Summary:While the number of fraud complaints related to cryptocurrency schemes is still small compared to all complaints, the dollar losses have skyrocketed, eclipsing all other types of financial fraud losses.
Cryptophasia, the secret language that only twins can understand, is a fascinating quirk of communication. To an outsider, it seems like pure gibberish, but to those who created and share the language, it’s perfectly clear. The world of cryptocurrency can feel much the same for many community bankers and their customers. Its complex terminology and anonymous nature create a financial “language” that’s often incomprehensible to those who aren’t in the know. Unfortunately, this confusion has allowed a new breed of fraudsters to exploit gaps in understanding, leaving unsuspecting customers, especially older ones, vulnerable to skyrocketing losses from crypto scams. Just like deciphering cryptophasia, it’s up to community financial institutions (CFIs) to crack the code on how to help protect their customers from these growing threats.As we discussed earlier this year in our article about pig butchering, the scale of cryptocurrency fraud has reached alarming proportions, with annual losses now surpassing the asset value of all but the biggest CFIs.Per the Internet Crime Complaint Center (IC3), total crypto fraud losses jumped 45% in 2023 to reach $5.6B. The center said it received over 69K complaints in 2023. The biggest marks: people over the age of 60, who accounted for almost 17K complaints and the most losses ($1.6B).101624-IC3 chart of crypto fraud.png66.11 KB Source: FBI Internet Crime Complaint Center For CFIs, the message is that bankers need to be mindful of cyber fraud, not just against the institution but also against its customers, particularly older customers. Helping customers protect their assets from crypto fraud is becoming increasingly urgent.While crypto-fraud only accounts for just 10% of all types of financial fraud complaints logged by the Federal Trade Commission (FTC), it is still far costlier, accounting for about half of all financial fraud losses in 2023.Crypto fraud doesn’t come in one flavor. It runs the gamut of financial fraud. Among the most prevalent are the following:
Investment scams. These scams, which are the most straightforward in that they involve an unknown person contacting the victim and convincing them to invest in a specific cryptocurrency, are the most reported and the costliest crypto fraud method. About 70% of crypto scam losses are due to investment scams.
Call center fraud. This type of crypto fraud takes the shape of impersonations of legitimate call centers, like tech support, customer support, or government agencies (the IRS is a favorite of impersonators). This fraud scam accounted for about 10% of losses.
Romance. The ever-popular romance fraud involves an online scammer smoothly engaging a vulnerable person into a supposed romantic online relationship that ends up with the victim sending money to the scammer. Romance scams used cryptocurrency payoffs to the tune of $215MM in losses for victims.
Cryptocurrency Kiosks. The arrival of cryptocurrency kiosks that work like ATMs has further enabled cryptocurrency finance schemes. Victims may be directed to these kiosks to convert cash into cryptocurrency that is then delivered to the scammer. There were more than 5K complaints in 2023 involving the use of these kiosks and losses amounted to $189MM.
The Likeliest TargetsWhat makes someone a good target for crypto fraud?
Age. While the over-60 crowd accounted for the most victims and losses, there were victims across just about all age groups. For example, about 10K complaints were lodged by the 30-39 group, while another 10K were made by the 40-49 group. Even those 20 and under, who probably don’t have much money to lose, had 858 complaints and nearly $15MM in losses.
State of residence. As might be expected, the most populous states of California, Florida, New York, and Texas had the most incidents. But every state and territory reported cyber finance frauds. Even tiny Guam had 8 complaints.
Country. It’s probably no surprise that the US is the world hotbed for these frauds. But what might come as a shock is just how much of this problem lands on our shores. The US leads the world with 57,762 complaints. In second place is Canada, with 1,236. No other country had even 1K complaints. In terms of losses, the $4.8B tallied by the US dwarfs every other country, none of which had even one-quarter of a billion dollars in losses.
How To Help Customers Avoid Getting ScammedFor starters, provide links to the IC3 report, which has not just statistics but details on how to spot different kinds of cyber finance schemes. The report also provides links to agencies for reporting scams. Your CFI may want to offer customers some general advice on avoiding these scams. Here are some key points to share:
Be wary of anything that sounds too good to be true.
Be on guard for financial deals that involve cryptocurrency.
Avoid texts or emails from strangers and companies offering unsolicited financial advice or deals.
Avoid responding to offers that guarantee a return on investment, particularly very high returns.
If you have been the victim of a crypto investment scam, watch out for scam recovery offers. Rather than helping victims recover funds, these are often scams that ask for payment but never recover any of the victim’s lost money.
Before getting involved with anyone offering an investment, check their licenses, certifications, and registrations. Verify what company they are with and contact the company via one of the methods listed on their website found via search engine, rather than clicking a website link in the advisor’s email.
Cryptocurrency fraud poses a significant risk to individuals and financial institutions, costing billions in losses. To protect their customers, and themselves, financial institutions should educate them about the dangers of cryptocurrency fraud and provide guidance on how to avoid falling victim.
Identity and Access Management: A Gate Against Internal Threats Not all cyber threats are external. That’s why it’s imperative to periodically review which employees have access to which systems. We detail best practices of identity and access management.
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