Thousands of fraud victims reach out to Hudson Intelligence for help recovering from online scams and investment schemes every year. The experience of one such individual — who recouped $134,000 after a fraud investigation by Hudson — was featured in a recent article by ProPublica.
Hudson’s president John Powers states: “Financial regulators, law enforcement, major banks and cryptocurrency exchanges can no longer ignore the staggering scale and exponential growth of online fraud over the past five years. Countless lives are damaged by these schemes every day. The partial recovery in this case is a positive step, but more should be done to protect U.S. consumers and assist victims in achieving full restitution.”
ProPublica’s report presents sobering statistics:
Cryptocurrency scams operated by Chinese gangs from compounds in Southeast Asia have led to estimated losses of $44 billion per year – from millions of victims worldwide.
Nearly 1 in 3 Americans say they have been the victim of online fraud or cybercrime.
Facebook has detected and disrupted over 7 million accounts associated with scam centers in Asia and the Middle East since the start of 2024.
On Telegram, over 10 million accounts, groups and channels are reportedly removed every month for breaching Telegram’s terms of service — including money laundering and fraud.
When it comes to cryptocurrency scams, improvements in blockchain intelligence technologies have boosted the ability of law enforcement and forensic investigators to trace transfers to their ultimate destination. With the right tools, an experienced blockchain analyst can follow the path of illicit funds through many layers of obfuscation — hops, swaps, and cross-chain jumps — until the money hits a cryptocurrency exchange. Illicit funds held in an exchange account are at risk of seizure.
Major cryptocurrency exchanges monitor transactions for compliance and risk-mitigation purposes. Attribution data from blockchain intelligence systems can be used to automatically detect interactions with known wallet addresses of criminal organizations or sanctioned entities. Accounts that send or receive tainted crypto – directly or indirectly – may be flagged and frozen. This can happen at any time, without warning.
By comparison, freezing bank accounts – or tracing interbank transfers – remains a relatively time-intensive process with significant legal hurdles, especially when funds are moved between multiple banks in foreign and offshore jurisdictions. Commercial banks have a more mature regulatory and legal framework than cryptocurrency exchanges. Contrary to expectation, their rulebound regimes can occasionally be to the benefit of fraudsters, because the bureaucratic pace of bank compliance may reduce the chances that funded bank accounts will be quickly frozen.
“To their credit,” Powers says, “many major banks have become more cognizant of the need to warn customers about the threat of online scams, particularly for international wires. Most online wire requests are accompanied by pop-up messages alerting the accountholder of potential risks.” However, he argues, these automated warnings – by themselves – shouldn’t relieve financial institutions of their responsibility for safe and secure transactions.
In the past, there was often a different approach to due diligence in wire rooms of commercial banks. Transfer requests would be scrutinized in the context of the customer profile, based on the bank’s personal relationship with the accountholder. A number of questions would be raised, for example, if an elderly widower from Kansas attempted to cash-out his 401(k) and send the proceeds to a stranger in Singapore.
“Today,” says Powers, “you go online to send money, and click a box, claiming to acknowledge and accept the risks – caveat emptor – and there’s nobody left to stop you from transferring your life savings to an organized crime syndicate.”
Read the full article by ProPublica: “How Foreign Scammers Use U.S. Banks to Fleece Americans.”
John Powers, CFE, CTCE is president of Hudson Intelligence, an investigation agency specializing in complex fraud investigations, cryptocurrency forensics and international asset tracing.