With introduction of cryptocurrencies in our lives, they became instrument for funds transfer not only among users with legitimate purposes, but also for fraudulent activity. Usually, the victims are the less knowledgeable people, who are instructed by scammers what to do, and who send large amounts by using bitcoin ATM’s. The advantage of using cryptocurrencies by scammers is because payments are non-refundable, once the payment is done and confirmed at least in 1 block, there is hardly anything can be done to revert the payment. Advantage of using cryptocurrency ATM’s is that they are the easiest bridge between old traditional fiat world (accept cash banknotes) and transform to cryptocurrency.
Fair to say that similar schemes are used by scammers with different money transfer vehicles, e.g. users are asked to buy gift cards or various vouchers types. Cryptocurrencies and bitcoin ATM as conversion mechanism is much easier for scammers to use. First of all, bitcoin ATM is less understood by masses, and hence might look more “official” for victim and more people can fall for scam, which increases the probability of scam success. The figures from Edmonton Police Service confirm this, as fraud using Bitcoin were larger than 80% of CRA scams in 2018:
It also makes easier for scammers to use funds later (compared to gift cards and vouchers, which have limited convertibility and impose higher costs for this process). With Bitcoin funds can be transferred internationally without problems.
Scale of scams
The scams are very broadly used geographically (in practice internationally). Usually scammers target people from developed countries, like USA, Canada, United Kingdom, Australia. With growing number of bitcoin ATM installations in other countries the fraudsters become active in other countries as well. So geography of scams increases rapidly.
Scammers can be represented by some individuals, or based on activity seen it can be assumed there are call centers dedicated to this work. Mostly they are located in India, where from the calls originate.
On the victim side, the reported cases are usually in the low end of thousands of dollars. It is hard to estimate an average amount, but what we see in press the amounts are usually in $2000-4000 range. All depends on the victim and type of scheme used, at the same time there are reported cases when some individuals lost tens of thousands or even hundreds of thousands dollars. Community Affairs Chief of NYPD Nilda Hoffman reports during 4 months of 2019 there were 200 complaints and over 2 million dollars stolen. In the same video Dep. Insp. Jessica Corey mentions there were scams of over 400000 dollars from one person, but through wire transfers. People are directed to buy as large as 10000 dollars of Apple gift cards etc.
Here is a redacted email from one of the victims we received to our support email a while ago (published with permission):
My name is Mrs XXX XXX 46yrs old. Lives in XXX. I’m a mother of 3 young children aged 6/9/14. I want to report the fraud people who acted as HMRC and high authority to get a big amount of money from me using the Bitcoin machine and sending me code telling me that I owed the government unpaid tax by not paying enough tax and to prove this is not me I have to pay in money to resolve the case and this is refundable once cleared. I trusted this person who named himself as HMRC investigation officer as the number showing on my phone when checked by me was HMRC telephone number.
After I paid in the amount they said I have been referred back to the police officer investigation unit and telling me that the warrant of arrest was already in the police custody so to be able to withhold the case is to pay in warrant arrest fee. I was so scared at time as they become hostile to me and threatening me that if don’t act fast it will affect my work and high court magistrate authority will confiscate my passport, driving licence, bank accounts and all my assets as this was government properties and this will make impact to me from travelling as there was an accusation against my name.
After they took my cash they told me in order to get a new national insurance I have to clear my name by building funds to generate a new National insurance. They ask me to use my credit cards by buying one4all cards, itunes cards, google play, steam and xbox voucher cards and by this I can generate funds to resolve the case.
They advised me not to disclosed the case to anyone as this may affect the case and I could potentially loose the amount I already started to pay in. I was so scared at that time that I felt I cannot turn to authority as the case already in place they constantly on the phone with me as if I’m under surveillance. I was asked to go to bank make overdrafts and personal loans to be able to generate funds for my new NI. They even use my account to transfer money as if they acted helping me to generate funds amounting to £75000.
