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

John M. Griffin ; Kevin Mei (2024) — SSRN Electronic Journal

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DOI: 10.2139/ssrn.4742235 (opens in a new tab)

Type:   Journal Article
Country:   United States
Tags:   Blockchain Forensics, Crypto Exchanges, Cryptocurrency Flows, Human Trafficking, Inducement Payments, Money Laundering, Pig Butchering, Romance Scams
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Synopsis

            
The study combines victim-reported pig-butchering cryptocurrency addresses, USIP-provided addresses, transaction-level Bitcoin and Ethereum data, address-identity data, and token prices. It applies bulk forward tracing from reported scammer addresses, reverse tracing from likely scammer deposit addresses, and deposit-address clustering. The authors identified an average of 98,682 potential inducement payments annually from 2021 to 2023, including 32,685 per year to Western exchanges. Victims may exhaust savings and retirement funds, incur debt, borrow from others, or take additional mortgages before the fraud ends. Reported scammer addresses may be inaccurate or incomplete, and reports lack consistent collection timestamps.

          

        
                  

            
Identified Gaps

            
The paper identifies limited knowledge of criminal-financing mechanisms because evidence has primarily come from prosecuted case records. It also notes that estimates based only on reported addresses are incomplete because romance scams are underreported, recent reports lag activity, and address coverage is limited, especially beyond Ethereum.

          

        
                  

            
Methods

            
The study combines victim-reported pig-butchering cryptocurrency addresses, USIP-provided addresses, transaction-level Bitcoin and Ethereum data, address-identity data, and token prices. It applies bulk forward tracing from reported scammer addresses, reverse tracing from likely scammer deposit addresses, and deposit-address clustering. It uses conservative stopping rules, examines inducement payments below $10,000, estimates on-chain costs, and performs sensitivity and false-positive analyses.

          

        
                  

            
Limitations

            
Reported scammer addresses may be inaccurate or incomplete, and reports lack consistent collection timestamps. Recent activity is likely undercounted because of reporting and verification delays. Estimates can include double counting when funds move across exchanges, service-provider addresses, or criminal activities besides pig butchering. The main analysis emphasizes Ethereum, while data attribution and inference for Tron are more limited.

          

        
                  

            
Future Work

            
Build on large-scale blockchain tracing to monitor and understand economic forces in other criminal and non-criminal crypto activity. The paper also implies testing and operationalizing exchange monitoring of recurrent, small inducement payments to identify and protect potential victims.

          

              

    
    

        
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