How Do Crypto Flows Finance Slavery?

 The paper "How Do Crypto Flows Finance Slavery? The Economics of Pig Butchering" examines how criminal organizations involved in "pig butchering" scams utilize cryptocurrencies to finance their activities. [cite_start]These scams often involve human trafficking, with an estimated 220,000 individuals forcibly held in Southeast Asia to operate them[cite: 16].

Key findings from the paper include:

* [cite_start]**Scale of Illicit Flows**: Between 2021 and 2023, criminal enterprises moved approximately $27.8 billion annually into suspicious exchange deposit accounts, including $5.6 billion annually sent from Western exchanges[cite: 4, 47]. [cite_start]The estimated annual activity for these criminal networks ranges from $16.9 billion to $33.8 billion[cite: 55, 384].

* [cite_start]**Crypto Exchange Facilitation**: "Reputable" crypto exchanges, particularly large centralized ones like Binance, Huobi, and OKX, serve as primary entry and exit points for these illicit funds[cite: 5, 43, 68, 75, 413]. [cite_start]These exchanges are often perceived to have looser Know Your Customer (KYC) procedures and may be outside U.S. jurisdiction[cite: 44].

* [cite_start]**Obfuscation Methods**: Scammers extensively recirculate and swap funds across different addresses and cryptocurrencies to impede tracing tools and obfuscate the true source of their funds[cite: 52, 58, 59]. [cite_start]Decentralized exchanges, such as Tokenlon, are frequently used for these swaps, with scammer swap transactions constituting over 60% of all Tokenlon swap transactions monthly[cite: 59, 296, 297].

* [cite_start]**Preferred Cryptocurrencies**: Romance scammers prefer the stablecoin Tether (USDT) over other cryptocurrencies and primarily use the Ethereum blockchain over Bitcoin for their operations[cite: 72, 208, 301]. [cite_start]Funds often enter in ETH, USDC, and Wrapped BTC but are later almost exclusively swapped to Tether[cite: 204].

* [cite_start]**Inducement Payments**: Perpetrators send over 98,000 small "trust-building inducement payments" annually to exchanges commonly used by U.S. and European investors (e.g., Coinbase, Crypto.com)[cite: 2, 70]. [cite_start]These small payments (often $100, $200, or $500) are designed to build trust with victims and encourage larger investments[cite: 571, 572, 397]. [cite_start]The consistent patterns of these payments suggest limited monitoring by crypto exchanges[cite: 573, 419].

* [cite_start]**Victim Demographics Shift**: While large inflows from potential Chinese victims were observed in 2020, there has been a shift to U.S. and European victims after China banned cryptocurrency trading in late 2021[cite: 600, 282, 284].

* [cite_start]**Transaction Costs**: Transaction costs for these illicit crypto flows are estimated to be approximately 33 basis points (0.33%) of the funds moved to scammer deposit addresses, making it a cost-effective channel for moving illicit funds across borders compared to traditional methods[cite: 590, 595, 224].

* [cite_start]**Implications**: The findings suggest that better monitoring of inducement payments and more robust oversight of crypto exchanges are crucial to combatting these scams and disrupting criminal financial flows[cite: 67, 70, 420, 423].