The FBI’s Cryptocurrency Fraud Report for 2023, highlights a sharp rise in cyber-enabled financial crimes involving cryptocurrency. In 2023 alone, the FBI’s Internet Crime Complaint Center (IC3) received over 69,000 complaints related to crypto fraud, accounting for losses exceeding $5.6 billion.
While these cryptocurrency-related complaints made up only 10% of the total number of financial fraud reports, the staggering losses linked to these cases accounted for nearly 50% of the total losses reported.
Cryptocurrency is increasingly being exploited by criminals in a wide range of schemes, including tech support scams, romance and confidence scams, investment fraud, and government impersonation schemes. However, investment fraud has emerged as the most prevalent and financially damaging form of cryptocurrency fraud in 2023, with losses surpassing $3.9 billion.
FBI Director Christopher Wray expressed deep concern about the growing sophistication of these scams. He emphasized the importance of public reporting, stating, “Scams targeting investors who use cryptocurrency are skyrocketing in severity and complexity. The best way to help stop these crimes is for people to report them to ic3.gov, even if they did not suffer a financial loss. The information allows us to stay on top of emerging schemes and criminals’ use of the latest technologies, so we can keep the American public informed and go after those who commit these crimes.”
Anatomy of Crypto Fraud
Cryptocurrency investment fraud is typically a socially engineered scam in which criminals convince victims to invest money in fraudulent opportunities. These scammers often manipulate victims into repeatedly depositing funds under the guise of high returns on investments, only for all the money to be stolen by the criminals, most of whom operate from overseas. The following are the typical stages of a cryptocurrency investment fraud scheme:
1. Targeting Victims
Scammers employ a variety of methods to lure victims, including:
- Social Media: Fraudsters often approach victims through direct messages or deceptive job advertisements on popular platforms.
- Texting: Scammers may send unsolicited text messages pretending to be a misdialed number or presenting fake job opportunities.
- Dating Sites: Fake dating profiles are created to initiate romantic relationships with victims, which then evolve into financial schemes.
Victims who are contacted through these methods and subsequently pitched an investment opportunity involving cryptocurrency should be on high alert, as it is likely a scam.
2. Building Trust
Once communication is established, scammers work to build a rapport with victims. They often:
- Flatter victims excessively and empathize with their personal struggles.
- Claim to be experiencing similar life challenges.
- Share pictures, express romantic interest, or propose to meet in person but always cancel last minute.
These tactics are designed to build trust and make the victim feel comfortable with the scammer’s investment pitch.
3. The Investment Pitch
After establishing trust, scammers introduce the idea of a “lucrative” investment. They may claim to be experts in cryptocurrency trading or know someone who is, promising victims a ground-floor opportunity in investments such as binary trading, liquidity mining, or gold futures.
4. Initial Investment
Once the victim is convinced, the scammer guides them through setting up cryptocurrency accounts and transferring funds. The victim is instructed to:
- Open an account on a legitimate cryptocurrency exchange.
- Transfer money from their bank account and convert it into a specified cryptocurrency like Bitcoin or Ether.
- Open an account on the scammer’s fraudulent investment platform and deposit the cryptocurrency.
These platforms often look professional, mimicking legitimate websites with features like two-factor authentication and customer support portals.
5. Growing the Investment
Initially, victims may see their investments grow rapidly on the platform, which encourages them to invest more. Scammers might allow early withdrawals to gain further trust. Tactics such as “matching” the victim’s investments or creating a false sense of urgency are common ways to manipulate victims into depositing more funds.
6. The Trap: Taxes and Fees
When victims attempt to withdraw all their earnings, they often find their accounts frozen. Scammers claim that the victim must pay taxes or fees to access their funds. This is merely another tactic to steal more money from victims, who often lose everything they invested.
FBI’s Response to Cryptocurrency Crime
The FBI has been actively combating cryptocurrency fraud by enhancing its investigative capabilities. In 2022, the agency established the Virtual Assets Unit (VAU), a specialized team focused on investigating cryptocurrency-related crimes. The VAU provides cutting-edge technology, blockchain analysis, and virtual asset seizure training to FBI personnel. Together with the Department of Justice’s National Cryptocurrency Enforcement Team, the FBI works to identify and prosecute those who exploit cryptocurrency for illicit purposes.
The FBI encourages victims of cryptocurrency scams to report incidents to the IC3 (ic3.gov), even if they did not experience financial loss. This data is essential in helping law enforcement stay ahead of evolving fraud schemes.
Tips to Avoid Cryptocurrency Scams
To protect yourself from falling victim to crypto fraud, consider the following precautions:
- Be wary of unsolicited communications from unknown callers or messages offering investment opportunities.
- Independently verify any investment advice from people you have not met in person, especially if it comes from social media.
- Watch for red flags, such as requests to move communication to messaging apps like WhatsApp or Telegram.
- Be cautious of investment platforms that look too good to be true or mimic legitimate financial institutions.
- Remember, legitimate government agencies or law enforcement will never demand cryptocurrency payments.
Why Do Criminals Exploit Cryptocurrency?
Cryptocurrency’s decentralized nature, combined with its ability to facilitate fast, irreversible transactions, makes it appealing to criminals. Without third-party oversight, transactions are difficult to reverse, allowing criminals to steal large sums of money across borders with minimal traceability. Law enforcement can track transactions via blockchain, but the challenge arises when funds are transferred to jurisdictions with weak anti-money laundering laws.
As cryptocurrency continues to grow in popularity, the FBI and other federal agencies remain committed to investigating and prosecuting those who exploit this technology for fraudulent purposes. The public can play a crucial role in these efforts by staying informed and reporting suspicious activities.