Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on policy and regulation.
We've all gotten the text. An unknown number pops up in your messages, addressing you by the wrong name and asking how you've been. I received one a few months back from someone who called themselves "Jones," telling me we'd met at a Bitcoin conference. When I started pushing back, they began insulting me, calling me a "stupid donkey." I asked, "How long does pig butchering usually take?"
"I think pigs like you need to be farmed for half a year first and then slaughtered, so that the meat will be more fragrant," they responded, along with a picture of myself with a pig nose affixed to my face, and two emojis of middle fingers protruding from the top of my head.
Pig butchering, in this context, is not a culinary art, but an increasingly common crypto scam in which someone tries to lure you into making investments with the purpose of running off with your money. Usually, the swindle employs some form of social engineering, like pretending they texted you by accident, or building romantic rapport (I don't think sending a threatening Photoshopped image qualifies).
If you've noticed an increased velocity of such attempts, you're not wrong. According to new data from Binance, pig butchering is accelerating, more than doubling from 2022 to 2023—and we still have several months left in the year.
I spoke with Erin Fracolli, Binance's global head of intelligence and investigations, and Tigran Gambaryan, Binance's head of financial crime compliance, to understand why.
Crypto exchanges like Binance are central to pig butchering schemes. While romance and investment scams are as old as civilization, crypto adds a new wrinkle, allowing money to travel faster and with greater ease around the world. In the U.S., where Binance is noticing a high rate of cases, a cybercriminal may ask you to load funds into a crypto wallet and then send them to an address on Binance, where they'll send the funds somewhere else or exit into fiat currency, likely from a jurisdiction outside of U.S. oversight.
In April, the Department of Justice seized over $112 million linked to pig butchering. According to a Binance spokesperson, all of the funds came from Binance, which cooperated with law enforcement on the operation.
It's important to note here that despite Binance's recent friction with government agencies, pig butchering is not unique to the platform, nor a function of poor compliance. The cybercriminals still go through the typical "know-your-customer" requirements to onboard on to the exchange—they just hope that law enforcement won't trace the scams back to their accounts.
The scam's popularity should also not be pinned on crypto, although the speed and ease of digital transactions, compared with wire transfers, is certainly an incentive to hucksters. In fact, crypto may present a growing thorn for cybercriminals. According to Fracolli and Gambaryan, the on-chain and transparent nature of crypto actually makes it easier for law enforcement to trace and seize funds, such as the massive DOJ operation from April. While arrests are still few and far between, with many of the scammers operating outside of U.S. extradition, asset recovery is increasingly viable.
If anything, Gambaryan said, the rise in pig butchering may be attributable to law enforcement becoming more aware of the scam and flagging cases to Binance, which in turn is able to aid with tracing and seizure efforts. The other factor is public awareness. People are finally realizing that random messages popping up on their phones and giving Bitcoin trading advice are probably not legitimate. So please, do not send Tether over to strangers, and make sure to warn your parents and grandparents.
And if you're interested in learning more about the networks behind pig-butchering scams, which are often tied to human-trafficking rings in Asia, I highly recommend this excerpt from Bloomberg reporter Zeke Faux's upcoming book.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
