Top 5 Things to Know About Crypto Scams

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[00:00:01] Bob: This week on The Perfect Scam.

[00:00:03] Erin West: He said, "I've been in a car accident and I'm getting arrested. I've been drinking, and I’ve hit a woman who was pregnant and her child is in the car also. So, Dad, I need you to call this lawyer." And he gave the dad the phone number. So the dad, freaking out, then talks to the lawyer. The lawyer says, "Oh yeah, this is going to be troublesome for your son. He's definitely going into custody. But if you want to get him out, the fastest way to do it is by sending cryptocurrency."

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[00:00:35] Bob: Welcome back to The Perfect Scam. I’m your host, Bob Sullivan.

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[00:00:40] Bob: Cryptocurrency. It sometimes feels like everyone's talking about it, maybe everyone's using it. But that's very wrong. In truth, the vast majority of Americans say they've never used crypto, not even once. But why are we talking about it a lot? In part because criminals have flocked to crypto. It seems to be the perfect tool for stealing money over the internet. If you heard last week's episode, you know that reported crypto theft has quadrupled in the New England area according to the FBI, and nationwide 3.3 billion dollars was reported stolen in 2022, more than double the previous year. And that's why we're devoting today's entire episode to crime and crypto. And we have the perfect guest to discuss that. Erin West, a Silicon Valley prosecutor and head of something called The Crypto Coalition. By the end of today's episode, I hope there's 5 important things we all understand about cryptocurrency. Here's our conversation.

[00:01:47] Erin West: My name's Erin West. I'm a Deputy District Attorney in Santa Clara County, California. I just finished 25 years at the DA's Office, and for the last 8 I have been working with the REACT Task Force. That is a high tech, multijurisdictional task force made up of local detectives and a couple federal partners, and we investigate and prosecute crimes in the high-tech arena.

[00:02:13] Bob: Okay, so Santa Clara County might have a bit more tech crimes in it than other parts of the country? Is that true?

[00:02:20] Erin West: We think so, yes. So that's why we have a special high-tech unit. And our DA is very cognizant that we live in the hotbed of tech, and so that's why Jeff Rosen, from the get-go, realized that he needed to make a special unit that was really focused on this, and that was really well-trained and um, he's put some of his, his best lawyers and his best investigators in this unit, so it's really a pleasure to be able to be here in Silicon Valley working on these crimes.

[00:02:54] Bob: And increasingly, I understand, that involves crimes involving cryptocurrency, right?

[00:02:59] Erin West: Yes, so REACT really got its start a little bit earlier than the rest of the nation because we had a sim swapping case early on which was a, a type of hacking where a hacker takes over service from your phone and moves cryptocurrency out of accounts. So our team had to learn quickly back in 2018, how crypto currency moves on the blockchain and how to follow it. Once we got started with that, we saw what a fabulous investigative tool it is to finding bad guys and so that's primarily the work that we do now is cryptocurrency investigations.

[00:03:38] Bob: Okay, this conversation's really important to us at The Perfect Scam because increasingly whenever we hear from someone who's been a victim of a crime, the money has been stolen via cryptocurrency. Very often when people go to the police, go to law enforcement and they say they sent cryptocurrency to a criminal, the police just throw up their hands and say there's nothing we can do. There's no way to recover stolen cryptocurrency. Is that true?

[00:04:02] Erin West: I'm so glad you're giving me the opportunity to answer that question because there was, in fact, just an article a couple weeks ago where a jurisdiction said and it got published that there is no way to recover cryptocurrency. And that's patently false, and really does our victims an injustice. And so the beauty of the blockchain is that it's unchangeable and that it's transparent. And we can all look at it and see where the money is moving. So that gives us an opportunity that we don't always have in cash transactions to really trace where the money goes. And if it goes to a place that we can serve a search warrant, we can get that money back. And so it's one of those things that makes me pull my hair out when I hear that oh well, it goes into crypto, and there's nothing you can do about it because that's your great starting point. That's your investigative starting point is give me that crypto address and let me see where it is and see if we can get it back.

[00:05:06] Bob: Do you have a story at hand where you were able to recover some amount of money for a victim?

