TL;DR
- “Pig butchering” scams have become a major criminal enterprise, combining investment fraud with human trafficking, resulting in billions in losses worldwide.
- A notable case in November 2023 led to Tether and OKX collaborating with the DOJ to freeze $225M in USDT connected to human trafficking and romance scams.
- Another successful investigation involving Chainalysis, OKX, Binance, and Tether resulted in freezing nearly $50M in USDT linked to pig butchering operations in Southeast Asia.
- Industry collaboration between crypto exchanges, blockchain intelligence firms, and law enforcement is proving crucial in fighting these sophisticated scam operations.
In the last few years, “pig butchering” gangs have grown into prolific criminal enterprises, costing victims worldwide billions in losses. Also known as investment or romance scams, pig butchering — so-called because scammers “fatten” victims to reap the highest possible yield — involves building a relationship with victims over time, often through wrong number texts or dating apps. Once scammers establish trust, they push victims to invest in fake opportunities, including cryptocurrency, and then sever contact.
Tragically, those who unwittingly invest in these scams aren’t the only victims. To operate these criminal enterprises, traffickers lure other victims under false pretenses, hold them captive in walled compounds, and use their forced labor to conduct the scams.
In November 2023, leading stablecoin issuer Tether and centralized exchange OKX announced that they had collaborated with the U.S. Department of Justice (DOJ) in an investigation that led Tether to freeze approximately $225 million in USDT. The funds were connected to an international human trafficking syndicate in Southeast Asia responsible for romance scams. And in June of this year, the U.S. Secret Service convinced a judge to authorize the actual seizure and burning of those funds — the largest seizure in USSS history.
“Unlike other cryptocurrencies like ether and bitcoin, Tether has the technical ability to freeze known illicit funds,” Paolo Ardoino, CEO of Tether told us. “We are dedicated to working with law enforcement agencies worldwide to freeze funds associated with pig butchering scams and all manner of illicit activity, with the ultimate goal of providing restitution for victims.”
Last year, Chainalysis, OKX, Binance, and Tether investigated another case, which ultimately led Tether to freeze nearly $50 million in USDT in collaboration with APAC-based authorities. Let’s examine how they built the case.
Using blockchain analysis to trace nearly $50M in scam funds
Using Chainalysis’ Crypto Investigations Solution, the investigative team identified addresses associated with a pig butchering operation based in Southeast Asia. From there, it narrowed that list to just five wallets where the ill-gotten gains were being held. The Chainalysis Reactor graph below shows 19 addresses that the team identified in connection with the case. It is likely that hundreds of wallets sent funds to this scam, and this graph shows just eight victims’ transfers.
As seen in the middle of the diamond pattern in the graph, eight victims sent a series of transfers to eight wallets controlled by scammers between November 2022 and July 2023. Some victim wallets made multiple transfers over the course of a single month, while others made transfers over the course of two to seven months. Once funds were transferred, scammers then sent proceeds to a consolidation wallet (Scam wallet 10) which transferred $46.9 million in USDT to a collection of three intermediary addresses. The funds then moved to five different wallets.
As is customary with these types of scams, perpetrators typically make small deposits back to victims to make investment opportunities seem tangible. The blue line in the graph above shows $63,900 in USDT flowing from Scam Wallet 5 back to victims for this purpose. Crypto exchanges then worked with local enforcement on the intelligence.
“Our collaboration with these organizations highlights the essential role of public-private partnerships in subverting criminal operations and working toward compensating victims,” said Binance Global Head of Intelligence and Investigations Erin Fracolli. “Furthering the security of the larger blockchain ecosystem is our number one priority and we promptly share our knowledge and expertise with law enforcement, government agencies, and other exchanges to stop the spread of crime with a crypto nexus.”
After sharing the results of the investigation with APAC-based law enforcement, Tether froze funds in June 2024 at the agency’s direction.
“When looking at these scams, people often don’t understand how victims fall prey to them, and often blame the victims,” said a senior blockchain investigator for the special investigations team at OKX. “It’s not based on someone’s intelligence, but rather on their vulnerabilities, and scammers are adept at figuring those out.”
The OKX investigator also shared that, while pig butchering scams originally began by targeting Asia-based victims, perpetrators have since expanded their reach to target victims worldwide. He sees solutions like Chainalysis Crypto Investigations as critical for explaining criminal cases to executives, law enforcement agencies, judges, and lawyers — anyone who can influence a positive outcome for victims.
Building Stronger Defenses: The Impact of Industry Collaboration
The fight against sophisticated scam operations like pig butchering requires a coordinated, multi-stakeholder approach where private sector players serve as critical partners in detection and prevention. As demonstrated by the successful freezing of millions in illicit funds, collaboration between cryptocurrency exchanges, stablecoin issuers, blockchain intelligence firms, and law enforcement agencies creates a powerful front against criminal enterprises.
Through our Crypto Investigations Solution, Chainalysis enables partners to tackle crypto-related scams across the entire investigation lifecycle — from discovering leads through blockchain analytics, to analyzing fund flows and relationships between wallets, to disrupting operations before they can grow. We strengthen these capabilities through strategic partnerships with organizations like the Global Anti Scam Organization, enhancing our collective intelligence and effectiveness.
As scammers continue to evolve their tactics and expand their reach globally, this kind of public-private collaboration becomes even more crucial. By combining trusted blockchain intelligence, advanced technology, and expert insights, we can work together to protect vulnerable individuals and build a safer crypto ecosystem for all.
For more information about how Chainalysis can help your organization detect, deter, and disrupt scam operations, contact us today.
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