The term ‘pig butchering’ may seem out of place in finance, but it aptly describes a new type of cryptocurrency scam that blends social engineering with investment fraud. Much like fattening up a pig before slaughter, scammers build a relationship with their target over time before convincing them to invest substantial amounts of money into fraudulent crypto ventures.
These scams pose a significant risk to not only individuals, but also the financial institutions serving them, potentially undermining client trust and resulting in substantial financial losses. As guardians of monetary assets and personal data, banks are uniquely positioned to both be affected by and combat these scams.
How the Scam Works
Pig butchering scams are complex because they often involve a multi-stage process spanning several months. Here’s how it works:
- Scammers initiate contact through various social media platforms, dating apps, or messaging services, posing as a potential friend or romantic interest.
- They build a connection and are seemingly genuine with the target.
- They introduce the concept of cryptocurrency investments, boasting about high returns and low risks.
- They may show falsified proof of their own successful investment or testimonials from other ‘satisfied investors’.
- Victims are encouraged to make a small initial investment in a fake/manipulated trading platform controlled by the scammer.
- Victims are enticed to invest more after seeing apparent ROIs and often use their life savings or take out a loan.
The Impact on the Banking Sector
Victims may funnel funds through their bank accounts to fraudulent platforms, inadvertently implicating the bank in the scam. Banks may face regulatory scrutiny if they are perceived to have inadequate systems for detecting and preventing such fraudulent transactions.
Additionally, the reputational damage to a financial institution associated with such scams can be severe. Customers who fall victim to these scams may lose trust in their banks, mainly if they believe the bank could have done more to protect them. This erosion of trust can lead to a loss of clientele and a decrease in business.
Pinion advisors offer expert advice on key watchpoints and strategies to protect your operations and customers.
What Financial Institutions Can Look Out For
- Changes in customer behavior such as a spontaneous increased interest/investment in cryptocurrency or requests for money to be sent via cryptocurrency or overseas
- Creation of new accounts with significant activity in cryptocurrency platforms
- Patterns of increasing monetary requests, when usually irregular
- Customer shares information on the deal which includes significant gains with limited to no drawbacks/risks and seems “too good to be true”
- Vague background and financial information on the investment and social engineer/scammer, which cannot be verified independently
Strategies to Safeguard Your Operations and Customers
- Educate staff and customers: Regular training sessions for staff about scams and informative materials and alerts for customers can raise awareness and assist people in recognizing and avoiding suspicious interactions.
- Strengthen verification processes: Financial institutions should strengthen their verification processes (out-of-wallet questions) for new accounts, transactions, and changes to account information. This process can include multi-factor authentication, transaction monitoring for unusual patterns, and additional scrutiny for high-risk transactions.
- Create policy requirements for cryptocurrency transactions: Implementing threshold limits, requiring additional verification steps and documentation to ensure legitimacy of payee, and implementing geographic risk controls can help safeguard you and your customers. Be sure to inform customers of these policy changes.
- Collaborate and share information with law enforcement and other financial institutions: Collaborating with law enforcement, regulatory bodies, and other financial institutions to share information about emerging scam tactics and known scam operators can help the industry stay ahead and shut down the fraudulent operations more effectively.
- Invest in advanced security technologies: Advanced fraud detection and cybersecurity technologies can help banks identify and respond to potential scams in real-time. Artificial intelligence and machine learning tools can analyze transaction data to detect anomalies indicating fraudulent activity.
Contact a Pinion advisor today for assistance with mitigating your risk and protecting assets. Our advisors can provide information technology systems assessments in compliance with FFIEC and NIST requirements, internal/external vulnerability assessments, penetration testing, and a wide selection of social engineering services.
