Pig-butchering scams, named after the deceptive practice of fattening hogs before slaughter, have evolved into a multi-billion-dollar criminal industry, according to a recent study by University of Texas finance professor John Griffin and graduate student Kevin Mei.

The Scope of the Scam

Griffin and Mei's research, which tracked over 4,000 victims' crypto addresses, revealed that these scams have netted criminals more than $75 billion over four years, from January 2020 to February 2024. The rise of pig-butchering scams has been particularly pronounced since the onset of the pandemic, with criminal networks predominantly based in Southeast Asia.

How the Scams Operate

Victims are often targeted through deceptive messages, initially appearing as wrong-number text messages. They are then lured into fake crypto investments, only to find out that the investments are fraudulent. Once victims send funds, the scammers vanish, leaving behind substantial financial losses. Some victims have lost hundreds of thousands or even millions of dollars.

The Role of Crypto

Crypto exchanges play a pivotal role in these scams, facilitating the movement of illicit funds. Griffin and Mei's study found that a significant portion of the stolen funds flowed through decentralized exchanges like Tokenlon, which scammers use to obscure the origin of the funds. Despite efforts to combat fraud, these exchanges continue to be exploited by criminals.

Tether's Involvement

Tether, a popular stablecoin, emerges as a central player in the laundering of stolen funds. The study revealed that scammers predominantly convert their proceeds into Tether, leveraging its liquidity and purported anonymity. Despite claims by Tether's CEO Paolo Ardoino that the report is misleading, Griffin asserts that Tether remains the currency of choice for criminal networks.

Law Enforcement Challenges

Law enforcement faces significant challenges in combating these scams, as criminals exploit decentralized exchanges and stablecoins to evade detection. Although some exchanges like Binance have cooperated with authorities to freeze accounts tied to fraud, the nature of crypto transactions often means that scammers have already cashed out by the time the crime is reported.

Human Trafficking Nexus

Behind the scenes, many of the individuals involved in sending deceptive messages are themselves victims of human trafficking. Trapped in compounds across Southeast Asia, they are coerced into participating in these fraudulent schemes under threat of violence. The United Nations estimates that over 200,000 people are held in such scam compounds.

Conclusion

The proliferation of pig-butchering scams underscores the urgent need for enhanced regulatory oversight and international cooperation to combat crypto-related fraud. As criminals exploit the anonymity and borderless nature of cryptocurrencies, concerted efforts are required to protect unsuspecting victims and hold perpetrators accountable.

Image source: BitAML