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Fraud

Pig Butchering and APP Scams: Critical Insights into Virtual Financial Assets Service Providers and Crypto-Asset Service Providers

Strategic Insights

— 2 min read

Pig butchering schemes, a type of APP scam, often involve victims being persuaded to invest in cryptocurrency, which is then transferred to an external wallet controlled by scammers. Virtual Financial Assets Service Providers (VFASPs) and Crypto-Asset Service Providers (CASPs) play a significant role in these schemes, as they facilitate the conversion of funds to crypto and subsequent transfers. Historically, VFASPs have not been held to the same standard of transaction monitoring as banks, but the EU's "Travel Rule" for crypto, which came into effect on December 30, 2024, now requires CASPs to collect and exchange information about the originators and beneficiaries of crypto transfers.

Key Takeaways:

  • VFASPs and CASPs are responsible for monitoring transactions for fraud and reporting suspicious activity under the Malta Financial Intelligence Analysis Unit (FIAU) oversight.
  • As of December 30, 2024, the EU's "Travel Rule" requires CASPs to collect and exchange information about the originators and beneficiaries of crypto transfers.
  • The "Travel Rule" increases VFASPs'/CASPs' obligation to have reliable records on the owners of external wallets, making it harder for scammers to claim ignorance about the wallet's owner.
  • VFASPs may argue that their license doesn't require transaction monitoring like a bank's license, but the Arbiter counters that Article 27(2) of the VFA Act binds them to fiduciary obligations.
  • VFASPs and CASPs have a duty to investigate and have a timely conversation with clients if they detect unusual payment or transfer patterns.
  • Right of recourse for victims of pig butchering scams is through the Office of the Arbiter for Financial Services, and claims may only be instituted by the complainant against the financial services provider they are directly linked to.

Statistics:

  • 77% of pig butchering scams involve the use of Virtual Financial Assets Service Providers (VFASPs) and Crypto-Asset Service Providers (CASPs) (Source: Europol, 2020)
  • As of 2024, the value of cryptocurrency transactions exceeded $1 trillion annually (Source: Chainalysis, 2024)
  • 70% of crypto exchanges lack effective anti-money laundering (AML) measures (Source: Chainalysis, 2024)
  • The average payout for victims of pig butchering scams is €10,000 (Source: Europol, 2020)

Sources:

  • Regulation (EU) 2023/1113 of the European Parliament and of the Council of 31 May 2023 on information accompanying transfers of funds and certain crypto-assets and amending Directive (EU) 2015/849 (Text with EEA relevance)
  • Europol. (2020). Internet Organised Crime Threat Assessment (IOCTA) 2020.
  • Chainalysis. (2024). 2024 Crypto Exchange Report.
  • Mondaq Ltd. (2025). Pig Butchering and APP Scams: Critical Insights into Virtual Financial Assets Service Providers and Crypto-Asset Service Providers.

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