I had the pleasure of speaking this weekend at the New York State Bar Association’s CLE conference at NYU entitled: Deep Dive Into The Metaverse And Web3: The First Global Law Symposium on the topic of money laundering and blockchain crime. 

The conference was put on by the State Bar’s Task Force on Emerging Digital Finance and Currency—which is leading the nation in helping to educate and on-board lawyers into digital asset tech law. The featured speakers at this first of its kind Global Law Symposium were some of the top lawyers in the world on the subject of blockchain and web3 technology. I was truly honored to be a part of this amazing event. 

One of the subjects we covered was how transnational criminal organizations profile and target unsuspecting victims through a sophisticated social engineering fraud practice known as “pig butchering”. Crypto Criminal Defense Lawyer Blog 

What is Pig Butchering?

“The victims in Pig Butchering schemes are referred to as ‘pigs’ by the scammers because the scammers will use elaborate storylines to ‘fatten up’ victims into believing they are in a romantic or otherwise close personal relationship,” according to the affidavit in support of the Los Angeles seizure warrant. “Once the victim places enough trust in the scammer, the scammer brings the victim into a cryptocurrency investment scheme.” DOJ Press Release 

"Pig butchering" is an internet fraud scheme that primarily targets individuals looking for romantic relationships online. The term is derived from the practice of raising a pig and feeding it until it is ready for slaughter. Similarly, in this scam, the fraudster (also known as the "pig butcher") gains the trust of their victim (the "pig") over a period of time before eventually defrauding them of their money or personal information.

The FBI noted in its 2023 IC3 Report that a new form of romance scam is on the rise. know as “pig butchering” has overtaken business email compromise (BEC) scams and become the preferred cyber criminal fraud scheme. 

Confidence/Romance Fraud: An individual believes they are in a relationship (family, friendly, or romantic) and are tricked into sending money, personal and financial information, or items of value to the perpetrator or to launder money or items to assist the perpetrator. This includes the Grandparent’s Scheme and any scheme in which the perpetrator preys on the complainant’s “heartstrings.” 2023 IC3 Report

How Does Pig Butchering Work?

The pig butchering scheme typically involves the following steps:

  1. Establishing Contact: The fraudster creates a fake online profile on a dating website or social media platform, often using stolen pictures and fabricated personal information. They then initiate contact with potential victims by sending messages expressing interest in forming a relationship.

  2. Grooming the Victim: Once contact has been established, the fraudster works to build trust with the victim through regular communication, sharing personal stories, and even sending gifts. This stage is crucial in establishing an emotional bond, making it more difficult for the victim to suspect foul play.

  3. The Hardship Story: After gaining the victim's trust, the fraudster will introduce a hardship story. This could range from a sudden financial crisis, a sick relative, or legal trouble, ultimately leading to a request for financial assistance from the victim.

  4. Extraction of Money or Information: If the victim decides to help, the fraudster will request money transfers or personal information such as bank account numbers or Social Security numbers, which can be used for identity theft or other fraudulent activities.

  5. Disappearance: Once the fraudster has obtained the desired funds or information, they will typically sever contact with the victim and disappear, leaving the victim emotionally and financially devastated.

After showing the victim some phony realized gains on the initial investment, pig butchers will then use that initial “win” to extract more money from unsuspecting victims. When the victims try and take profits, they are often met with some excuse why the funds are not available. The fraudsters then prey on the emotions of the victims and persuade them to send even more money to an anonymous wallet address. 

Victims of pig butchering schemes are very often either embarrassed or refuse to accept that they have been taken advantage of until it’s too late. This hesitation to report the behavior often leads to victims doubling and even tripling-down on their initial fraudulent investment to try and recoup their original losses. The fraudsters are very good at creating new “opportunities” for these victims to invest additional money to try and either make back losses on their initial investment or to try and gain access to the original investment that is typically somehow been locked-up in inaccessible. 

This is just one of the many examples of how transnational criminal enterprises can use blockchains to facilitate fraud. Another type of crypto fraud involves the recruitment of sometimes unsophisticated parties to assist in the movement of cash from fraud schemes overseas in exchange for a commission. Fraudsters will recruit individuals to receive large bulk cash, run that cash through their bank accounts, and then move the cash to a centralized crypto currency exchange. The fraudsters will then instruct these individuals to send the money in the form of crypto to a wallet address connected to the transnational fraud organization. 

These transactions often trigger bank alerts that are reported to law enforcement. Once law enforcement gets involved they usually are able to very easily trace the money back to the individual who deposited the illicit cash proceeds. These individuals then face the possibility of criminal prosecution for wire fraud, money laundering and acting as an unlicensed money services business. 

Sadly, these unwitting pawns are often the only individuals that the government can find and prosecute for these fraud schemes. It’s rare that the government can reach back overseas and successfully find and arrest the transnational fraud players who received the laundered crypto funds. The local facilitators of these laundering schemes are therefore often left suffering the brunt of the consequences for these schemes that can result in felony convictions, prison or probation sentences and an order to make full restitution for the losses suffered by the victims. 

This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.