Pig Butchering: The ‘Super Scam’
The Greater Mekong Subregion (GMS) has become a hot spot for large-scale online scam operations with ties to groups based in China that have sprung up in the special economic zones of Cambodia, Laos and Myanmar. This cyberscam industry is also a conduit for human trafficking (HT) on a massive scale as a considerable number of innocent job seekers attracted by promises of well-paid and legitimate work across Southeast Asia are lured by criminal syndicates and then forced into doing cyberscamming activities. These young men and women are imprisoned in horrifying conditions and detained in prison-like compounds from which they run online scams targeting other countries, which are referred to as “pig butchering” scams. This article aims to analyze what pig butchering scams are; how these large-scale scam operations work and their link to HT; who are the victims and perpetrators; where these scam operations occur; and why the GMS area has become a focal point for a regionwide cyberscam industry and HT.
Pig Butchering Scams
The term “pig butchering” refers to the practice of fattening a hog before slaughter. In the context of cyberscamming, this term denotes the act of obtaining ongoing and increased amounts of money from victims before perpetrators discard them. In order to steal money from their victims, perpetrators build fictitious long-term relationships with their victims before persuading them into sending money or taking part in fraudulent investment schemes, often with a nexus to cryptocurrency on fake investment websites and apps, fake brokers, fake liquidity mining pools (decentralized apps), and group investment and gambling platforms. In fact, the scam operations have surged to the extent that they contributed to the U.S. Office to Monitor and Combat Trafficking in Persons to downgrade Cambodia to Tier 3 (i.e., the lowest rating): “Authorities did not investigate or hold criminally accountable any officials involved in the large majority of credible reports of complicity, in particular with unscrupulous business owners who subjected thousands of men, women, and children throughout the country to human trafficking in entertainment establishments, brick kilns, and online scam operations.”1
Modus Operandi
The perpetrators usually start their schemes by creating fake online personas with pictures from the internet conveying a sense of a successful life, as shown in Graphic 1. Then, perpetrators initiate contact with victims on social media or social/dating applications. Once victims take the bait, perpetrators build and maintain a relationship of trust. After a certain period, perpetrators introduce the investment scheme and start to convince victims to invest in some cryptocurrency, online gambling or gaming platform. To obtain the victims’ trust even more, perpetrators may allow the victims to withdraw their funds to deceive victims into believing that the platform is legitimate. After perpetrators have successfully lured victims into sending funds, they manipulate them into sending more and, in some cases, persuade the victims to take out loans, draw money from retirement savings or even mortgage a house. Once the victims are unable to send more funds, the perpetrators withdraw their funds. When the victims realize they have lost their money, the perpetrators manipulate them into sending more funds to solve the issue to attempt to extort as much as possible. Eventually, the perpetrators drop the victims, who oftentimes have suffered significant financial losses and emotional distress. Forensic Financial Analyst Andrew Frey from the U.S. Secret Service told ProPublica and Forbes that victims are from all walks of life and that the pig butchering scam has become what he describes as a “super scam.” 2
Crypto-investment Schemes
Usually, pig butchering scams take the form of crypto-investment schemes. The perpetrator directs the victim to acquire crypto-assets on a cryptocurrency exchange and then convinces the victim to deposit the funds to a fake investment platform online. In fact, the funds are deposited at the perpetrator’s address. The perpetrators also control the platform; they manipulate the platform to lure the victims into believing their investments are successful and, in some instances, perpetrators may allow victims to make small deposits back into their initial account to gain the victim’s trust as well as to make them confident to invest considerably more. Perpetrators may use strategies to lure the victim into sending more funds by “blocking” their account or “deducing” money from it for a variety of reasons such as having to pay “taxes,” “compliance, lending or processing fees” or to pay for “system issues” or transfer “errors.” Once perpetrators are unable to exploit the victim for financial gain, they drop the victim.
The HT Component
A notable aspect of the pig butchering scam operations taking place in this area is that it is fueled by HT. As a result, the committers of these crimes are simultaneously victims and perpetrators. As depicted in Graphic 2, the traffickers at the heart of these organized crime groups begin the HT component of the scheme with recruitment, targeting innocent job seekers throughout Southeast Asia using social media advertisements promising lucrative and legitimate employment. However, when the migrant workers arrive in the destination country, their travel documents and cell phones are seized. The victims are confined within massive and heavily guarded compounds that resemble sinister high-rise dormitories, where they are held and forced to conduct scamming activities. Those who refuse are subject to various forms of violence and mistreatment. The victims’ compliance on-site is enforced by severe abuse, including beatings, electric shocks, torture and food deprivation. The traffickers also take advantage of the language barrier. Traffickers speak the language of the victims to lure them in. Once trafficked, the victims struggle to report their situations to authorities because they do not speak the language of the country where they are exploited. However, perpetrators speak the language of the victims. For instance, Chinese is used to conduct scams targeting Chinese people, etc. Filipinos use English to target English speakers anywhere. In addition to these serious violations of human rights and dignity, HT takes place in its most basic and horrendous form, in which individuals are considered commodities. For example, enslaved migrant workers are bought and sold between companies through a Telegram channel dedicated to HT called White Shark.3
Victim Demographics
The victims come from countries in Southeast Asia neighboring Cambodia, Laos and Myanmar. ProPublica reported that “Authorities identified people from China, Vietnam, Malaysia, Indonesia, India, Bangladesh and other nearby countries, along with some from as far away as Russia.” 4
Special Economic Zones
They are brought and held in compounds run by organized crime groups in special economic zones (SEZs) in borderland towns in Cambodia, Laos and Myanmar that are known for being gambling and tourism hubs.
