can enable the detection and disruption of pig slaughter fraud.
Pig Slaughter: A Growing, Destructive Form of Fraud
“Pig Slaughter” is not a legal term, but refers to various investment scams that have originated in China (where the scams are called “Sha Zhu Pan”) and spread to victims around the world.
In hog slaughter schemes, victims are targeted via 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.
Fraudsters can set up elaborate, fake social media profiles designed to make it look like they’re living a lavish lifestyle funded by cryptocurrency. After establishing a trusting relationship with the victim, the scammer will convince them to start investing their money in crypto-assets in order to gain some of the wealth themselves.
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. This is where the term “pig slaughter” comes from, as the process resembles the fattening of an animal before slaughter.
In order to lure their victims, scammers will sometimes create fake websites designed to mimic authentic cryptocurrency trading platforms. Victims are directed to buy digital assets on crypto exchanges and then transfer the funds to crypto addresses allegedly associated with these fake trading sites.
Last October, the US Federal Bureau of Investigation (FBI) also warned that victims were increasingly being instructed to transfer payments by withdrawing cash from their bank accounts and depositing it at Bitcoin ATMs.
The crypto addresses to which the victim transfers funds are, of course, controlled by fraudsters, who take funds from their unsuspecting victims. In order to convince the victim to keep “investing” their funds, the scammer may even create fake bank statements designed to make it look like the victim’s supposed crypto investments are yielding big returns.
However, when the victim invests large sums of money – sometimes thousands or even millions of dollars – the scammer will suddenly cut off all contact. The victim is left without his money, and in many cases suffers complete financial ruin. In one recent case, a man in the US lost $1 million in a pig slaughter scam after befriending a potential romantic interest who turned out to be a con artist.
According to the FBI, most victims of crypto investment scams are between the ages of 30 and 49. However, scammers can target victims across a variety of demographics, looking for those who are vulnerable, such as people with sick family members, those in financial distress, or people grieving a recent divorce or other devastating life event.
The exact extent of pig slaughter fraud is difficult to determine, especially given the likelihood that many, if not most, cases go unreported. According to one US government estimate, that figure is nearly $430 million in hog slaughter fraud losses, although the actual figure is likely higher, given that the FBI claimed to report crypto fraud in 2022 in the US alone at least $2.5 billion.
Another scary side of pig slaughtering involves the experience of many individuals who run scams. In many cases, the people actually acting as pig slaughter scammers are individuals in countries in regions such as Southeast Asia who have been forced by traffickers to commit these crimes.
These individuals are forced to run pig slaughter scams from fraudulent call centers run by organized crime syndicates who ultimately profit from the underlying crimes.
Using blockchain analytics to identify and disrupt fraudsters
Hog slaughter scams horrify their victims, so combating pig slaughter has become a top priority for law enforcement in the US and elsewhere.
And one of the key tools in detecting these scams and their perpetrators is the ability to track the associated flows of crypto assets on the blockchain.
Once they scam their victims, pig slaughter scammers can leave a trail of footprints on the blockchain that can be detected using analytics capabilities like those introduced by Elliptic.
For example, after receiving a crypto-asset from a victim, the scammer will generally try to exchange the funds on a crypto-asset exchange service, as detailed in the image below, which shows a Bitcoin address belonging to the pig-slaughtering scammers discovered as part of the US Department of Defense. Justice (DOJ) efforts to disrupt websites used by fraudsters.
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Image above from Elliptic Investigator – our multi-asset investigative software – 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 corner).
It is at this stage that the perpetrators of these schemes become vulnerable to detection and disruption. Using a forensic blockchain analytics solution like Elliptic Investigator, a law enforcement agency can see that fraudulent funds have been sent to an exchange. This allows agents to request information from that exchange, such as Know Your Customer (KYC) data that can reveal the identities of the individuals behind those accounts.
Similarly, using the transaction verification capabilities of blockchain analytics, a cryptoasset exchange that receives funds from fraudsters can see that they have received funds from a pig slaughter scam, which can allow them to file suspicious activity reports (SARs) or otherwise alert the law. execution of the respective transactions.
Stopping pig-slaughtering fraudsters
Pig slaughter is a serious and growing form of crime, but the transparency of the blockchain can be an advantage in fighting back against these fraudsters.
Contact us to learn more about how Elliptic’s blockchain analytics solutions can enable the detection and disruption of fraud schemes involving cryptoassets.