[00:05:11] Erin West: Yeah, so I do have a story at hand, um, in this case, in the case of Santa Clara County, it was allegedly this adult son he said, "I've been in a car accident and I'm getting arrested. I've been drinking, and I hit a woman who was pregnant and her child is in the car also. So, Dad, I need you to call this lawyer." And he gave the dad a, the phone number. And so the dad, you know, freaking out, then calls the quote "lawyer," talks to the lawyer. The lawyer says, "Oh yeah, this is going to be troublesome for your son. He's definitely going into custody. Um, if you want to try and get him out of custody what you need to do is call the court clerk, and they will help you." So then he calls the quote, court clerk, and the court clerk says, "Oh yes, your son is coming in. I see that, but you know we have monkey pox at the jail, so they're probably going to bus him to Reno, which is four hours from here, but if you want to get him out, the fastest way to do it is by sending cryptocurrency." And so, in a panic, this gentleman went and withdrew $15,000 from his bank account, went to a gas station and started pumping money into crypto ATMs. Because his daughter-in-law was familiar with the REACT Task Force, when, when they figured out it was a scam they came to us really quickly, and we were able to recover that money and just last week we were able to get it back to the victim, which is fantastic and just shows the power of the blockchain and, and the power of a victim quickly reporting what can actually get done.

[00:06:42] Bob: What is it like to hand back $15,000 to a victim of a crime who figures it's gone?

[00:06:48] Erin West: Isn't it amazing? Um, the detectives that I work with, they say it's like Christmas day when they can call these people. We've been able to help 26 victims and to be able to call them and say, "We've got your money, and we're ready to hand it over," it's a great feeling because we're in this business to help people. All of us who chose law enforcement at the REACT Task Force are there because we care about people, and to be able to actually help someone, it's the best feeling there is.

[00:07:18] Bob: Okay, so how does it really work? How was Erin and her team able to get money back for those 26 victims? Well crypto crimes always begin with a criminal persuading a victim to transfer money into cryptocurrency and then placing that into an account the criminal controls.

[00:07:37] Erin West: But what's really happened is that the moment our victim has moved money into this fake account, the scammers are moving it out, and the scammers are moving it on the blockchain through a number of jumps, through a money mule, through a different money mule. Let me explain that. A money mule is someone who either knowingly or, or unknowing how bad the money is, allow the scammers to move money through their account to make it more difficult for us to track. And we're waiting for it to show up into an account that is an exchange that's cooperative with the United States, because a lot of these people will put the money in exchanges that are located outside the United States, which is a big red flag for our law enforcement who thinks it's out of the country, it's, it's inaccessible to us. But that also is not true. There are exchanges located outside the country who are cooperative with law enforcement. And Binance is the biggest exchange in the world, and Binance is cooperative with law enforcement, so when that money goes to Binance, we might be able to get it back. But when I say it's a speed game, the scammers are moving that money through these accounts so quickly that as we're following it, they're continuing it to move it.

[00:09:03] Bob: I'm hearing dramatic music in the back of my head and picturing a movie scene here where you know you're, you're typing at a keyboard, and, and you get there just moments after money has moved from one account to another, and you're sort of virtually running around after this money hoping it ends up at one of these hops at a friendly uh exchange. Is, is that...

[00:09:23] Erin West: That's exactly right.

[00:09:23] Bob: ...pretty much how it works?

[00:09:25] Erin West. That's exactly how it works. Yes. So the sooner you can get to us, the better advantage we have on the bad guys.

[00:09:31] Bob: Um, I'm going back a step in the conversation, but the way you're describing this situation seems to me like crypto is less hopeless than say gift cards or other means of stealing money. Is that true?

[00:09:42] Erin West: That is true. That is true. Crypto is great for us. Crypto is, it's an immutable operation that happens in a transparent way, and we can track it, and it can be tracked open source, so people can do their own tracking. But for a very sophisticated tracking and, and quick tracking, there are great tools that are available that are commercially available that are amazing at figuring out where all this money's going and how all this money connects, and it's been a fantastic tool for making identifications of people and identifying what bad acts they have been involved in. So I can't be positive enough about how crypto is a great investigative tool for law enforcement.

[00:10:33] Bob: I think almost everyone hearing this is going to have their jaw hit the floor when they hear that. I mean I think the perception is that crypto is even more mysterious, and it makes it easier for crime than old ways of moving money.

[00:10:46] Erin West: It's so funny, Bob, because that, that is the problem, and so that's part of my mission too, is, is I'm out talking about this all the time, I'm speaking at the Chiefs of Police meeting in October because I really, I think that there are so many misconceptions about crypto and this nonsense that it goes overseas and then it's gone, or it's crypto, so you can't track it. Those are just, they're not true, and we are missing a very valuable tool if we don't learn how to use this.