Laos
One of the largest SEZs in the GMS is the Golden Triangle SEZ, which is located at the confluence of the Ruak and Mekong Rivers, where the borders of Laos, Myanmar and Thailand meet. The Golden Triangle is infamously known for being a gambling and tourism hub that attracts citizens from China, where gambling is banned, as well as for being a hub for various criminal activities such as drug trafficking and wildlife trafficking.5 This area is run by tycoon Zhao Wei, who founded and owns the Kings Romans Casino based in the Bokeo province of Laos. Wei, along with other key figures, was sanctioned by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) in 2018 for their involvement in drug trafficking, money laundering, bribery and horrendous crimes such as HT, child sexual exploitation and wildlife trafficking.6
Myanmar
In Myanmar, the Shan State comprises the Kokang Self-Administered Zone, where “hotels and casinos host a full array of criminal activity.” 7 Mong La, a borderland casino town, is well known as a hot spot for various criminal activities,8 as are other border towns in Myanmar such as Muse, Mong Pauk in the Wa Self-Administered Zone9 and Myawaddy in Myanmar’s Kayin State.10
Cambodia
In Cambodia, large-scale scam operations exploded during the COVID-19 pandemic, especially in Sihanoukville, which is known for its attractiveness to criminal enterprises. The coastal city was used as the base for the PlusToken cryptocurrency platform-based investment fraud scheme in order to avoid law enforcement scrutiny due to the relative impunity that criminal enterprises enjoy in SEZs. From January to June 2019, the scheme defrauded an estimated three million people and generated over $3 billion worth of cryptocurrency, making it one of the largest Ponzi schemes ever.11 According to the Global Initiative against Transnational Organized Crime, “SEZs, regardless of their location, are vulnerable to illicit activity [and the Sihanoukville SEZ] is one of at least 12 SEZs in Cambodia assigned to business tycoons with close links to Prime Minister Hun Sen and his immediate family.” 12 In addition to Sihanoukville, scam operations were also reported in other Cambodian cities such as borderland city Poipet and the capital Phnom Penh, as well as other provinces such as the Pursat and Koh Kong Provinces.13
Enabling Factors
The special political and economic status of SEZs enables international trade and the movement of goods in the GMS with limited oversight, making SEZs also attractive for myriad criminal activities. In addition, with the profits, criminals invest in real estate, and the casinos are also a great way to launder money. In this regard, the United Nations Office on Drugs and Crime’s regional representative Jeremy Douglas pointed out that, “Casinos are great for moving and disguising money, and even better if they are both a traditional casino that regular gamblers and VIPs go to as well as online […]. They are well known for moving unaccountable cash, and online they can run with anonymous payment systems and cryptocurrencies, and together they have the ability to mix and legitimize money incredibly quickly.” 14
SEZs constitute a favorable ground for the emergence of new forms of criminality, such as large-scale online scam operations, which have exploded in recent years in the GMS and especially in SEZs with ties to crime groups in China. This sharp increase can be attributed to the COVID-19 pandemic, which considerably reduced the revenue of casino towns because of the travel restrictions that prevented in-person gambling. The global economic hardship caused by the COVID-19 pandemic also pushed people into taking any chance to work abroad, which in turn accelerated the vulnerability of people to HT.
