Online scams may already be as big a scourge as illegal drugs

Within about six months, Mr Hanes had transferred to anonymous crypto accounts not only his own savings and the money he had set aside to pay for university for one of his daughters, but also his church’s reserve funds and some $47m belonging to Heartland Tri-State, the bank he ran. The bank’s losses were so severe that it became one of only five banks to fail in America in 2023. Yet even after the FBI swooped in and Mr Hanes was charged with embezzlement, he struggled to accept that he had been duped. He is now serving a 24-year prison sentence.

That a bank manager, of all people, could be fooled on a scale sufficient to bring down a bank is a sign of how sophisticated and far-reaching online scams have become. The days of patently false emails from supposed Nigerian princes are long gone. As our new eight-episode podcast, “Scam Inc", describes, online fraudsters have become rich and powerful enough to corrupt entire governments, turning whole countries into the cyber-scam equivalent of narco-states. Scam operations can be found all over the world, from Myanmar to Mexico. The global proceeds of online fraud are probably more than $500bn a year, estimates Martin Purbrick, an expert in Chinese organised crime who was a police officer in Hong Kong for 11 years. That puts scamming on a par with the illegal drugs trade as one of the world’s biggest illicit industries. And unlike illegal drugs, scams cannot be seized by police or customs. With nothing more than a phone line and internet connection, scammers can turn anyone into a potential victim.

From ear to purse

The specific scam that Mr Hanes fell for is known as “pig-butchering". Victims are identified on social media or dating apps and then “fattened up" by a scammer who spends weeks or months building trust by posing as a potential friend, business partner or romantic interest. Scammers then use this trust to “slaughter" the pig by suggesting fake investment opportunities and absconding with the money. In Mr Hanes’s case, an investment adviser claiming to be in Australia steered him to a fake crypto exchange complete with an elaborate website on which Mr Hanes was able to monitor his entirely fictional balance.

The rise of online scams represents an enormous transfer of wealth from the middle class to a criminal underworld. The FBI reports that losses from investment scams in America increased by 22% in 2023 to more than $12.5bn. That is far more than the cost of burglary or car theft, and is in all likelihood a severe underestimate, since many victims do not file police reports owing to feelings of shame or denial. The actual amount stolen from Americans each year is probably around $50bn, estimates Erin West, a former prosecutor who led some of America’s first attempts to try pig-butchers. She thinks around one in 100 Americans falls victim to a scam annually. Many are young and tech-savvy; police officers, FBI agents, financial advisers and psychologists have all been taken in.

That hints at the scammers’ sophistication. Rita (not her real name), a Filipina scammer interviewed in “Scam Inc", describes how she and her co-workers were given detailed manuals about how to dupe victims. There was a primer on cryptocurrency and a guide on how to prevent phoney social-media accounts from getting flagged and taken down. There were conversational prompts on books, music, gardening and football, as well as seemingly innocent questions intended to help discern a potential target’s wealth. She was ordered to ask about their house, car and where they went to university. Victims should be rich but not good-looking. “This type of man will be very attentive when meeting a woman," the instructions said.

There were also instructions on how to establish intimacy. Pay compliments. Mirror their tone. Greet them every morning. Say good night when they go to sleep. Learn about them. Find out what’s lacking in their life: what’s the emotional hole you can fill? Cathy Wilson, a mental-health counsellor in Colorado whose clients include scam victims, calls the techniques that criminals use to create relationships “psychological weapons, because they are very effective, just like a knife or a firearm".

Yet some scammers are also victims themselves. The UN estimates that in 2023 at least 220,000 people were being forced to work as scammers in Myanmar and Cambodia. People from over 70 countries have been trafficked to fraud factories in South-East Asia, says Eric Heintz of International Justice Mission, an NGO. Many are multilingual university graduates from poor countries who have been lured by the promise of a well-paid job in a call centre.

In “Scam Inc", former scammers describe the harrowing conditions. “If you don’t hit your targets, they electrocute you," explains Jalil, a Ugandan who was trapped in a scam compound in Myanmar in 2023. Sara (also not her real name), who was trafficked from South Africa to Myanmar, was told to bring in more money or she would be sent “to the second floor…where they send all the ladies to be sex workers". Rita, who was held in a nearby complex around the same time, said she met an Ethiopian whose kidney had been removed as a punishment for low earnings.

