FBI Reveals 45% Surge in Crypto Fraud with $5.6 Billion Lost in 2023

Crypto-Related Fraud Soars by 45% in 2023, Resulting in $5.6 Billion in Losses

The Federal Bureau of Investigation (FBI) reported a staggering 45% rise in cryptocurrency-related fraud in 2023, culminating in over $5.6 billion in losses.

According to the FBI's Internet Crime Complaint Center (IC3), this increase follows the resurgence of interest in digital assets like Bitcoin, whose value surged, more than doubling last year.

The number of complaints linked to cryptocurrency fraud reached nearly 69,500, a reflection of how criminals are leveraging the fast, irreversible nature of crypto transactions to exploit unsuspecting victims.

While crypto-related complaints made up only 10% of all financial fraud reports, they accounted for almost 50% of total monetary losses, highlighting the immense financial impact of these scams.

As IC3 noted in its report, the decentralised nature of cryptocurrencies and their rapid global transfer capabilities make recovery of stolen funds extremely challenging.

Assistant Director of the FBI’s Criminal Investigative Division, Michael Nordwall, emphasised this in his remarks, stating,

“Once an individual sends a payment, the recipient owns the cryptocurrency and often quickly transfers it into an account overseas for cash out purposes.”

Investment Scams Dominate as Criminals Target Unsuspecting Investors

Investment frauds continue to dominate the landscape of cryptocurrency-related crimes, accounting for a staggering 71% of all losses reported to the FBI in 2023.

These scams, often preying on the fear of missing out (FOMO) and capitalising on the rapid price growth of assets like Bitcoin and Ethereum, lure in individuals with promises of high returns.

The decentralised nature of digital assets and their use as speculative investment tools make them particularly attractive to scammers who rely on the anonymity of transactions to evade detection.

The report highlighted how many victims, particularly those unfamiliar with cryptocurrency technology, were coaxed into schemes that left them with “massive debt.”

The losses from crypto-related investment scams alone surged 53%, reaching nearly $3.96 billion in 2023.

As stated in the FBI report,

“Cryptocurrency’s widespread promotion as an investment vehicle, combined with a mindset associated with the ‘fear of missing out,’ had led to opportunities for criminals to target consumers and retail investors — particularly those who seek to profit from investing but are unfamiliar with the technology and the attendant risks.”

Elderly Consumers Hit Hardest by Crypto Fraud

Of particular concern to law enforcement is the disproportionate impact these scams have had on older individuals.

The FBI report revealed that individuals over 60 were among the most frequently targeted by scammers, with losses totaling over $1.6 billion in this demographic alone.

This age group often lacks the technical proficiency to navigate the complex and fast-moving world of cryptocurrencies, making them prime targets for fraudulent schemes.

Many older victims fell prey to confidence schemes, where scammers posed as trusted individuals or entities offering investment advice.

These fraudsters often used social engineering tactics to build trust before draining victims’ funds.

In some cases, victims had no idea they had been defrauded until much later.

James Barnacle, Deputy Assistant Director of the FBI's Criminal Investigative Division, remarked on the situation,

“When notifying fraud victims, 75% were unaware they had already been targeted.”

Call Center Scams and Crypto ATMs Amplify Losses

Beyond investment scams, call centre frauds, including government impersonation schemes, accounted for approximately 10% of cryptocurrency-related losses.

These scams, often operating out of overseas call centres, use fear and intimidation tactics, such as posing as government officials, to coerce victims into transferring funds via cryptocurrency.

The FBI report also highlighted the alarming rise in fraud associated with crypto ATMs.

These machines, which allow users to exchange cash for cryptocurrencies anonymously, have become a significant tool for scammers.

In 2023 alone, there were over 5,500 complaints related to fraudulent transactions through crypto ATMs, resulting in losses of more than $189 million.

A two-way Bitcoin ATM that enables users to seamlessly buy or sell bitcoins with cash

Scammers use these kiosks to perpetrate various schemes, including customer service fraud, extortion, and romance scams.

Due to the anonymity of these transactions, recovering funds lost through crypto ATMs remains extremely difficult, with Barnacle adding that the chances of recovery are “slim.”

Global Reach of Crypto Scams and Emerging Threats

Crypto-related fraud is not confined to the US, with IC3 receiving complaints from over 200 countries in 2023.

However, a majority of cases were reported within the United States.

Despite its small size, Singapore ranks 13th with complaint losses exceeding $10.6 billion, reflecting the significant impact of scams on its financial landscape.

Fraudsters operating from jurisdictions with lax anti-money laundering laws pose a significant challenge for law enforcement, as they quickly transfer funds abroad, where US authorities struggle to track or retrieve the stolen assets.

Emerging fraudulent activities include play-to-earn scams and deceptive businesses that falsely claim to recover lost crypto assets.

Pig butchering schemes, which often involve labour trafficking, have also become a rising threat.

These scams see workers tricked into taking up positions abroad, often in call centres running complex confidence schemes targeting victims worldwide.

Calls for Tighter Regulation and Enhanced Public Awareness

As the cryptocurrency industry grows, so do the calls for more stringent regulatory oversight.

The rise in fraud cases has amplified concerns about the need for improved security measures and enhanced consumer education to mitigate these risks.

Regulators are likely to scrutinise the crypto sector more closely in light of these developments, potentially enforcing stricter compliance requirements for exchanges and other crypto-related businesses.

For now, the FBI urges investors to remain vigilant and conduct thorough research before engaging in any crypto-related activities.

Nordwall advises caution, especially with unsolicited investment opportunities.

The FBI report concludes with a stark warning:

"The decentralised nature of cryptocurrency, the speed of irreversible transactions, and the ability to transfer value around the world make cryptocurrency an attractive vehicle for criminals, while creating challenges to recover stolen funds."