When consumers receive a call from a ‘family member’ who claims to be in some kind of trouble and is asking for a payment in cryptocurrency, it’s most likely a scam.
Financial scams are on the rise, and the cryptocurrency industry is far from immune.
While most financial and law enforcement experts are concerned about increased scam activity related to the COVID-19 pandemic, many tried-and-true fraudulent schemes are continuing to proliferate in the cryptocurrency industry alongside more emerging typologies, like work from home scams.
One such “classic” scam cryptocurrency businesses and consumers should be aware of is the “Family Member in Danger” scam, also called the “Family Emergency Scam.”
In this blog post, we’ll explain how this scam works and how to identify signs that may suggest when an individual is at risk of becoming a victim.
We’ll also suggest some measures business owners can take to help fight scam activity in the crypto space, as well as protect consumers who may be unwittingly using your financial institution to facilitate scam activity.
Let’s dive right in.
How the ‘family member in danger’ scam works
In a typical “family member in danger” scam, a scammer will contact a potential victim (usually, though not exclusively, by phone) and pose as a close friend or member of the potential victim’s family.
Commonly, the fraudster will impersonate a niece, nephew, cousin, or grandchild. As such, this scam overlaps significantly with Elder Financial Exploitation (EFE), or the financial exploitation of senior citizens who are considered a vulnerable population by FinCEN and the Consumer Financial Protection Bureau (CFPB).
For any skeptics reading to this point, bear in mind that the scammer’s impersonation of a relative can be more convincing than you might think. Given the proliferation of public data and content on the internet, particularly shared by younger generations, it’s not difficult to gather enough information to convincingly pose as another person for the purposes of this scam.
They might also couple up with another scammer who they “turn the phone over to” who impersonates a law enforcement officer or some other authority figure to lend credence to the story.
After establishing contact, the fraudster will urgently request that the potential victim send them funds to resolve an emergency. Usually, it is a request for bail money, though they may also ask for money to pay for an emergency expense, or claim to be stranded in another state or country. They may also claim to be victims themselves of blackmail or some other financial crime.
Usually these contacts are quick — the fraudster attempts to:
- Establish trust by impersonating a family member (e.g., “Hey grandpa, it’s John.”)
- Make the request for funds (e.g., “I got into a car accident and was brought to an urgent care, and they say they’re going to call the cops if I don’t pay them today.”)
- Cut contact after giving payment instructions (e.g., “can you please PayPal me $1,200 to this email address? I have to go sign some paperwork.”).
If the fraudster requests funds be transferred in cryptocurrency, they may ask the potential victim to use a cryptocurrency-supporting app like Venmo or the Cash App, or to use a crypto kiosk to purchase cryptocurrency in person with instructions for how to transfer it to the scammer.
Once again, this kind of scam is not exclusive to the cryptocurrency space. It is a tried-and-true financial scam that has been around for a long time.
The fraudster may not ask for cryptocurrency, but rather a wire transfer of cash or another monetary instrument.
Financial criminals are attracted to cryptocurrencies like bitcoin for their pseudo-anonymity, instant access to funds, and other benefits also enjoyed by honest consumers. Therefore, it is a definite possibility that this and other financial scams will seek payment in cryptocurrency.
How to advise potential victims
Since these contacts are so urgent in nature and typically brief, a potential victim might feel a strong need to act quickly.
But no matter how dramatic the story is, take the time to verify it.
If the scam target still has the fraudster on the phone, they should ask them questions only their family member would know. Don’t stop there, though. Assume the fraudster has done some research on the target and their family member using information available online (names of family members, birthdays, etc.). This is why it’s important to ask questions about things only the two of you would know.
Even if a victim is convinced the scammer might actually be their family member in real danger, have them call them back on their own phone number, or contact another relative that can get ahold of them to see if they can verify the story.
Note that the fraudster may ask for discretion, especially if it is a sensitive request, but a victim should still verify the story by either calling a number they know belongs to the family member being impersonated, or another relative or member of their social circle.
There are many variations of this scam, some more sophisticated than others. The key red flags to look out for that should trigger skepticism are:
- A convincing impersonation of a family member in a dire situation
- A request to keep their request a secret
- Asking to send funds right away
Above all, you should never send cryptocurrency to anyone pressuring you to do so. Take the time to verify any story with relatives prior to sending money.
What businesses in the crypto space should be doing
Businesses in the cryptocurrency marketplace play a key role in protecting consumers from financial criminals. Potential victims of such scams may turn to you and your business to purchase cryptocurrency that they then send to a scam artist.
If they later find out that they have become the victim of a scam, there’s not much you can do to help them since cryptocurrency transactions are, for all intents and purposes, irreversible.
So how do you prevent them from becoming victims in the first place?
Tough surveillance and monitoring
Transactional red flags should be tuned according to relevant typologies and AML compliance best practices. For example, a first-time customer over the age of 60 requesting a large purchase of bitcoin might suggest suspicious activity.
A best practice in this regard would be to contact the customer to gather more information about the nature of their transaction. If it sounds like they could be potential victims of a scam, let them know the risks and potential for scam activity you are concerned about.
Up-to-date red flags should be able to catch most activity that could suggest a potential scam, so it’s incredibly important for businesses to revisit these constantly.
Consumer protection protocols
Every business in the cryptocurrency sector should have a robust consumer protection policy in place. Good consumer protection includes things like disclosures.
In addition to typical disclosures like Terms of Service, Privacy Policy, and Notice of Risks, including information about potential scams in the cryptocurrency space is strongly recommended.
Key takeaways for bitcoin compliance
If you want to know more about other scam typologies in the cryptocurrency space, we suggest checking out some of the other articles in our crypto scams series.
If you’re a business owner, you might want to take a look at our consumer protection blog post, as well. As financial crime continues to proliferate in the cryptocurrency space, business owners have an increasing obligation to help protect consumers and the integrity of the marketplace.