The final payment was I have been asked to sell my car as the authority only given me time-frame to generate these funds otherwise the high court authority will be in my house and seize my assets so to avoid this I sold my car and paid the money to the said funds. When I have nothing to give to pay in the funds they stop their communication to me. I have reported this to Police Action Fraud Line with crime reference number: NFRC XXX.Email from victim of scam via bitcoin ATM’s
I would be grateful if you can extend your help to me to stop this people behind this inhumane act and put them behind the bars. I have all the proof of BTC address and transaction ID and Bitcoin ATM location are as follows:
XXX List of locations with BTC addresses and amounts provided (total amount via BTMs roughly £25000) XXX
I am thanking you already for the time you will be giving to this matter in the spirit of Christmas may all God bless you.
Mrs XXX XXX
This is just one of many cases. Scammers intimidate victims and basically refer person from one scammer in call center to another one (e.g. in this case “tax authority representative” passed victim to “police department”, and they continued with elaborate scams). Victims can be led and controlled for long periods (weeks, or months), and being threaten they don’t report or tell anyone who could help. In the end, when money is sent, contacting police can be hardly of any help, while payments are non-reversible.
How the scam works
The initial communication with victims can be one of the following:
- Internet ad (usually some unreasonably good deal)
- Email list mailing out (usually some good offer as well)
- Cold calls (usually introduce themselves as some official government authority representative, use intimidating tactics, or claim that something happened with victim’s relatives)
The following diagram shows the process flow:
- Initially user gets in contact with scammers, who either persuades or forces (intimidates) to use bitcoin ATM nearby. Usually they provide instructions where to find the closest machine and how to use it. They also provide own address QR code, which victim needs to use at a bitcoin ATM. In most cases, victim is controlled over phone during the process. Scammers say what to click at ATM and which menu to choose / skip. Moreover when scammers call a victim they use “spoofing” technique to manipulate the caller IDs and appear as if the call is actually originating from relevant authority representative.
- At this stage user scans QR code of scammer’s address, and deposits cash.
- Transaction is executed, however, the funds are not delivered to user address, but directly to remote scammers, while they provided QR code with their address to scan.
- User realizes scam scheme (this happens only in some cases, while in many cases people don’t report anywhere), and contacts operator of ATM and local Police Department. However, if transaction was broadcast to the network and confirmed on blockchain — there is no way to get money back, as transactions are non-reversible.
It is hard to prevent such scams and the only efficient way to avoid it is when operator implements tracking of suspicious transactions and stops processing such transactions (doesn’t send bitcoin funds) until further clarification. Usually they get in contact with user and clarify that user is not a victim of a scam.
Lately scammers started providing their phone number to victim, which the latter inputs at ATM during transaction. In this case operator’s support team will be in direct contact with scammer and it is a matter of recognizing whether there is a genuine user on the other end of line or not, which requires well trained people and poses extra costs to operator.
Standard fraud schemes
There are several known fraud schemes, which are used in order to direct people to deposit money at bitcoin ATM. Usually they can be assigned to one of the following groups:
- Much better than market conditions deal / offer
- Job opportunities
- “Official authority” request to pay for something
Better than market deals
Ebay / Craiglist car deals
There is an ad placed for a well under-priced used car. Potential buyer contacts seller and in response receives “officially” looking email, which requires for the car to be paid in Bitcoin and also includes direction to a bitcoin ATM nearby and instructions. Once the payment is done via bitcoin ATM, scammer disappears and never replies back.
The scheme suggested is pretty common to “money mules”, when the “employer” sends funds to victim’s bank account, then victim (in the role of employee) needs to cash out and send over other payment method. In this case user is instructed to deposit cash (deducting own part) at local bitcoin ATM, and send funds to the scammer address (QR code provided). As a remuneration user is rewarded with % from amount (usually 5-10%). After bitcoins are sent, second transaction becomes irreversible. Normally, the initial transfer to victim’s bank account is reported as fraudulent and funds are revoked leaving the victim with lost funds.
Scammers send an introduction document of what the “employee” is supposed to do and then Contract as well:
Usually after one or several transactions the “Employer” disappears and doesn’t respond. Fund transfers are reverted by bank shortly after.