[00:11:17] Bob: Okay, so the fact that the money can be traced, does that mean that the criminals can be traced?

[00:11:23] Erin West: To some degree, yes. So imagine we find your money, we see that it's at a crypto exchange. What we will get from the exchange is the KYC, the Know Your Customer information. So we will find out who the owner of that account is by their name. In order to open an account they'll have to show picture ID and we'll see that. We'll get an email address for that person, and so we will have some idea of who that person is. I think what we're finding with these scams though is it is a rare day when that person resides in the United States.

[00:11:59] Bob: And so that makes it much harder to arrest people.

[00:12:02] Erin West: It does. So when you think about that, what you're doing is you're asking for help from another government to make an arrest and to allow that person to be incarcerated there pending extradition. So in order to do that, you need friendly countries. And so these scammers don't always operate in countries that are willing to cooperate with the US in terms of helping us make arrests.

[00:12:26] Bob: But it sounds like if I were to say well, you're a victim of a crime, you've sent money using cryptocurrency, we can't find the money, it's gone, and there's no way to track the criminals, they're invisible, it sounds like that's not quite true either.

[00:12:40] Erin West: No, that's not quite true either. I think there are opportunities, number one, to recover funds. If the victim gets in front of a competent law enforcement official in a timely manner, I think there are opportunities to recover. And then I think there are opportunities for law enforcement to really put together cases where they figure out who some of the top people are running these scams. What I will say is that the initial identification of the person holding the account is going to usually be known as, what's known as a money mule, so someone who's not really involved in the actual scam, just someone who's being paid to move money. The money mule issue is, is a difficult one, in that sometimes you're looking at people who are actually victims.

[00:13:27] Bob: Yeah, unfortunately, the criminals are smart enough to not put their own name and address on the, know your customer information. They use other people or whatnot to obfuscate their identities.

[00:13:37] Erin West: They sure do.

[00:13:38] Bob: Yeah, okay. So a third thing that I've, I've heard; so gas stations, some convenience stores around the country, they now have these, they look just like regular ATMs, but dispense bitcoin, they accept money in exchange for bitcoin. Are those machines just like regular ATMS?

[00:13:53] Erin West: You know, I can't think of a legitimate purpose for those ATMs. They enable generally victims of crime to move money from US dollars into cryptocurrency that's transmitted to bad guys. This is the new way that we're moving money for bad guys. And it's take your hard-earned cash and put it into this account, and then it's going to be sent to a scammer in an irretrievable manner. Not that it can't be found and recovered later, but once that payment is made, there's no way the victim can realize, oh, this was a scam. Please refund it. So it's putting people in really vulnerable positions, and generally, they are people using these machines who are not at all familiar with cryptocurrency, and who are being coached through it. We hear stories of people who are being told to move money through these machines, and then being on the phone the entire time they're doing this transaction, being coached literally button by button as to what to push and how to make this work. So there seems to be very little, if any, legitimate traditional use for these bitcoin ATMs. Their sole purpose seems to be to move hard-earned money from victims into the hands of scammers.

[00:15:15] Bob: So the vast majority of people, if they see these bitcoin ATMs, they should just stay away from them?

[00:15:20] Erin West: Honestly, yes, and I think for law enforcement, like you should know where every bitcoin ATM is in your city. It's not hard to find out. There are means to do that. And we should all be well aware of, of where these bitcoin ATMs are. There is a, a movement among my group of The Cryptocurrency Coalition to put signs on all these bitcoin ATMs saying, "Hey, if you are being told to come here, you need to think again. If you are on the phone with someone who's directing you, you need to think again." It is literally a scam machine.

[00:15:54] Bob: It's a scam machine. Wow. Okay, so I have heard, well it's more than I've heard. I know this is true; when you, when you have to move money overseas, around the world, it can be expensive. There's all sorts of exchange fees, there's transaction fees by banks, and so crypto, in some cases is a cheaper way to send money overseas. But does that mean it's a, it's a good idea to use crypto for that purpose?

[00:16:16] Erin West: Well I think it depends. I think that if you are someone who is well-educated in the field of crypto and feel very comfortable with crypto, then crypto is a legitimate way to move money. I'm not saying that all crypto is bad crypto. But what I would say is that if you are not familiar with crypto, then I really would counsel you to think of other means for moving your money. Especially if you've never met in person the person who's asking you to move this money internationally. I think what happens with a lot of our victims is that they get talked into moving money via crypto when they don’t have a lot of familiarity with it. So whenever someone is having to teach you how to move your money, then I think you need to be very wary.

