House lawmakers pitch proposals to address pig butchering scams

During a Congressional hearing on Wednesday, U.S. lawmakers and law enforcement officials discussed pig butchering — long-cons in which a fraudster gradually builds the trust of a victim before introducing a fraudulent investment opportunity, which is often made through a fake cryptocurrency trading platform.

Among the litany of topics covered by the House Subcommittee on National Security, Illicit Finance, and International Financial Institutions, lawmakers asked expert witnesses to react to ideas for potential legislation to redress pig butchering and similar schemes. Some of the proposals would merely tweak existing laws; others would introduce significant changes in bank liability for fraud losses, mirroring new regulations currently being implemented in Europe.

Pig butchering is often perpetrated by victims of human trafficking and forced labor in Southeast Asia, according to the United States Institute of Peace (USIP), a federal institute tasked with promoting conflict resolution and nonviolent mitigating deadly conflict abroad. In a report in May, the institute issued what it called a “conservative estimate” that global financial losses to this form of fraud amount to approximately $64 billion annually.

The 90-minute subcommittee hearing on Wednesday came at a time when investment scams are costing U.S. victims more money each year, according to the FBI’s 2023 Internet Crime Complaint Center (IC3) report, which said reported losses to such scams increased 38% from 2023 to 2022, up to $4.6 billion. Even as the total number of fraud reports has decreased in recent months, the total amount it is costing victims is on the rise.

Here are the legislative proposals that were discussed during Wednesday’s hearing:

Trusted contacts and delaying suspicious transactions

Joyce Beatty (D-Ohio), a ranking member of the subcommittee, asked the witnesses early in the hearing about whether financial institutions should play a bigger role in fraud prevention. The first witness to answer was Erin West, deputy district attorney for the Santa Clara County District Attorney’s Office in California.

Santa Clara County encompasses San Jose and surrounding areas. West led the establishment this year of Operation Shamrock, an information-sharing coalition fighting organized crime — chiefly pig butchering — emanating from Southeast Asia.

In her answer to Beatty, West alluded to a bill currently awaiting California Governor Gavin Newsom’s signature. The bill is designed to specifically protect elders and dependent adults, but West said a similar bill could be passed at a national level to protect potential victims of pig butchering.

If California Senate Bill 278 becomes law, it would require financial institutions in the state to delay by three business days certain transactions over $5,000, if the institution “should reasonably suspect the transaction is the result of financial abuse” against an elder or dependent adult, according to the text of the bill.

Shortly after being introduced last year, the California bill gained support from consumer advocates including the National Consumer Law Center, who said it “will clarify the law and ensure that elderly victims of financial scams can hold negligent banks accountable for assisting in the financial exploitation of older Californians.” The governor has until September 30 to sign the bill, veto it, or approve it by not signing it.

The bill would provide safe harbor to institutions that implement such delays or refusals. It also requires banks to establish emergency financial contact systems, in which elderly accountholders designate another adult who the bank can contact in cases where financial abuse is suspected.

For individuals, one way to mitigate the risk of falling for fraud is by registering such a trusted contact with their bank, according to Matthew Noyes, cyber policy and strategy director for the U.S. Secret Service. “Steps like that are extremely impactful,” Noyes said in response to a question about whether the U.S. should mandate banks implement such systems. “I do think that would have a substantial impact.”

Besides protecting political VIPs, the Secret Service also investigates crimes related to currency and financial payments. These investigations were its sole focus when it was founded in 1865.

Noyes said that the Secret Service often hears from financial institution employees that “they feel they cannot stop a transaction, even though they reasonably believe there’s fraud involved.” So, he said, addressing those concerns by ensuring banks understand they can stop such transactions would also be impactful.

Secret Service investigations of digital assets crime

Financial institutions play a “significant role” in protecting consumers from financial crimes, according to Dan Meuser (R-Penn.), a member of the House subcommittee. He said there has been “significant investment” by the private sector to protect their customers and prevent fraud. He asked the witnesses whether they agreed.

There is “no question” that financial institutions in the U.S. had, at large, stepped up in recent years to identify and stop fraud, according to Scott Rembrandt, deputy assistant secretary for strategic policy in the Office of Terrorist Finance & Financial Crimes at the U.S. Treasury.

“But,” he Rembrandt, “it is a different story in many jurisdictions around the world that may lack the same legal frameworks.”

Even within the U.S., non-bank financial services companies play a “significant” role in illicit activity, according to Scott Fitzgerald, (R-Wisc.) a member of the House Committee on Financial Services.

In January, Fitzgerald introduced a bill designed to address this and “clarify the U.S. Secret Service’s investigative authority over crimes related to illicit digital asset transactions,” according to a press release from Fitzgerald’s office.

“We must align outdated U.S. code to ensure the agency can address emerging forms of criminal activity involving digital assets,” Fitzgerald said at the time.

When Fitzgerald asked Noyes about jurisdictional obstacles to the Secret Service’s investigations into financial crimes, Noyes said the agency has a focus on federally insured financial institutions, yet “we are seeing substantial illicit activity occurring outside of those,” in other financial services companies.

Bank liability for fraud

Also attending the meeting was Maxine Waters (D-Calif.), a ranking member of the House Committee on Financial Services.

Waters alluded during the hearing to April comments by Michael Hsu, acting comptroller of the currency, in which he said that a new U.K. regulation requiring banks to reimburse customers for losses resulting from push payment fraud “deserves greater discussion and debate” in the U.S. She said the approach will incentivize firms to “strengthen their systems to prevent this kind of fraud.”

In his April comments, Hsu also said the gap in fraud prevention data and technology between large and community banks “must be addressed” — a sentiment the Treasury shares.

In her own comments, Waters called for “better communication between the federal government and financial institutions, or perhaps among financial institutions,” so that information about bad actors can quickly reach other institutions, she said, “similar to check kiting alerts.”

Digital IDs

In another moment of extolling European financial regulations, Bill Foster (D-Ill.), a member of the subcommittee, said he believed “a great deal” of scams and fraud could be prevented if Americans had a reliable means of authenticating their identity online. “The EU is doing this,” he said.

In April, the EU passed a regulation known as eIDAS 2, establishing the European Digital Identity Framework. The framework has been a decade in the making, but the latest regulation will mandate member nations of the EU make digital ID wallets available to every citizen who wants one. The regulation will be fully implemented by 2026.

“Within a year or two, every EU citizen will have a way of proving in an online environment that they are a legally traceable, extraditable person,” Foster said of the regulation. He asked Rembrandt, the Treasury official, for his thoughts.

“Trustworthy, secure, privacy-protecting digital ID, could make a big difference in combating money laundering, fraud and potentially facilitating financial inclusion as well,” Rembrandt said. “So we would welcome efforts to further facilitate the acceptance of trustworthy digital ID by financial institutions.”