The ‘Social Security Administration’ scam cryptos should be aware of

July 27, 2020

The Social Security Administration will never call an individual to demand payment in cryptocurrency or any other form. We explain what to do about this common scam.

We’re continuing our cryptocurrency scams blog series with a look at an all-too-familiar and unfortunately common scheme: The Social Security scam.

Scam activity in the cryptocurrency industry continues to increase, though as we’ve noted in previous articles in this series, the scams themselves are not mysterious and unfamiliar to law enforcement.

Rather, the fraudsters targeting crypto are using the same tried-and-true schemes they’ve used for years. The difference is that they are increasingly attracted to the benefits of cryptocurrency — these are the same benefits that honest consumers also enjoy, namely the instant availability of funds and pseudo-anonymity, among others. 

The key to a healthy marketplace for businesses and consumers is understanding how these scams work so that fewer people become unwitting victims. Since crypto transactions are permanent and final, and the industry as a whole is ambiguously regulated, the risk of financial loss to a scam victim is arguably greater than in some traditional finance schemes.

Business owners in the cryptocurrency space must understand their role in the fight for a safe and fair marketplace, and what they can do to thwart fraudsters and protect consumers. This is essential for the long-term health of the cryptocurrency ecosystem and, as we’ve written before, it’s just good business.

In this blog post we’ll cover what a Social Security scam is and how it works. We’ll also explain what businesses should be doing to aid in consumer protection against scams.

How a Social Security scam works

In a Social Security scam, the fraudster impersonates a government employee who works for the Social Security Administration. They typically attempt to contact the potential victim via telephone, though texts, emails, and other forms of communication have also been reported.

Once they have connected with a potential victim, they claim that there is some kind of problem with their Social Security number (SSN) or account, and that it is in danger of being suspended. The scammers can give a variety of reasons for the purported issue, including suspicious account activity, as well as more serious threats, like an association of potential victim’s SSN with criminal activity.

The fraudster will explain numerous potential consequences for failing to act on the issue. They may claim that a victim’s bank accounts will be frozen, or that failure to act will result in some sort of fine. In some cases, the scammer will also have another scammer contact the potential victim posing as a member of local law enforcement, threatening arrest and potential jail time if the issue is not resolved. This is an effort to make the story more plausible to the potential victim.

If the potential victim is over the age of 65, the fraudster may claim that Social Security payments will be halted. For this reason, this scam is often associated with Elder Financial Exploitation, a serious and growing problem both in cryptocurrency and the wider financial sector. 

Finally, the scammer will demand payment over the phone (or another method of communication) in cryptocurrency, though they may also request wire transfer, pre-paid credit or debit card, or cash.

It’s also possible that the scammer attempts to lure a victim into what sounds like a promotional offer that would benefit them financially, like an increase in Social Security benefits in exchange for a one-time payment.

What potential victims should do

According to the Social Security Administration, while they may need to contact individuals via phone for a variety of reasons, they will never do so to suspend an account, demand any form of payment, or issue threats of any kind.

While the scammer may contact their targets from what appears to be the legitimate phone number of the SSA office (on a caller ID) or via another form of communication that appears to be official, this does not mean that they are an employee of that organization, particularly if they are issuing threats or demanding payment.

The best thing to do in this case is to hang up immediately, call the SSA’s official number (1-800-772-1213), and inquire as to the request that was received. 

It’s important to note that the scammer may ask victims to verify their SSN. Individuals should never provide this information over the phone to anyone who requests it. Same goes for banking information.

Lastly, the SSA does not accept payment in the form of cryptocurrency (e.g. bitcoin). Never pay supposed or known Social Security debts in cryptocurrency. Never send cryptocurrency to anyone pressuring you to do so.

Individuals who fear they’ve become a victim of this kind of scam should report it to the Federal Trade Commission (FTC) and the SSA Office of Inspector General Fraud.

What crypto businesses can do to help

As with other scams we’ve covered in this series, the primary role of cryptocurrency businesses is consumer awareness and protection. 

Cryptocurrency businesses (i.e. kiosks, exchanges) as a matter of compliance best practice should include a robust Consumer Protection Policy and associated protocols in their AML regime. This includes certain disclosures for potential customers, including disclosures around common scams of which they may become victims.

Your transaction monitoring efforts, KYC/CDD protocols, and red flags should also be tuned to detect potential scam activity.

Imagine a first-time customer requests an unusually large transaction of bitcoin, which triggers a KYC review including a brief interview. If the customer describes “needing to send money to the Social Security office,” then you are literally the last thing standing in the way of this individual becoming the victim of a scam. It’s incumbent on your business to educate the customer about the potential risks, and potentially file a report for suspicious activity.

Key takeaways for bitcoin compliance

For consumers, the key takeaway is to never send cryptocurrency to anyone pressuring you to do so.

For businesses, focusing on strong consumer protection, AML compliance, and thwarting fraud and other financial crime benefits not only the wider, emerging cryptocurrency marketplace, but your own bottom line.

If you need advice on AML compliance and consumer protection, reach out today for a free consultation

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