To escape, people get relatives to pay huge ransoms or even trick others into replacing them. Jalil ended up in his compound because a friend who was trapped there promised a well-paid job in data entry and online marketing.

Like pigs in clover

Scam operations thrive in lawless places, such as Myanmar, where many rival militias control small slices of territory, or corrupt ones, like Cambodia, where the authorities can be paid to look the other way. They are protected by high walls topped with barbed wire, surveillance cameras and armed guards. A single fraud park in Myanmar may house thousands of scammers working for several different operations, says Sammy Chen, a former Taiwanese businessman who has worked with governments to rescue enslaved scammers. Each operation rents space, as if operating in an industrial park. There are often also money-laundering operations, currency exchanges, supermarkets and brothels in the same compound, he says. Sometimes the scam bosses sell workers to each other.

War, poverty and lack of opportunity mean that scam compounds in these areas are increasingly able to hire willing employees desperate for work rather than rely on forced labour. Scam bosses prefer this because it’s less trouble, says Mr Chen, especially now that AI makes translation easier and reduces the need to entrap English-speakers. “The underground criminal ecosystem is a perfect marketplace," says Jackie Burns Koven of Chainalysis, a blockchain-analysis firm which has traced hundreds of millions of dollars in crypto wallets controlled by scammers. The criminals are “always willing to pivot to the path of profitability".

A growing number of scam compounds have been discovered outside South-East Asia, in Africa, eastern Europe, the Middle East and South America. One was even found last year on the Isle of Man, an island off the British mainland. Latin American crime syndicates have diversified into pig-butchering, including Mexico’s infamous Jalisco New Generation.

Scam operations can be of any size. Some are run from hotels: criminals rent a few floors, put up metal gates and hire armed guards while hotel-owners look the other way. Others may be even smaller, run out of tiny offices or apartments. About 500,000 people work directly as scammers, according to the United States Institute of Peace (USIP), an American think-tank. The broader industry may employ 1.5m.

As “Scam Inc" recounts, the main victims of this growing industry used to be Chinese. But China has arrested hundreds of thousands for involvement in scamming and pressed the governments of Cambodia and Myanmar to curb the duping of Chinese citizens. It has also mobilised its propaganda apparatus against fraud, producing lots of films, television shows and songs about the scam industry. In the same summer that “Barbie" and “Oppenheimer" were drawing crowds in the West, an anti-scam film, “No More Bets", which depicts a Chinese programmer trapped in a fraud compound, was captivating China, making more than $500m in its first month.

Like so many other Chinese firms, criminal syndicates diversified abroad as business slowed at home, increasingly targeting people elsewhere in Asia and the West. America and Britain have placed sanctions on several suspected scamming bosses from China and South-East Asia. But the structure of the scamming industry makes it hard for police to penetrate and dismantle. “We have this habit in most countries in the West of looking at criminal groups as hierarchical, maybe with a sort of kingpin at the top," says Mr Purbrick. “I don’t think that works with Chinese and some other Asian criminal networks, simply because they’re networks, rather than structures."

Criminals might previously have fought for control of gambling tables in Macau or street corners for drug distribution. But in the scam industry, there are no physical constraints to their operations and so nothing to fight over. What a banker might call the “total addressable market" is more or less unlimited. Barriers to entry are low and returns are high.

That allows criminals to co-opt the authorities, especially in poor countries. “There is no law enforcement presence, they’re essentially the law, they’re the government," says Chris Urben, who spent 25 years at America’s Drug Enforcement Administration. Scamming has become the “mainstay of the economies of Cambodia, Myanmar and Laos", notes Jason Tower of USIP. He reckons Cambodia’s online-scam industry makes over $12.5bn a year, equivalent to about half the country’s formal GDP. That means the broader economy in these places—construction, hospitality and so on—is also dependent on scams. “The level of co-option of state actors in countries like Cambodia exceeds what we saw in narco-states of the 1990s in Latin America," agrees Jacob Sims, an expert on organised crime in South-East Asia.

Even the Philippines, a relatively stable American ally and popular tourist destination, is teetering on the edge of state capture. A year ago allegations emerged that Alice Guo, the mayor of the small town of Bamban since 2022, was involved in a scam compound that was bigger than the town itself. It turned out that she was not Filipina at all, but Chinese. She had acquired the documents that had allowed her to stand for election fraudulently.

