How to Protect Your Bank from the Most Recent Fraud Scheme

June 27, 2024
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Key Takeaways

  • “Pig Butchering” scams leverage fake online personas to trick victims into fraudulent investments.
  • Implementing robust fraud detection and prevention systems is critical to safeguarding assets and customer trust.
  • Ongoing education and awareness are essential for employees and customers to recognize and report suspicious activities.

Fraudulent schemes targeting financial institutions are becoming increasingly sophisticated and prevalent. One such scheme, known as “Pig Butchering,” has gained notoriety for its effectiveness and rapid spread.

Recent studies report more than $75 billion was lost to pig butchering scams from 2020 to 2024 — and the true number is likely even higher.

Understanding this scheme is crucial for financial institutions to effectively protect their assets and customers.

How Pig Butchering Schemes Occur

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Initial Contact and Trust Building

Fraudsters initiate contact with victims via unsolicited texts or social media messages. Once a conversation starts, the fraudster works to build rapport and trust over time. This can involve months of consistent communication and, in some cases, the formation of a romantic relationship, all aimed at lowering the victim’s guard.

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Introduction to Investment Opportunities

With trust established, the fraudster suggests investment opportunities, often showcasing fake platforms with unrealistic returns. They patiently guide the victim, offering to educate them on best investment practices. The initial investments are small, intended to demonstrate the potential for high returns and further cement the fraudster's credibility.

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Escalation of Investments

As the victim sees returns, they are encouraged to invest more significant sums. This can even lead to the victim taking out home equity loans or withdrawing from retirement and savings accounts. Eventually, the victim attempts to withdraw some profits to realize their gains.

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Collection of Personal Information

When victims try to withdraw funds, they are typically informed that their account has been frozen due to a supposed regulatory requirement. To lift the freeze, victims are asked to provide additional personal information, including social security numbers and bank account details.

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Disappearance of the Fraudster

To extract even more money, the fraudster might claim that additional fees are necessary before the victim can access their funds. As the victim becomes increasingly suspicious, the fraudster uses various tactics to squeeze out as much money as possible before disappearing entirely. When the fraudster vanishes, they leave the victim financially devastated and grappling with the aftermath of the scam.

  • If you or anyone you know has fallen victim to a fraud or scam, you are encouraged to report it to the Federal Bureau of Investigation (FBI). Gather all information that may be available, including the transaction details for the purchases and transfers, and report the information here.

Protecting Your Financial Institution and Customers

Customers' trust and confidence are foundational to a financial institution's success. A single breach or widespread fraud incident can severely damage an organization's reputation.

Education & Training

Conduct ongoing training sessions to ensure staff can recognize and respond to potential fraud attempts. These sessions should cover the latest fraud schemes and tactics and effective response strategies. Encouraging a culture of security and immediate reporting of suspicious activities can further protect against fraud.

Collaboration with Law Enforcement & Regulators

Collaborate closely with law enforcement agencies to promptly report and address fraud cases. Sharing information and emerging trends can help both your institution and law enforcement stay ahead of new threats. This partnership not only aids in the swift resolution of fraud cases but also enhances the overall security landscape.

Customer Verification & Authentication Protocols

Employ multi-factor authentication (MFA) to add a layer of security. Ensuring that sensitive transactions require additional verification steps can prevent unauthorized access and reduce the risk of fraudulent activities. These measures create extra hurdles for fraudsters, protecting both the institution and its customers.

Enhanced Monitoring and Detection

Utilize advanced fraud detection systems to monitor for unusual transactions and patterns indicative of scams. These systems should be capable of identifying suspicious activities in real-time, enabling institutions to respond promptly. Implementing automated alerts and responses can help swiftly address potential threats and minimize the risk of significant financial losses.

Don’t Face Fraud or Other Financially Damaging Events Alone

By understanding the mechanics of pig butchering schemes, your financial institution can better equip itself to recognize and prevent these sophisticated frauds, ultimately safeguarding your customers and maintaining trust.

Eide Bailly’s Fraud & Forensic Advisory Services team works closely with financial institutions to educate, investigate, and recover from incidents of fraud.

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