Introduction to a Growing Scam
Welcome to another episode of Terms of Service. Today, we’re tackling a critical issue related to a rising type of scam that involves cryptocurrency. As we explore this topic, we want to hear from high school students and their parents about how artificial intelligence (AI) is influencing educational and career choices. If you’re a high school student or a parent with insights to share, please reach out to us via email or voice note.
Emerging Crypto ATMs
If you’ve recently visited a gas station or convenience store, you might have spotted a yellow machine resembling a traditional ATM, but this one allows users to exchange cash for cryptocurrency. The proliferation of these crypto ATMs has coincided with the mainstream acceptance of digital currencies. However, investigative reports from CNN reveal that these machines have also become a favored tool for scammers to exploit unsuspecting victims. So, how exactly do these scams operate, and what steps can you take to protect yourself and your loved ones? To shed light on this, I spoke with Curt Devine, a producer at CNN Investigates, who has firsthand experience in dealing with scammers.
Understanding Crypto ATMs
Welcome, Curt. For those unfamiliar, could you explain what a crypto ATM is and how it functions? Indeed, a crypto ATM shares similarities with a traditional ATM in its appearance and basic operations. The primary difference is that users can deposit cash and convert it into cryptocurrency. You select your digital wallet, which is crucial for storing your crypto, and the process is straightforward. While we will discuss the potential for misuse of these machines, it’s important to acknowledge that they also serve legitimate purposes, particularly for individuals who primarily deal in cash and wish to enter the crypto space without needing to download an app.
Legitimate Uses vs. Misuse
Indeed, there are valid uses for crypto ATMs. They provide an accessible entry point for individuals curious about cryptocurrency, especially those who may not be comfortable with technology. However, a critical consideration is the often exorbitant fees these machines charge, which can reach up to 30%, raising the question of whether it’s worth using them compared to various apps that allow for easier and more cost-effective cryptocurrency purchases.
How Scammers Exploit Crypto ATMs
So, Curt, how do scammers manipulate crypto ATMs to deceive individuals? These scams can start in various ways, often with scammers contacting victims via email, text, or pop-up alerts claiming a serious issue, such as a computer hack or a fraudulent charge. This instills a sense of urgency, prompting victims to act quickly. Scammers frequently instruct victims to withdraw their funds and deposit them into a crypto ATM to “secure” their money, leading them to believe they are protecting their assets. In reality, they are unwittingly transferring their funds directly to the scammer’s wallet.
The Sophistication of Scammers
Scammers have developed sophisticated methods for executing these frauds. Often, a scammer will pose as a low-level tech support agent, escalating the situation to a “senior fraud manager” who claims the victim’s account is at risk due to illegal activity. This tactic intensifies the victim’s fear, making them more likely to comply. In another variation, scammers may falsely claim they are issuing a refund for unwanted services and manipulate victims into returning the excess amount via a crypto ATM, even though the entire scheme is fraudulent.
The Dark Reality of Victimization
Once victims are convinced to deposit their cash into the crypto ATM, what happens to their money? The funds are directed to a digital wallet controlled by the scammers, typically through a QR code provided to the victim. This process creates a false sense of security, as victims believe they are safeguarding their money, when in fact, it’s being funneled into the scammer’s account. From there, scammers can quickly transfer the funds to various digital wallets around the globe and cash them out through foreign exchanges.
Demographics of Victims
Curt noted that older individuals are often targeted in these scams, but they are not the only demographic affected. Scammers prey on people of all ages, and there are instances of victims with backgrounds that suggest they should be more aware of potential fraud, such as a former IRS employee who became a victim herself.
Financial Losses Involved
How much money are victims losing in these scams? Our analysis, based on approximately 700 police reports and consumer complaints, indicates that the average loss per victim is around $16,000. This statistic highlights the desperation and fear that compel individuals to withdraw substantial amounts of cash, often spending hours feeding bills into these machines.
Witnessing the Scams
Store clerks have started to recognize these scams in action, often observing elderly customers engaged in prolonged transactions while speaking to someone on the phone. In one instance, a store clerk intervened, expressing concern for an older woman depositing cash into a machine, demonstrating that awareness of these scams is growing among retail employees.
The Scope of the Problem
The FBI has reported staggering figures, stating that around $250 million was lost to these scams in the U.S. last year alone, with approximately 11,000 complaints related to crypto ATM fraud. This year, the losses in the first half alone have reached about $240 million, indicating a troubling upward trend.
Identifying Scammers
Do we know who the perpetrators of these scams are? The answer is both yes and no. While some specific individuals have been charged, such as scammers from India who targeted U.S. citizens, others operate from large-scale scam compounds in regions like Africa and Asia, equipped with call centers and sophisticated operations designed to defraud victims.
Profiting from Scams
Our investigation revealed that crypto ATM companies also benefit financially from these scams, often charging high transaction fees that can be 20% to 30% greater than typical market rates. Although some companies claim to offer fee refunds to victims, many individuals report not receiving any reimbursement, raising ethical concerns about profits made from fraudulent activities.
Corporate Responsibility
While crypto ATM companies assert they have measures in place to prevent scams, including warnings displayed on machines and monitoring for suspicious transactions, many law enforcement officials believe these companies could implement more effective safeguards. There is ongoing debate about what additional measures could be taken, such as imposing stricter transaction limits or blocking high-risk transactions.
Law Enforcement Challenges
For local police, tracking down scammers and recovering lost funds is challenging due to the anonymity provided by cryptocurrency transactions and the fact that many scammers operate from abroad. Law enforcement often faces legal hurdles when attempting to retrieve cash from machines, as companies frequently win court battles asserting ownership of the funds.
Why Cryptocurrency is Attractive to Scammers
What makes cryptocurrency particularly appealing for scammers? The instant conversion of cash to crypto allows scammers to quickly move funds across multiple wallets and foreign exchanges, making it difficult for law enforcement to trace or recover the money. This method of operation is more efficient for scammers compared to traditional scams, such as gift card fraud.
Conversations with Scammers
As part of the investigation, Curt’s team had intriguing interactions with scammers. In one encounter, a scammer expressed frustration when they suspected that their scam was being exposed. Another colleague engaged a scammer who initially maintained a façade but eventually revealed the scale of their operations, boasting about the millions of dollars they were transferring each month.
Victim Profile and Regulation
The relative lack of regulation surrounding cryptocurrency plays a role in the success of these scams. Some states are taking action, with 18 states enacting laws concerning crypto ATMs and scams. However, lobbying efforts from crypto ATM companies have led to diluted legislation that could have better protected consumers.
Avoiding Scams
To avoid becoming a victim of crypto ATM scams, it’s crucial to remain vigilant and skeptical of unsolicited communications that demand urgent action. If someone claims you owe money and insists on immediate payment through a crypto ATM, it’s highly likely to be a scam. Verifying any claims through official channels is always advisable.
Conclusion
While using a crypto ATM may be convenient for some, individuals should be aware of the significant fees associated with these machines. As the conversation continues, it’s clear that awareness and education are vital. If you know someone who might be susceptible to these scams, such as those unfamiliar with cryptocurrency, it may be beneficial to share this information with them.