It is also worth noting that the increase in these scam operations is closely linked to the increasing economic integration between China and countries in Southeast Asia. SEZs attract foreign and domestic investment into spatially delimited areas within national economies while functioning with different administrative, regulatory and more liberal fiscal regimes than those national economies. These aspects brought ties to groups based in China into these areas because of their weak legal frameworks. In addition, corrupt local elites may facilitate and turn a blind eye to their illicit activities. For example, Danielle Tan highlighted that “Lao sovereignty is vested in private corporations in order for the state to have access to modernity and development.” She added that “for the Lao leadership, [illicit activities] offer an ideal framework to cover all sorts of illicit and illegal activities that are at the same time highly profitable.” 15 Similarly, the 2022 Trafficking in Persons Report stated that “[non-governmental organizations] alleged police and other officials were complicit in online scam operations that forced hundreds of [Chinese], Southeast Asian, and other foreign nationals to work in call centers [in Cambodia].” 16 It is worth pointing out that the country was ranked 157 out of 180 countries in Transparency International’s 2021 Corruption Perception Index, while Myanmar was ranked 140 and Laos was ranked 128.17
The Role of Crypto-assets
The use of cryptocurrency is the go-to asset for perpetrators for multiple reasons. The victims targeted by pig butchering scams are not particularly well-versed or knowledgeable about crypto-assets, let alone about trading. Often, they may have no prior experience buying, trading or investing in crypto-assets. As regards the perpetrators, the use of crypto-assets enables them to launder the proceeds of their criminal activities with relative secrecy, for example, through decentralized peer-to-peer (P2P) and over-the-counter (OTC) exchanges. The typical flow of pig butchering proceeds is depicted in Graphic 3. In addition, perpetrators may take advantage of the lack of regulation over certain types of virtual asset service providers (VASPs) with porous or nonexistent AML and KYC processes, or OTCs in China.18 Perpetrators are also aware that the movement of funds in jurisdictions like China may pose significant jurisdictional challenges to Western law enforcement (LE) agencies. In addition to legal challenges, some LE agencies may face investigative challenges with respect to the detection and tracing of crypto-assets. It is also worth noting that while Chinese authorities may dismantle cyberscamming criminal networks, they may not necessarily focus on overseas victims.
Conclusion
The financial sector has a critical role to play by detecting and reporting illegal flows of money in the region that may result from these online scam operations as well as from HT. Financial institutions (FIs) such as cryptocurrency exchanges are particularly vulnerable to this new form of cyberscamming activity involving cryptocurrencies. The victim typically buys cryptocurrency on well-known, regulated, centralized exchanges and then transfers the funds to the perpetrator’s address, which the perpetrator often reuses for other victims. As a result, funds can be routed through consolidation wallets controlled by the perpetrators.
The addresses reported by victims may therefore reveal the perpetrator’s addresses as well as considerable amounts of deposits from other victims. In the same regard, it is also important to trace the final destination of funds where the perpetrators attempt to “cash out” the proceeds of their criminal activities in order to identify any entity that could be subject to subpoena and provide personally identifiable information. It is also important for FIs to pay particular attention to China-based sanctioned entities and individuals that may operate in the GMS region. It is, therefore, crucial to play a proactive role in order to disrupt organized crime networks and prevent them from stealing billions of dollars from innocent victims worldwide, as well as to preclude them from exploiting human beings for financial gain and committing serious human rights violations.
Jonathan Dupont, FIU investigator and subject-matter expert on cryptocurrency, human trafficking and crimes against children, Lithuania, jonathandupont@protonmail.com
“2022 Trafficking in Persons Report: Cambodia,” U.S. Department of State, Office to Monitor and Combat Trafficking in Persons, July 2022, https://www.state.gov/reports/2022-trafficking-in-persons-report/cambodia/
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Cezary Podkul, Cindy Liu, “Human Trafficking’s Newest Abuse: Forcing Victims Into Cyberscamming,” ProPublica, September 13, 2022, https://www.propublica.org/article/human-traffickers-force-victims-into-cyberscamming; Alastair McCready, “From Industrial-Scale Scam Centers, Trafficking Victims Are Being Forced to Steal Billions,” Vice, July 13, 2022, https://www.vice.com/en/article/n7zb5d/pig-butchering-scam-cambodia-trafficking; “Forced to Scam: Cambodia’s Cyber Slaves | 101 East Documentary,” Al Jazeera, July 15, 2022, https://www.youtube.com/watch?v=n-EtdC4zQso
Cezary Podkul, “Authorities Raid Alleged Cyberscam Compounds in Cambodia,” ProPublica, October 3, 2022, https://www.propublica.org/article/pig-butchering-scams-raided-cambodia-apple-trafficking
Zsombor Peter, “UN Warns of Growing Criminal Threat from Mekong Region Casinos, SEZs,” Voice of America, September 25, 2022, https://www.voanews.com/a/un-warns-of-growing-criminal-threat-from-mekong-region-casinos-sezs/6762228.html
“Treasury Sanctions the Zhao Wei Transnational Criminal Organization,” U.S. Department of the Treasury, January 30, 2018, https://home.treasury.gov/news/press-releases/sm0272; “SIN CITY: Illegal wildlife trade in Laos’ Golden Triangle Special Economic Zone,” Environmental Investigation Agency, March 2015, https://eia-international.org/wp-content/uploads/EIA-Sin-City-FINAL-med-res.pdf
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Nicholas Farrelly, Alice Dawkins, Patrick Deegan, “Sihanoukville, A hub of environmental crime convergence,” Global Initiative against Transnational Organized Crime, September 2, 2022, https://globalinitiative.net/analysis/sihanoukville-hub/
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