Tax authority / IRS representative
Victim is contacted by “representative” of tax authority claiming that taxes are not paid and that user needs to pay in the nearest time, otherwise victim will be arrested or deported, property confiscated etc. All various forms of intimidation tactics are used to hook the person and follow the steps they instruct. They provide information that unpaid amount needs to be sent over bitcoin ATM, they supply QR code with address and direct the victim to the nearest bitcoin ATM. Once the payment is conducted, scammers disappear, or depending on the situation might continue with fraud by making other calls pretending to be other official authorities (see email above).
Police / Law Enforcement Officer
Scammer calls and pretends to be from Police. They usually claim that victim is on criminal list and there is arrest request in processing. The only way to avoid this, is to pay in the nearest time. Then it is the same as in other cases, user is directed to bitcoin ATM where irreversible transaction is completed.
Another intimating technique is to claim that something happened to relatives, e.g. son / daughter, grandson / granddaughter, and payment is required to stop the case from further processing, while in this case matters will become only worse. As a result they instruct how to transact funds, when a person usually is sent to bitcoin ATM to make a fund transfer.
Scammers call and pretend to be from Social Security Administration. They then claim that victim’s SSN was used in criminal activity, like drug trafficking or money laundering. To avoid arrest or protect their money they need to pay to resolve this situation. Then user is directed to closest bitcoin ATM for deposit.
Scammers call and introduce themselves as personnel from utility company. They claim that victim has a debt for provided services, e.g. electricity or other utility services. They threaten to turn off the service supply and require to make immediate payment to cover debt. Then victim is directed to bitcoin ATM.
How to avoid being scammed
These scams usually target not knowledgeable people. It is important to understand, that fraudsters use intimidating techniques and in many cases are good psychologists to play with people’s feelings like fear or greed.
There are couple things to remember:
- Cryptocurrency payments are irreversible. Once sent, money is lost.
- No official authority will force you to pay through a bitcoin ATM.
The following statement is true in general:
If someone asks you to use bitcoin ATM and to deposit cash for whatever reason — this is usually a scam and your money will be lost.
How to prevent scams
Prevention of such scams is not an easy job. First of all they masquerade behind normal transactions. And any extra prevention measures (like temporary stopping processing of transaction) will in many cases hinder the flow for normal users as well and operators need to find a balance of how strict the filter to be. Operators having algorithm and putting transactions on manual review is the most efficient method to stop it as of today.
On another note, it is against the interest of operators and leads into business ethics area. As a rule, the larger the volume, be it from genuine users or through scammers, — the larger the commission operators earn. There was a court decision in Canada in 2018, when under similar conditions victim was suing operator to get money back. Victim lost the case and operator had no obligation to return funds, while they provided financial services and it was up to the customer to check what and to whom she was paying.
There are many operators who are very vocal about struggle against such scams. This undermines the whole industry and brings it not in a good light in press and spoils first “cryptocurrency experience” for many new users. Here are several Twitter threads from bitcoin ATM operators talking about these scams:
Another way to prevent it, is to deliver a message to a victim, that they are being scammed. This can be done via warning messages at machine or via UI of purchase flow. Many operators put warning signs at machines:
Police officers do their job as well and put warning leaflets near bitcoin ATM’s:
Warning signs however, are not very effective at the same time according to information from several operators. People who are on the phone and led through the process by scammers usually ignore any kind of warnings.
It was recently discussed that incorporating warning message as an interactive part of the purchase flow might increase efficiency:
General Bytes as a response integrated an option to delay click on “Agree” button on Terms and Conditions page, giving a larger chance to victim to read a warning message on top of T&S. It is interesting to check out any statistics from operators using this feature, if it helped to prevent and reduce scams.
Scams with involvement of bitcoin ATM’s are run on a large scale. Various schemes and scenarios to fraud people change over time. Scammers are inventive and look for efficient ones all the time. Operators do a large work on preventing it via stopping suspicious transactions and handling them manually, but at the same time, many transactions still slip through. It is in common interest of industry participants to exchange experience and prevention techniques, also on the manufacturers side to provide software functionality to flexibly set prevention measures.