The authorities seized property, luxury cars and a helicopter worth 6bn pesos ($100m) from Ms Guo and her associates. Between 2019 and 2024 around 24.5bn pesos moved through her accounts, according to Winston Casio of the Philippines’ commission against organised crime.

It was a scheme that took lots of time, money and planning to pull off. As Sherwin Gatchalian, a Filipino senator campaigning against scam compounds, explains in “Scam Inc", “They have studied the Philippines very well. They know how to navigate through our political system." He has had to employ bodyguards since he started speaking out. Even as the Senate was holding hearings about Ms Guo in July, she managed to flee the country “because she co-opted a good number of corrupt government officials", says Mr Casio, who lives in his office so criminals will not know how to find his family. Ms Guo was later tracked down in Indonesia and extradited to the Philippines, where she faces charges of money-laundering, human trafficking and corruption.

Mr Gatchalian worries that other Philippine scam bosses are going into politics like Ms Guo. The industry is a threat to national security, he warns. Once scam bosses have enough clout within the political system, it will be nearly impossible to enact policies to undermine their operations. “What we’re doing is just knocking at barely the tip of the iceberg," says Mr Casio, speaking from a former scam compound that the Philippine government, in an attempt to save money, has repurposed to house its anti-scam operations. “We haven’t made a dent in this problem."

Following the bacon home

One way of fighting organised crime is to follow the money. Our reporting for “Scam Inc" revealed that Mr Hanes, the bank CEO, was one of several Americans to lose millions through scam websites with names resembling that of a legitimate crypto-trading service, Coinrule. A man in Minnesota lost $9.2m on a scam site called CoinRule-Web3.shop, for instance. A Californian lost $2.2m on CoinRule-Web3.net, the same site that duped Mr Hanes.

The criminal network targeting Mr Hanes in effect outsourced its money-laundering via a platform called Huione Guarantee, according to Adam Hart of Chainalysis, who traced Mr Hanes’s crypto for The Economist. Huione Guarantee is a Chinese-language online marketplace established in 2021, ostensibly for trading property and cars. It handles billions of dollars a year in business and is owned by a Cambodian conglomerate called Huione Group. An investigation by Elliptic, a blockchain-analytics firm, said it had found links between Huione Group and Cambodia’s ruling family. Alongside more conventional products, the market offers goods and services that could have legitimate uses but are of special interest to scammers: web domains for new websites, AI face-changing software for video calls and torture tools like electric batons. After these details became public, Huione Guarantee changed its name in October to Haowang Guarantee. The renamed firm denies facilitating crime.

After scam proceeds are laundered, they become harder to trace. But recent incidents suggest they are all around us. In 2023 Singapore initiated a huge money-laundering crackdown. Police seized more than $2bn in property, gold bars, cash and other assets. Ten people from Fujian province in China but with passports from multiple countries were arrested. They are accused of profiting from illegal gambling. Casinos are often fronts for online gambling or cyber-fraud, according to the UN Office on Drugs and Crime (UNODC). Two of those arrested, Zhang Ruijin and Lin Baoying, were business partners of Ms Guo. Others had links to Dubai, Hong Kong and Thailand.

Scam money flows beyond Asia, too. Prosecutors have charged Chinese scammers with laundering money in American banks. Su Haijin, one of the men arrested in the Singaporean money-laundering case, was found to be a part-owner of two buildings worth nearly $56m in London, according to an investigation by the Organised Crime and Corruption Reporting Project and Radio Free Asia. Some Asian online gambling brands that have advertised at English Premier League matches are also used by scammers to launder their money, says Philippe Auclair, a journalist with Josimar, who has investigated links between scam compounds in South-East Asia and businesses in Britain.

The same criminals who are targeting Americans like Mr Hanes in pig-butchering scams are diversifying into other kinds of cybercrime including hacking, ransomware attacks and identity theft, says John Wojcik of UNODC. “What we’re observing is that these syndicates are becoming more sophisticated cyber-threat actors." These groups use information-stealing malware to infect a device and harvest its data including its messages and browsing history. They often sell the resulting information online via a monthly subscription service to scammers and other cybercriminals. The criminal syndicates running pig-butchering scams are “increasingly recruiting people with data-analytic skills, programmers who can sift through massive amounts of data", Mr Wojcik adds. That will enable them to execute even more targeted, invasive and effective scams—or simply use malware to drain your bank account. In all likelihood, the collapse of Heartland Tri-State Bank is not a high-water mark, but a beginning.