How Do Crypto Flows Finance Slavery?
The Economics of Pig Butchering?

John M. Griffin & Kevin Mei

Discussion by Katya Malinova

DeGroote School of Business

McMaster University

4th Annual CBER Conference

NYC, May 23, 2024

https://news.sophos.com/en-us/2023/09/18/latest-evolution-of-pig-butchering-scam-lures-victim-into-fake-mining-scheme/

https://www.youtube.com/watch?v=vu-Y1h9rTUs

The Sha Zhu Pan (Pig Butchering) Script

UN REPORT 2023:

  • \(\ge\) 120,000 people in Myanmar & \(\ge\) 100,000 in Cambodia
    • “may be held in situations where they are forced to carry out online scams.”
       
  • scam industry in one (unnamed) Mekong nation alone “may be generating $7.5 to $12.5 billion”

What does it have to do with slavery? 

Key [press] take-aways from the paper 

The $75.3 billion number

FBI Internet Crime Complaint Center Report (IC3)

Investment: $4.57B

Business Email Compromise: $3B

...

Confidence/Romance: $0.65B

Crypto-related totals: $5.6B

The $75.3 billion number

$26B Total Crypto Scam Revenue in 2020-2023 

The $75.3 billion number: Tracing

Reported Scammer Address

focus on Ethereum paths that start from exchange wallets sending funds
to scammer addresses and end at user deposit addresses

The $75.3 billion number

Reported Scammer Address

"Deposit Addresses"

at Exchanges

Concern 1: "tool includes proprietary

criteria to terminate a trace path if funds reach an address that is unlikely to be a scammer"

"Deposit Addresses"

at Exchanges

Deposit Addresses

at Exchanges

"sum all inflows to these addresses and find $75.3 billion"

Concern/Question 2:  addresses may belong to entities that service other (illicit?) activities?

  • Illegal gambling?
  • Avoiding China Capital Controls?

Question 3:  How much money EXIT the exchanges?

Comment/Concern 1B:  

  •  collect 1,065 addresses
  • the United States
    Institute of Peace (USIP) shared a large set of additional addresses
  • "apply screens"
  • \(\to\) 4,728 addresses

Comment/Question 4:  

  • The scam tactics have evolved
  • No longer "send money to the [scammer] address"

The scammer tactics are evolving \(\to\) no "scammer" address to send the funds to

 

  • 2020: use Apple iOS and Android applications; bypass app store review
  • 2022: place apps into the Apple App Store and Google Play Store, bypassing application security reviews

 

  • 2023: DeFi Scams
    • Legitimate apps and wallets (Trust Wallet)
    • tools launched from within the wallets
    • smart contracts that give the scammers access to their targets’ wallets

https://news.sophos.com/en-us/2024/02/02/cryptocurrency-scams-metastasize-into-new-forms/

Sidebar: fraud is nothing new ... 

First recorded fraud: 300BC

Key takeaways revisited: is there a path forward? 

?

TRACED!?

Crypto (+AI) does allow scams at scale .... but

More broadly: cybercrime costs: in trillions!

World Economic Forum:

  • growing cyber inequity
     
  • the highest barrier to cyber resilience is transforming legacy technology and processes.

Role for blockchain? 

Costs vs benefits of decentralization?

@katyamalinova

malinovk@mcmaster.ca

slides.com/kmalinova

https://sites.google.com/site/katyamalinova/

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