- Key insight: Scammers actively coach victims to lie to bank employees, making it difficult for fraud departments to intervene and protect customers.
- What’s at stake: Pig butchering scams pose risks to the solvency of financial institutions, having already contributed to the failure of Heartland Tri-State Bank.
- Supporting data: Former Heartland Tri-State Bank CEO Shan Hanes initiated $47.1 million in wire transfers as part of a scheme, leading to the bank’s closure.
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New York Attorney General Letitia James issued a detailed alert to consumers on Tuesday, warning residents about pig butchering scams, which build fake romantic or professional relationships to solicit fraudulent cryptocurrency investments.
The alert explains that fraudsters use social media and dating apps to befriend victims, move conversations to encrypted messaging platforms and eventually convince them to invest in fake trading platforms before later pulling the rug to reveal the supposed investments have disappeared.
In the alert, James urged New Yorkers to avoid wiring money or sending cryptocurrency to strangers and to thoroughly research anybody who solicits investments online.
The warning comes as financial institutions face pressure to identify and protect customers (as well as employees and bank leaders) against extremely costly scams, such as pig butchering and investment scams in general.
The guidance also provides specific red flags to help protect customers from schemes that can evade automated fraud detection.
In its warning Tuesday, the attorney general’s office also highlighted a specific tactic it called a “second act,” in which the original scammer from a pig butchering scheme or an associate re-targets victims by promising to recover lost funds for a fee.
After a victim realizes their money is gone, a seemingly new actor may contact them, claiming they can retrieve the stolen assets. The fraudsters then demand fees or supposed taxes to secure the funds, leading to further losses.
Risks to financial institutions
The risk to financial institutions extends beyond customer losses to the safety and soundness of the banks themselves; in one case in 2023, pig butchering hastened the demise of a regional bank.
That year, regulators closed Heartland Tri-State Bank after its CEO, Shan Hanes, initiated wire transfers totaling $47.1 million as part of a pig butchering scheme, according to a report from the Office of Inspector General for the Federal Reserve and the Consumer Financial Protection Bureau.
Hanes began with small personal transactions before escalating to massive wire transfers that impaired the bank’s capital, according to the OIG report.
The specific “fattening up” process described by the attorney general, in which scammers build trust over time before soliciting larger amounts, mirrors the progression of the activity that brought down Heartland.
Transnational crime connections
These scams are often orchestrated by transnational organized crime syndicates operating out of Southeast Asia, according to federal prosecutors.
In October, the Department of Justice indicted Chen Zhi, chairman of the Prince Group, for allegedly operating forced-labor scam compounds in Cambodia that targeted U.S. victims.
The Prince Group allegedly trafficked workers to execute these scams, laundering the proceeds through U.S. shell companies and cryptocurrency, according to charges against the alleged scammers.
To combat these networks, the attorney general’s office advises consumers to be suspicious of anyone who attempts to isolate them from their bank or brokerage during transaction inquiries. The alert specifically notes that scammers often interfere when a bank questions a transaction, instructing the victim on how to bypass security measures.
Prepping victims to lie to bankers
Advanced scammers typically understand what triggers a bank to pause a transaction, so to circumvent this, they provide victims with plausible explanations for questionable transactions that customers can give bank employees.
So, the victims in pig butchering scams often don’t tell their bank what they believe — that they are transferring money to someone they met online for a cryptocurrency investment. They’ll say what the scammers coached them on — that the large wire transfer overseas is for some specific business purpose.
This coaching creates a challenge for bank fraud departments because the customer, if following the scammers’ advice, will actively work against the bank’s efforts to protect them.
This interference extends beyond bank interactions. If a victim mentions being contacted by federal agents, scammers “will likely try to coach [the victim] on how to respond” or instruct them to ignore the calls entirely, according to FBI guidance.
The FBI notes that scammers often coach victims throughout the “investment” process, meaning the scammer provides real-time instructions on how to navigate technical and security hurdles at every stage of the theft.
Red flags of pig butchering
According to the Tuesday alert from the attorney general’s office, a consumer should suspect fraud if an individual they meet online:
- Interferes when a bank or brokerage questions a transaction the individual instructed the victim to execute.
- Warns the victim not to tell anyone about their relationship or the investment opportunity, effectively isolating the victim.
- Requests moving the conversation from text message or email to encrypted platforms such as WeChat or WhatsApp.
- Promises to meet in person or via video call but always finds an excuse to cancel. The guidance notes that scammers may also use deepfake technology to fake video calls.
- Instructs the victim to hand cash or a check to a courier or delivery person, or to utilize a Bitcoin ATM.
- Promises the victim will make money or sends photos of a purported lavish lifestyle to entice investment.