Pig Butchering
How one little piggy went to market
Pig butchering. There is something about the term that is simultaneously fascinating and repulsive. Fascinating because it combines two subjects I find enthralling, cryptocurrency and crime (I know I shouldn’t). Repulsive since being vegetarian, doing horrible things to poor piggies is wrong.
There must be a vegan alternative, but tofu torture or seitan slaughtering don’t have the same ring as pig butchering, so we will go with that.
Even better, in terms of an interesting subject, there is a variation on pig-butchering with an AI (artificial intelligence) angle to it, so with crime, crypto and AI, there is the perfect trinity, the ideal alignment for a good story.
The definition
So what is pig butchering? Well, my go-to reference source of Wikipedia defines it in this way:
“A pig butchering scam is a type of confidence trick and investment fraud in which victims are gradually lured into making increasing contributions, in the form of cryptocurrency, to a seemingly sound investment before the party they are dealing with disappears.“
I guess there are variations where it is not cryptocurrency but the traditional variety used, but crypto seems to be the criminals currency of choice.
I first came across the term pig butchering in Zeke Faux’s excellent book “Number Go Up”, which convinced me that 99% of cryptocurrency is a scam and the other 1% is a fraud.
https://en.wikipedia.org/wiki/Number_Go_Up
Big business
Pig-butchering is big business, and the victims are not just the lonely and vulnerable. The criminals exploit impoverished modern-day slaves to do much of the entrapment for them. It is increasingly in the news. For example this feature on the BBC website covers the recent busting of one pig butchering enterprise:
https://www.bbc.co.uk/news/business-68488924
It is good to hear of such dens of iniquity being exposed, however this is just the tip of the porcine processing market. It is estimated that there are over 220, 000 people enslaved in this nefarious business, mostly in South-East Asia, with one estimate suggesting the true number is nearly 500,000
Medium author Evrin Zubic reports on the murky world of cryptocurrencies and pig-butchering in this article:
https://medium.com/@ervin.zubic/pig-butchering-the-billion-dollar-crypto-scam-exposed-b1122e0b1340
From Evrin’s article, I looked up the research paper he refers to, “How Do Crypto Flows Finance Slavery? The Economics of Pig Butchering” by John M. Griffin and Kevin Mei. This study estimates that more than $75 billion have been stolen, almost enough to plug the hole in the UK economy left by Liz Truss’s 49-day premiership, but I digress.
How does pig butchering work?
The research paper by Griffin and Mei describes how a typical pig butchering scam may work, though obviously there are numerous variations on the theme, which is partly what can make it so difficult to guard against:
“Romance scams often begin with seemingly random messages in the form of a text, WhatsApp message, or messages on social media platforms to the wrong person. The scammers are looking for a lonely victim, going through tough times (such as a medical condition or divorce), and has sufficient cash. First, there is a friendship or trust-winning stage, often spanning multiple months, which can also include the illusion of romantic potential.
After the scammer has earned the victim’s trust, the topic of investments will arise. Victims, often with little or no crypto exposure, will be encouraged to open an account at a legitimate, well-known crypto exchange that victims can verify, trust, and easily transfer funds to that account. Scammers will claim to have an edge at another seemingly professional platform and encourage victims to transfer crypto funds to a provided crypto address; however, this second platform is fake or spoofed, and the crypto address is actually owned by the scammer. On the fake platform, it will appear as if the victim has quickly generated significant returns. Often the person is encouraged to withdraw funds from the platform back to the original account at the legitimate crypto exchange to build trust. This is known as an inducement payment because it induces the victim to send more funds. Through this process, the scammer can capitalise on both cryptocurrencies’ reputation as a viable new technology, as well as the infrastructure connecting the traditional financial system and the cryptocurrency ecosystem to easily onboard funds.
Upon feeling more certain that the investment opportunity is real, victims often make larger deposits. Some victims have drained their savings and investment accounts, borrowed up to their credit card limit, paid penalties to convert their retirement funds, borrowed from friends and family, or placed another mortgage on their home. In the final stage where a victim seeks to withdraw funds, they are often asked to pay “taxes” on the fictitious profits before the funds can be withdrawn. Ultimately, the scam does not end until the victim cuts contact, or the scammer is sure that the victim is bled dry of funds.”
