FBI Report: Cryptocurrency Fraud Soars to $5.6 Billion in 2023

Roughly 69,000 complaints related to cryptocurrency fraud were reported in 2023, with losses totaling over $5.6 billion, according to a new report from the Internet Crime Complaint Center (IC3), a division of the Federal Bureau of Investigation (FBI) that deals with suspected Internet-facilitated criminal activity.

The FBI says that it is difficult to recover stolen funds due to the decentralized nature of cryptocurrency and the speed of transactions. Criminals know how to exploit the system, and take money from their victims.

That was a 45% increase from 2022, as noted by the FBI’s IC3. The agency also notes that the number of complaints represented only 10% of total fraud ones, but crypto scams resulted in half of the total reported financial losses.

Scams Everywhere

Investment fraud was the leading type of crypto scam, accounting for 71% of all losses, which is equivalent to almost $4 billion. That suggests that scammers are actively targeting individuals with investment opportunities involving cryptocurrency. Other common types are tech support scams, personal data breach, and extortion.

Data shows that cryptocurrency scams affected a wide range of age groups, but older adults were among the most vulnerable, with 16,806 victims aged over 60 reporting losses. As the age group increases, so does the average loss per complaint. The total losses of this group exceeded $1.6 billion in 2023.

Younger generations are also at risk. Victims under 20 suffered around $14,7 million drained in total.

Breaking down by state, California had the highest number of reported cryptocurrency scams with 9,522 complaints. Florida and Texas followed closely behind with 5,076 and 4,770 cases, respectively.

With only one complaint, American Samoa had the lowest number of reported complaints. Northern Mariana Islands also had a low number of complaints, with only two reported cases.

According to the report, the U.S. had the highest number of complaints, with over 57,000 cases. Canada takes the second place with 1,236 complaints. Other countries with a high number of complaints were Canada and the UK.

Surprisingly, despite having a lower number of complaints, the Cayman Islands and Mexico reported relatively huge losses, jush behind the U.S.

Fraudulent Trends and Challenges

Fraudulent play-to-earn game applications and liquidity mining schemes are in the spotlight as trending variations on cryptocurrency investment fraud, the report highlights.

Building trust is the common tactic used to lure victims to participate in the fraudulent games. These gaming apps are designed to deceive victims into believing they are earning real rewards.

As players progress through the game, they may see their virtual earnings accumulate. However, once victims stop depositing funds into the game, the criminals behind the scam use malware to drain their cryptocurrency wallets.

Like fraudulent P2E games, scammers also cultivate personal or professional relationships and build trust to manipulate their targets into investing in fraudulent liquidity mining schemes. The criminals often promise quick and easy profits, promoting victims to invest their funds without conducting due diligence.

The IC3 also warns about the increasing use of cryptocurrency kiosks to perform fraudulent activities. Cryptocurrency kiosks, also known as cryptocurrency ATMs, allow for anonymous exchange of cash and cryptocurrency.

Criminals often provided step-by-step instructions and then directed individuals to use these kiosks to send funds, making transactions harder to trace. That resulted in over 5,500 complaints to the IC3 last year, with losses exceeding $189 million.

According to the IC3, blockchain technology can help law enforcement to trace cryptocurrency transactions. However, difficulties arise when funds cross international borders, especially in jurisdictions with weak anti-money laundering regulations.

It also becomes easier for criminals to conduct illicit activities as cryptocurrency’s decentralized nature eliminates the need for intermediaries. Moreover, cryptocurrency transfers are quick and cannot be reversed. Criminals can facilitate large-scale, cross-border transactions without traditional financial oversight.