The Financial Crimes Enforcement Network (FinCEN) has issued an alert to highlight a prominent virtual currency investment scam known as “pig butchering”.
FinCEN’s alert explains the scam’s methodology, plus provides behavioral, financial, and technical red flags to help financial institutions identify and report related suspicious activity. And it reminds financial institutions of their reporting requirements under the Bank Secrecy Act
Pig butchering scams are called such because scammers “fatten up” their victims by cultivating a positive relationship before making their move, a practice likened to fattening a hog before it is killed. Scammers refer to victims as “pigs”.
Virtual currency investment
In these cases, victims invest in supposedly legitimate virtual currency investment opportunities before they are conned out of their money. The fraudsters may leverage fictitious identities, often under the guise of having a potential romantic or friendly relationship, and they create elaborate storylines to draw the victim into believing they are in trusted partnerships. Then they defraud the victims of their assets, which is the “butchering”.
When a victim’s pace of investment slows or stops, the scammer will use even more aggressive tactics to extract any final payments. The scammer may present the victim with supposed losses on the investment and encourage them to make up the difference through additional deposits. If the victim attempts to withdraw their investment, the scammer may demand that the victim pay purported taxes or early withdrawal fees.
These scams have been largely perpetrated by criminal enterprises based in Southeast Asia, FinCEN says, where it is most pernicious, sometimes using the victims of labor trafficking to conduct outreach to millions of unsuspecting individuals around the world.
FinCEN asks firms to include relevant technical indicators related to the transactions; phone logs, emails, texting, social media posts, and a list of the apps used.
Behavioral red flags
FinCEN outlines several financial and technical red flags businesses should use to protect their customers and themselves from these schemes and ensure their networks and data are not compromised or otherwise used in furtherance of the scams.
The behavioral red flags include seeing a customer suddenly using or exchanging virtual currency, especially to exchange a high amount of fiat currency from an existing or newly opened bank account, and appearing anxious to access funds to meet a timeline for a virtual currency investment opportunity.
BSA obligations
A financial institution is required to file a suspicious activity report if it knows, suspects, or has reason to suspect a transaction conducted or attempted by, at, or through the financial institution involves funds derived from illegal activity; is intended or conducted to disguise funds derived from illegal activity; is designed to evade regulations promulgated under the Bank Secrecy Act; lacks a business or apparent lawful purpose; or involves the use of the financial institution to facilitate criminal activity, including pig butchering.
FinCEN outlines its filing instructions when a business is filing a SAR in connection with these types of schemes, asking firms to include any relevant technical indicators associated with the transactions, namely the communications associated with the scam – phone logs, emails, texting, social media posts, and all the apps used, among other details.
Any data or information that helps identify the activity as suspicious can be included as an indicator, FinCEN says.
The agency also reminds businesses it encourages them to share information relevant to pig butchering with one another – and it reminds entities the sharing is covered under a safe harbor offered under the USA PATRIOT Act.