Money laundering
If you have tried to open a bank account in recent years you may have become exasperated at the level of identity checks banks often now force us to go through, and wondered why so much paperwork is needed: a passport or driving licence or other proof of identity, plus evidence of where you live, and so on. The answer is to prevent criminal money laundering.
However, with cryptocurrencies, all these troublesome but necessary checks are bypassed, making crypto a gift to the criminal sorority/fraternity.
So how are cryptocurrency and crime connected by pig butchering? Well, the criminals involved in the latter use the former to move the proceeds of their endeavours. Crypto is perfectly designed for money laundering. It evades all the normal bothersome banking controls, scrutiny, audits, checks and balances, so the anonymous transfer of funds can be facilitated in a way that obfuscates and conceals what is going on.
Nothing new: a new spin on an old scam
Of course romance scams are not new. They have been around since Adam met Eve and fooled her with an apple in The Garden of Eden. Bad actors have been fooling the unwary since time immemorial, faking love for monetary gain.
However the internet, with its virtual connection of complete strangers, combined with the arrival of cryptocurrency,, with its way of hiding the transnational movement of illicit money, seems to have supercharged the level of criminality. The scammers prey on the lonely and vulnerable, and with video connections now a routine part of modern communications, they can target people on the other side of the world. With virtual communication, many of the cues and clues that might make someone cautious if meeting face-to-face, may not be so easy to spot.
Follow the money
The researchers Griffiths and Mei have skilled a understanding of the blockchain ledger, so they have been able to trace some of the flows of money that are completely impenetrable for most people. The flows represent an electronic network, streams of light in fibre-optic cables, like underground rivers of wealth invisible to the naked eye, transporting huge sums of money around the globe.
The researchers use a technique referred to as “deposit address clustering” which helps locate where much of the funding ends up. From the deposit addresses, they use “backwards tracing”, to work their way back to the start of the chain. This is a process a bit like reverse engineering, where you know the end product and have to work out the steps taken to get there.
Some of the description of how the tracing for money movements was done reads like a foreign language, so if like me you struggle to understand what blockchain is in the first place, it may be best to stick with the executive summary of the research paper.
The research by Griffiths and Mei is remarkable for its expertise and what they discovered. Some of the terminology used is fascinating. For example, they refer to “decomposing” some of their data to test its robustness. The word “heuristic” is used, which I had to remind myself means an approach to problem-solving that employs a practical method that is not fully optimised, perfected, or rationalised, but is nevertheless sufficient for reaching an immediate, short-term goal or approximation. So a bit like the government’s response to the COVID pandemic.
Building trust
It seems as though sometimes the scammers cunningly use small “inducement payments”, minor amounts actually paid from the scammer to the victim, to build up trust. However, once the relationship has been established, the vulnerable person is then ruthlessly exploited, and funds rapidly travel from the victim to the scammer.
Various ruses are used. For example, the scammer may invent illnesses that require money for treatment, or fake family members in urgent need of funds for some invented crisis. To try and retain the emotional connection the victim feels they have, they end up transferring increasingly large sums to the criminals. Some victims lose their entire life savings.
The scammers often move the stolen money through a variety of exchanges and multiple different cryptocurrencies, recirculating and swapping it, in the hope that with sufficient taps of the wand, the money becomes untraceable. It is all smoke and mirrors, sleight of hand worthy of the finest magician, all done to obfuscate the true source of funds.
The scammers use many devices to aid their concealment. For example, the researchers say: “……we also see examples of “dusting” transactions or sending small amounts of tokens to many addresses, and thus creating more dead-end paths for any potential investigator to follow.” Given all the concealment it is remarkable how Griffiths and Mei obtained the results they did.
Another layer of victims
This is bad enough. The poor, vulnerable lonely “pigs” get butchered, and fleeced of their hard-earned savings, often entire pension pots. A sad example is given of one 60-year-old victim who lost their entire retirement and life savings of $465,000. The amount of work required to build such savings makes the loss heartbreaking.
However, there is another layer to this crime: the frontline individuals doing the “butchering”. These are usually not the criminals themselves, but another type of victim, this time the victims of human trafficking and modern-day slavery, as the authors of the study describe:
“Pig butchering relies on an even darker crime. Many of the ground-level perpetrators are themselves victims of human trafficking and modern-day slavery. Lured by the potential of a high-paying job, people travel to countries such as Cambodia, Laos, Myanmar, Thailand, and the Philippines (UN, 2023). Their passports are taken, and they are forced to work twelve or more hours a day in walled compounds.
