The study, titled “How Do Crypto Flows Finance Slavery? The Economics of Pig-Butchering,” sheds light on the intricate mechanisms employed by scammers to launder illicit funds through crypto exchanges.
A recent study on the scale of the pig-butchering scam, conducted by finance professor John Griffin and graduate student Kevin Mei from the University of Texas at Austin has uncovered a staggering estimate that scammers have pilfered more than $75 billion victims globally. The scam, which has surged in popularity amid the pandemic, involves enticing victims into fake crypto investments through deceptive means, resulting in substantial financial losses.
Griffin and Mei meticulously gathered data from over 4,000 victims of the fraud and employed blockchain tracing tools to track the flow of funds from victims to predominantly Southeast Asian-based scammers. The findings, spanning a four-year period from January 2020 to February 2024, reveal the movement of more than $75 billion to crypto exchanges by criminal networks orchestrating the scam.
“These are large criminal organized networks, and they’re operating largely unscathed,” remarked Griffin in an interview, highlighting the sophistication and resilience of the perpetrators behind the scam.
The term “pig-butchering” originates from the deceptive practice of fattening hogs before slaughter, drawing parallels to the fraudulent schemes employed by scammers. Typically initiated through unsolicited text messages, victims are lured into purported crypto investments, only to realize that their investments are fictitious once significant funds have been transferred to the scammers. Despite its incredulous nature, victims routinely suffer substantial financial losses, with some individuals losing hundreds of thousands or even millions of dollars.
In a recent development, a Kansas banker was charged with embezzling $47.1 million from his bank as part of a pig-butchering scam, underscoring the severity and widespread impact of the fraudulent activity.
The perpetrators behind the scam often exploit vulnerable individuals, including victims of human trafficking from Southeast Asia, who are coerced into participating in the scheme. Tricked into believing they will secure lucrative employment opportunities, these individuals are subsequently trapped, coerced into scamming activities, and subjected to physical abuse and torture in scam compounds across countries like Cambodia and Myanmar.
The study, titled “How Do Crypto Flows Finance Slavery? The Economics of Pig Butchering,” sheds light on the intricate mechanisms employed by scammers to launder illicit funds through crypto exchanges. Griffin and Mei found that a significant portion of the funds, amounting to $15 billion, flowed through five exchanges, including Coinbase, commonly used by victims in Western countries.
Tether, a popular stablecoin, emerged as the preferred choice for converting scam proceeds, with 84% of the transaction volume attributed to this cryptocurrency. Griffin emphasized the ease with which large sums of cash can be moved through the crypto ecosystem, facilitated by the anonymity and accessibility afforded by blockchain technology.
While Paolo Ardoino, CEO of Tether, refuted the allegations levelled against the stablecoin, asserting the company’s commitment to collaboration with law enforcement to combat fraud, concerns persist regarding the efficacy of such measures in preventing scam-related losses.
Chainalysis Inc., a blockchain analysis firm, cautioned against overstating the magnitude of funds attributed to pig-butchering scams, citing challenges in accurately quantifying illicit proceeds. Nonetheless, the firm acknowledged the prevalence of such fraudulent activities and the need for heightened vigilance in monitoring crypto transactions.
The study also highlighted the role of purportedly decentralized crypto exchanges like Tokenlon in facilitating money laundering activities, further complicating efforts to trace the origins of illicit funds. Despite concerted efforts by authorities and industry players to combat scams, the pervasive nature of pig-butchering scams underscores the urgency of implementing robust regulatory measures and enhancing public awareness to safeguard against financial exploitation.
As Binance emerges as a favoured destination for cashing out scam proceeds, despite facing legal scrutiny and regulatory challenges, concerns mount regarding the efficacy of existing measures in deterring fraudulent activities. While Binance and other exchanges have collaborated with law enforcement to freeze accounts associated with fraud, the persistent prevalence of pig-butchering scams underscores the need for concerted efforts to address the underlying vulnerabilities exploited by scammers to protect vulnerable individuals from financial exploitation.