- “Fraud Alert – Never Buy a Car on Craigslist Using Bitcoin!” by Gil Valentine https://www.athenabitcoin.com/news/2017/2/15/fraud-alert-never-buy-a-car-on-craigslist-using-bitcoin [15-Feb-2017]
- “Australian Tax Office warns of new telephone scam that targets taxpayers” https://www.manningrivertimes.com.au/story/5628060/new-telephone-scam-targets-taxpayers/?cs=1467 [05-Sep-2018]
- “Callers allegedly from NV Energy asking for Bitcoin payments” by T. Kean https://www.ktnv.com/news/callers-allegedly-from-nv-energy-asking-for-bitcoin-payments [17-Sep-2018]
- “ATO warns businesses about fake tax agents running impersonation scams after one taxpayer lost $9,000” by D. Powell https://www.smartcompany.com.au/finance/tax/ato-warning-fake-tax-agents-impersonation-scams/ [27-Sep-2018]
- “Australia’s Taxman Warns of Scammers Demanding Tax Debts be Paid in Bitcoin” by M. Emem https://www.ccn.com/australias-taxman-warns-of-scammers-demanding-tax-debts-be-paid-in-bitcoin/ [27-Sep-2018]
- “Scammers Use Cryptocurrency ATMs to Target Potentially Vulnerable Victims” by Rick D. https://www.newsbtc.com/2018/10/05/scammers-use-cryptocurrency-atms-to-target-potentially-vulnerable-victims/ [05-Oct-2018]
- “$50,000 Bitcoin ATM Scam Surfaces in Australia” by Cindy Huynh https://btcmanager.com/50000-bitcoin-atm-scam-surfaces-in-australia/?q=/50000-bitcoin-atm-scam-surfaces-in-australia/ [07-Oct-2018]
- “Don’t believe the scammers: HECO doesn’t want you to pay in Bitcoin” by M. Richardson https://www.hawaiinewsnow.com/2018/12/08/crooks-lure-heco-customers-pay-delinquent-bills-through-bitcoin/ [07-Dec-2018]
- “BC Hydro says more customers hit by scams in 2018 than in the last four years” https://thestarphoenix.com/pmn/news-pmn/canada-news-pmn/bc-hydro-says-more-customers-hit-by-scams-in-2018-than-in-the-last-four-years/wcm/cd6bc6d7-7b2f-4783-923e-d329dde83ed6 [18-Jan-2019]
- “Newton PD Warns Of Scammers Pretending To Be Police” https://boston.cbslocal.com/2019/02/12/newton-police-department-phone-scam-bitcoin-spoofing/ [12-Feb-2019]
- “NYPD Enlists Bitcoin ATMs to Help Strangle Phone Scams” by P. H. Madore https://www.ccn.com/nypd-enlists-bitcoin-atms-to-help-strangle-phone-scams/ [02-May-2019]
- “NYPD warns of Social Security phone scams after uptick in reports” by T. Fleischer https://abc7ny.com/nypd-warns-of-social-security-phone-scams-after-uptick-in-reports/5277980/ [30-Apr-2019]
- “CRA Scams” by Edmonton Police https://www.edmontonpolice.ca/CrimePrevention/PersonalFamilySafety/Frauds/CRA
- “LCSO Reports 3 Attempted Social Security Phone Scams” by Jonathan https://loudounnow.com/2019/07/29/lcso-reports-3-attempted-social-security-phone-scams/ [29-Jul-2019]
- “In newer telemarketing scam, callers claim they’re from Social Security” by Dan Casey https://www.roanoke.com/news/casey-in-newer-telemarketing-scam-callers-claim-they-re-from/article_87ca633d-d3d6-5e46-aa69-fdf7063caab1.html [21-Aug-2019]
- “Dauphin County Sheriff’s Office warns of phone scam, caller claims to be deputy” by Jana Benscoter https://www.pennlive.com/news/2019/09/dauphin-county-sheriffs-office-warns-of-phone-scam-caller-claims-to-be-deputy.html [19-Sep-2019]
- ‘Be careful’: Vancouver shopkeeper warns potential scam victims” by Rafferty Baker https://www.cbc.ca/news/canada/british-columbia/bitcoin-scam-warning-vancouver-1.5456932 [08-02-2020]