The Department of Justice (DoJ) declared the confiscation of digital currency valued at approximately $112 million connected to fraudulent cryptocurrency investments.
Laundering money from cryptocurrency confidence scams
According to court documents, the virtual currency accounts were allegedly used to launder proceeds of various cryptocurrency confidence scams.
In these schemes, fraudsters cultivate long-term relationships with victims met online, eventually enticing them to make investments in fraudulent cryptocurrency trading platforms. In reality, however, the funds sent by victims for these purported investments were funneled to cryptocurrency addresses and accounts controlled by scammers and their co-conspirators.
“Transnational criminal organizations are combining confidence scams with technological savvy to swindle Americans out of their hard-earned funds,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division.
“These particularly vicious frauds – where scammers carefully cultivate relationships with their victims over time – have devastated families and cost individuals their life savings. Now that we have seized this virtual currency, we will seek to return it to victims swiftly. In addition to our tireless efforts to disrupt these schemes, we must also work to raise public awareness and help inform potential victims: be wary of people you meet online; seriously question investment advice, especially about cryptocurrency, from people you have not met in person; and remember, investments that seem too good to be true, usually are,” Polite concluded.
In 2022, investment fraud caused the highest losses of any scam reported by the public to the FBI’s Internet Crimes Complaint Center (IC3), totaling $3.31 billion.
Frauds involving cryptocurrency, including pig butchering, represented the majority of these scams, increasing a staggering 183% from 2021 to $2.57 billion in reported losses last year.
How these scammers operate
According to the FBI, the highest number of reports came from victims between 30 and 49. In these schemes, often called “Sha Zhu Pan,” a Chinese phrase that loosely translates to “pig butchering,” scammers often target their victims through social networking and online communications platforms, dating websites, and phone calls and text messages that are meant to appear to have been misdialed.
After gaining the trust of their victims – sometimes over months – scammers eventually introduce the idea of trading in cryptocurrency. They then direct victims to cryptocurrency investment platforms or co-conspirators posing as investment advisors or customer service representatives.
Scammers control websites built to look similar to legitimate trading platforms, applications that victims download onto their phones, or malicious smart contracts accessed through cryptocurrency wallet software. Once victims make an initial “investment,” the platforms purport to show substantial gains. Sometimes, victims can withdraw some initial gains to engender trust in the scheme further.
It is not until a large investment is made that victims find that they cannot withdraw their funds. Even when a victim is denied access to their funds, the fraud is often not over. Scammers request additional investments, taxes, or fees, promising these payments will allow victims access to their accounts. These scam operations often continue to steal from their victims and do not stop until they have deprived victims of any remaining savings.
“Depriving scam organizations of their ill-gotten gains is an important part of our strategy to combat these ruthless schemes,” said Director Eun Young Choi of the Criminal Division’s National Cryptocurrency Enforcement Team (NCET). “We will continue to use all tools at our disposal to disrupt and deter cryptocurrency confidence schemes, including by following the money on the blockchain and seizing cryptocurrency to return funds to victims, and by targeting and taking down online infrastructure used by the scammers.”