[00:17:14] Bob: If this is your first transaction and you're doing it with a stranger, crypto's a bad idea, right?

[00:17:20] Erin West: Absolutely. Absolutely. And that's, you know, there's so many scams out there, and there are, you know, from the, "I work on an oil rig and I; I need money and I don't have access to a bank," to "I am an American soldier who is stationed overseas. Can you send money that way?" There are a million other ways and if you're not familiar with crypto, and you don't know this person, you shouldn't be sending money of, of any sort. But particularly not crypto.

[00:17:47] Bob: Okay, and here's the last question I wanted to ask you; there's so much talk about crypto in the business news channels, there's headlines everywhere. The price of bitcoin goes up, goes down, but it, it can feel like almost everyone is using crypto and investing in crypto, and so someone might suggest to you, "Oh, it's perfectly normal to send money in crypto." Is it true that almost everyone is using crypto?

[00:18:11] Erin West: No, I think it's a funny thing. I think that you know it's like the more you talk about someone the more you believe it to be real and pervasive. And I think what the statistics are showing is that I think it's only 17% of the population is, is using crypto, and of that, I, I think that only 10% of women are, are using it, or have had occasion to use it. So I think that sometimes media makes a, it won't be surprising to hear me see that sometimes the media makes things look bigger than they are, and I think that the concept that everybody's using crypto and oh, if I’m not in crypto, I'm missing the opportunity, I'm missing the boat. I think that isn't really an accurate reflection of who is actually holding crypto.

[00:19:00] Bob: Yeah, the Pew statistic that you cited there, only 17% of US adults have ever used crypto even once. So it's a pretty small number of US adults who are actually involved in crypto. So not everyone is using crypto.

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[00:19:15] Bob: So crypto crimes are proliferating, and law enforcement doesn't always know what to do. That's why Erin formed The Crypto Coalition to spread the knowledge around how crypto works and to beat back the false narrative, a bad habit that some law enforcement agents have telling victims, "There's nothing we can do."

[00:19:36] Erin West: When we first started seeing these cases, we tried to figure out what was the best option for us, and our team was familiar with how to trace cryptocurrency. And so we thought well why don't we try and help our local victims by seeing whether or not we could trace their crypto that they had sent on to these scammers. And we, we're delighted to see that actually we were able to trace some of this, and we were able to find that it landed in places that would accept a search warrant, and then send the money back to us to give to our victims. And so we were delighted that we were able to make a difference for certain victims in that way that we were seeing that victims were going to police departments and just weren't being heard. And we felt like this was something that we could do that would make a difference. We've recovered millions of dollars to give back to these victims. But what we were seeing is that once people found out that my team knew how to do this, we started getting lots of requests nationwide, even worldwide for, can you help me? Can you help me? And so we would do the tracing, and then we would try to hand off the victim back to their local jurisdiction to help them. And what we found was that local jurisdictions were not ready to work with cryptocurrency, and they were not willing to take these cases. And that just didn't sit right with me. It didn't sit right with me that victims could go into a police department in whatever city they live in the United States, and have someone say, "I can't help you, we don't know how to work with cryptocurrency." So I thought, what if we started an online group of people who do know how to do this. And it was fantastic because my team knows how to do this well, but there are others across the United States who also do. There's strong expertise in New York and in Connecticut and in Minnesota, and so I started an online group, and I called it The Crypto Coalition. And it started in September of 2022, and we had 85 members. And it a listserve where we write back and forth about has anyone dealt with this exchange or that exchange. What should I do if someone has a bitcoin ATM case, just a lot of sharing and now we are up to 1100 members. So it's been a, a huge success and it enables people in their local jurisdictions who wouldn't have had the opportunity to learn from others to have this community. I do webinars every three weeks where I have people who can add value to this community. Um, I had someone who owns a bitcoin ATM company come talk. I had, had Binance and Chainalysis, and TRM. I've had Coin Base. And then among the group I've had the people who are doing this come and say, well I was able to seize this amount of money. Here is how I do it. Here's how my law enforcement agency holds the crypto. Here's how we do that, just to really provide the resources, the community, the tools so that nationwide we can help our victims, and actually it's worldwide. There are a lot of international partners in the coalition which makes it even stronger. Last week we had a webinar with a Nigerian detective and someone from Europol, and I think that this is the way we make the world smaller. This is the way that we help our victims and we get them access to people who, you know, if Denver doesn't know how to do this, maybe Boise does and can educate them. So it's been a fantastic success and I'm really, really proud of The Crypto Coalition. 