Higher-level workers are often not enslaved, although they can also be at risk. It is reported in Cambodia, one of the compounds housing a large number of enslaved people sits near a police station and the owner of the compound is one of the wealthiest businessmen in the country with political ties to the prime minister of Cambodia .16 It is unclear how many people are being held in these types of conditions but some estimates place 220,000 in Cambodia and Myanmar and other estimates at up to 500,000 in Southeast Asia.”
Lower transaction charges
Apparently, with using traditional routes for money laundering, transaction costs mean that far more is lost in transit than with crypto, again making crypto the currency of choice for criminals engaged in nefarious activities. Such transaction costs are apparently known in the trade as “gas fees”.
With cryptocurrencies being so linked with crime, it is small wonder that the Chinese authorities banned crypto trading in late 2021. Other nations however seem happy for crypto to continue. Indeed there have been recent moves in the US to allow Bitcoin to be part of exchange-traded funds (ETFs), meaning that it can be readily invested in, traded, and exchanged in and out of traditional fiat currencies, in a similar way to other commodities. So far from cryptocurrencies being outlawed, it seems that some are being brought into the mainstream. The semi-legitimate exchanges serve as on and off-ramps for billions of pounds of the proceeds of crime. By partially regulating and normalising the use of some cryptocurrencies, the authorities risk making things worse, giving them a veneer of respectability.
The recent soaring value of Bitcoin will no doubt tempt more people into cryptocurrency investments, however investing at the peak of the market is a good way to lose money. As a reminder, many cryptocurrencies such as “One Coin” have turned out to be complete scams, and some exchanges, like the collapsed FTX one run by Sam Bankman-Fried, are under-capitalised and not subject to any normal regulation, audit or scrutiny. You might as well buy some magic beans and hope for a beanstalk. In short, crypto is a good way to lose money, as criminals “pump and dump” different currencies, luring people in and then fleecing them. If you are not sure who the fool in the market is, look in the mirror.
The AI angle and deep fakes
Of course,, we may reassure ourselves with the thought that we are not the vulnerable, lonely people that get caught out by pig-butchering scams, well the vulnerable bit at least. At least we wouldn’t be so foolish we may tell ourselves, so gullible.
However there is also an AI angle to this story, in a variation on the romance fraud. There has been an alarming growth of people getting scam phone calls that use AI to impersonate the voice of a loved one, a type of deep-fake.
In these situations, a call is received saying that our loved one, perhaps a son or daughter, is in an emergency situation and needs an urgent transfer of funds to help them out. The voice appears to be them. The criminals only need a short recording of someone’s voice and can then use AI to impersonate the real person. The articles on the links below relate more about this new AI-enhanced crime:
https://metro.co.uk/2023/07/13/ai-scams-phone-call-how-to-avoid-19121508/
There is good advice in the Metro article about what to do if you receive such a phone call:
“If you receive a call from a loved one out of the blue and they ask you for money or make requests that seem out of character, call them back or send them a text to confirm you really are talking to them.”
Conclusion
So what did I learn from this research into pig butchering? Well, I now have a slightly better understanding of this fraud, though the terminology and detail of how cryptocurrency is used to facilitate it remain arcane.
It made me ask the fundamental question of why crime exists in the first place. Perhaps because some people feel excluded from the mainstream because we don’t give everyone a fair chance? Desperate people resort to desperate measures.
As well as crime by individuals, there is also crime motivated by state actors. For example, there is some evidence that North Korea has made extensive use of crime to send currency back to this pariah state to fund its activities, which it cannot pursue in the usual legitimate way.
There is no getting away from crime. It follows us around. It is there every time we get a scam phone call trying to tell us we have a virus on our computer or pretending to be our bank checking a transaction. Crime is sadly part of everyday life, and pig-butchering is just a new spin on an old story.
As always, thank you for reading.
Further reading:
https://en.wikipedia.org/wiki/Pig_butchering_scam
https://medium.com/@ervin.zubic/pig-butchering-the-billion-dollar-crypto-scam-exposed-b1122e0b1340
https://www.bbc.co.uk/news/business-68488924
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4742235
https://metro.co.uk/2023/07/13/ai-scams-phone-call-how-to-avoid-19121508/