[00:23:38] Bob: Okay. So let's get to the punchline here. This happens to me or someone I love, and they hear from a local police, "There nothing we can do," but I say, "I have heard Erin West talk. I know there is something we can do." What should that person do next?

[00:23:52] Erin West: Um, well, I hate to give myself more work, but um, but I mean I am reachable, I am reachable on LinkedIn. I think that, so you go to your local PD and they say there's nothing we can do about this. A fantastic resource that we don't always think about but is a fantastic resource in this fight is the Secret Service. And the Secret Service is located near you. That's the beauty of the Secret Service is they are everywhere, and they are well-trained in how to investigate cryptocurrency. So what victims are going to do is they're going to report to IC3, that's the federal government, the FBI portal, and that's important because that's going to give the nation an education about how big this problem is. But for getting actual service, you're really going to want to call your local Secret Service or really pressure your local PD in a kind way that they're going to hear, isn't this the way life works. Like if you go in there and you try and boss them around and say, "Oh, I know they know how to do this in Santa Clara County," that might not work, but if you say gently and, and sweetly that if there's any way, they might be willing to reach out to Santa Clara County, I know that they've had some success here and maybe you can reach out to them. That might be the way to do it.

[00:25:14] Bob: But if you go looking online for help from Erin West, or anyone for that matter, be careful. It turns out Erin's success is being used against her by the criminals.

[00:25:26] Erin West: I have been compromised in that they've taken my picture and they have gone after victims saying, "Hey, it's Erin West, and I want to help you."

[00:25:37] Bob: Oh God, of course.

[00:25:38] Erin West: Yeah. Yeah. So we're working on that.

[00:25:43] Bob: Bottom line from Erin, if you learn you're the victim of a crime, report it immediately. Criminals are working faster and faster so the rest of us have to act fast too.

[00:25:56] Erin West: Yeah, unfortunately, the scammers are moving the money much more quickly than they have in the past. So yes, I do understand the problem with that in that a lot of our victims are not ready to report this immediately as it happens, which is part of the manipulation, and part of what the scammers rely upon. So gosh, I feel like, as always, there are so many parts to this issue. So if I'm speaking to law enforcement, I'd like to say, law enforcement, like be empathetic when this person comes in because it was not easy for them to put on their shoes and drive over to your law enforcement place today. And for the victims, I would say put on those shoes and, and go over there even when you don't want to and get it done early so that we can help you. Because the longer you wait the less likely we are to help you, the more difficult this will be for you to process.

[00:26:50] Bob: And if we can leave you with one impression about cryptocurrency today, here it is.

[00:26:58] Erin West: I think that people just need to be very wary of something they don't understand that you shouldn't get involved in investing in any type of scheme unless you have a really good concept of, of how it works and what your potential losses are. So in my role, I hear from dozens and dozens of victims weekly who just really didn't actually understand the scheme that they were putting their entire life savings in. And so when you are engaging in an investment that you don't understand, you really need to pump the brakes and think about what this is before you continue to put money in. So I would just counsel anyone thinking of making any investment in cryptocurrency to really vet it, um, and take your time to, to do the research before you start putting money into it.

[00:28:04] Bob: Erin West, thank you very much for being here today.

[00:28:07] Erin West: Thank you.

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[00:28:18] Bob: If you have been targeted by a scam or fraud, you are not alone. Call the AARP Fraud Watch Network Helpline at 877-908-3360. Their trained fraud specialists can provide you with free support and guidance on what to do next. Our email address at The Perfect Scam is: theperfectscampodcast@aarp.org, and we want to hear from you. If you've been the victim of a scam or you know someone who has, and you'd like us to tell their story, write to us or just send us some feedback. That address again is: theperfectscampodcast@aarp.org. Thank you to our team of scambusters; Associate Producer, Annalea Embree; Researcher, Sarah Binney; Executive Producer, Julie Getz; and our Audio Engineer and Sound Designer, Julio Gonzalez. Be sure to find us on Apple Podcasts, Spotify, or wherever you listen to podcasts. For AARP's The Perfect Scam, I'm Bob Sullivan.

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