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Why the US and China Should Work Together to Solve the Global Scam Crisis

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Trans-Pacific View | Security | East Asia

Why the US and China Should Work Together to Solve the Global Scam Crisis

Both nations have a shared interest in cracking down on online “pig butchering schemes.” It could show that the two nations can still work together for mutual benefit.

Why the US and China Should Work Together to Solve the Global Scam Crisis

A publicity still from the Chinese film “No More Bets,” which details the workings of a cyberscam operation in Southeast Asia.

Credit: IMDB

The rise of cyber-scam syndicates in Southeast Asia constitutes a global crisis. CNN and The New York Times recently ran exposés on these operations, which extract billions of dollars from victims across the world, often through cryptocurrency. One type of cyber-scam, the “pig butchering scam” – shazhupan in Mandarin Chinese – involves the grooming of victims over months, a process akin to the fattening up of a pig for slaughter. Their perpetrators lurk in dating apps and social media, often weaving romance and gambling psychology into their modus operandi.

While existing writings focus on the role of the nature of these operations and China’s recent crackdowns, we argue that the U.S. and China, as the world’s two great powers, should come together in combatting these transnational criminal organizations. In working together, they will have greater effectiveness than they would working separately.

We make the following three points. First, the impact of these crime syndicates has been economically, psychologically, and socially devastating to hundreds of thousands of individuals from the U.S., China, and many other countries. Based on voluntary reports to the FBI, at least $2.57 billion was lost in 2022 to pig butchering scams. The victims are commonly driven into borrowing and exhausting their savings, assets, and 401k accounts. California prosecutor Erin West posits that true losses could be three to 10 times higher. In China, police reports of pig butchering scams totaled $5.7 billion in losses in 2020. In both societies, victims are additionally shamed and maligned for falling victims.

Furthermore, many cases of cyber-scams go unreported, ignored, or miscategorized. This is why Chainalysis’ claim that only $5.9 billion was lost in 2022 to all crypto scams, including pig butchering, can be misleading. In the U.S., underreporting is particularly acute among Chinese speakers and immigrants, who often refuse to contact the authorities after falling victim to a scam. Local police often dismiss pig butchering scams as civil disputes with online friends and are generally resistant to taking in cyber, especially cryptocurrency, scam cases.

Underreporting aside, the monetary losses to pig butchering scams impose massive psychological and opportunity costs for their victims, which disproportionately include entrepreneurs, executives, and professionals in all fields. Their victim demographic, mostly people in their 30s and 40s, is distinct from elderly frauds who constitute some of the most productive members of society. In other words, these scam operations sap the productivity and long-term outlook of targeted countries.

Second, these transnational criminal organizations directly harm regional stability. Many perpetrators have been victims of human trafficking themselves, toiling in sprawling casino cities and “technology parks” to meet quotas under duress.  They are lured in through promises of job opportunities, involuntarily detained and forced to run scams for 12-16 hours a day with little hope of escape. This involuntary imprisonment comes along with workplace violence, torture, and sexual abuse. These compounds have recently been established across several Southeast Asian countries.

The Association of Southeast Asian Nations (ASEAN) and other international institutions have been unable to come up with a cross-cutting and regional solution to these problems. Countries have individually approached the problems in their own domestic political system. Singapore last year arrested 10 formerly Chinese citizens and seized more than $2.8 billion tied to cyber-scamming in Cambodia, as part of a money-laundering probe. A single raid last year on a cyber-scam compound in the Philippines netted 2,700 workers, and a further 1,400 in another. The U.N. Office on Drugs and Crime has estimated that 100,000 people in Cambodia and 120,000 in Myanmar have been trafficked into online scam operations. Chinese authorities have argued that 400,000 Chinese nationals are working for Southeast Asian cyber-fraud operations.

In a typical scenario, scam compounds are raided by police, and dozens to thousands of indentured workers are freed, but the principal owners simply relocate and are soon back in business. A major reason why scam compounds prop up continuously after raids is that these organizations are as powerful as some states themselves. They likely earn billions of dollars annually, rivaling the GDP of ASEAN nations such as Laos and Cambodia.

These scam organizations negatively affect regional security and stability. In Myanmar, the ethnic armed groups and the junta have both been infiltrated by these organizations. In Cambodia, political elites have long been connected to these criminal groups. In Malaysia, the Philippines, and Thailand, business elites have directly invested in cyber-fraud operations. The criminal organizations perpetuate development problems in the region by short-circuiting law enforcement and perpetuating corruption. Since these groups have private military forces, they can enact laws in their own compounds, leading to the rise of money laundering, sex work, smuggling, human trafficking, drugs, and other issues.

Third, the U.S. and China can have synergy on this issue of mutual interest, i.e., the two countries can positively influence Southeast Asian countries in different ways.

The U.S. is a strategic partner to many Southeast Asian countries, including the Philippines, Vietnam, Indonesia, and Thailand, providing military exercises, weapons upgrades, and capacity-building programs.

The U.S. can add to these partnerships by training Southeast Asian police to combat cyber-fraud operations, cybersecurity threats and cryptocurrency-mediated crimes of transnational syndicates. The U.S. experience in fighting against narcotics and drug triads in Latin America can be helpful. Suppressing these criminal organizations can go a long way to promoting good governance and regional stability. The U.S. can also assist in the protection of trafficking victims through human rights training. A greater U.S. role in combating cyber-scam syndicates in Southeast Asia is consistent with the White House’s National Cybersecurity Strategy.

China is a similarly important player in the region. It is the region’s largest trading partner and the second most important economic player in Southeast Asia in terms of direct investments and development finance. Politically, China is becoming a far more important actor in the region. In recent years, China has increased its security presence in Southeast Asia, and shown a greater willingness to intervene beyond its own borders in order to ensure its own security. This presence is particularly strong in the mainland countries lying directly to its south, where the bulk of the scam operations are concentrated. Beijing’s Global Security Initiative (GSI) will likely see these relationships deepen further, as will the Lancang-Mekong Cooperation platform, which was initially formed to manage transboundary water flow between China and the riparian states but has recently become a forum for discussing security issues.

China has long grappled with telecom fraud and illegal online gambling syndicates in its Southeast Asian backyard. China can deliberately leverage this experience. It also has greater leverage in Myanmar, Cambodia, and Laos than the U.S. Some have argued that the cyber-scam operations in this region loom as a “test case” for the GSI.

There is another reason that the U.S. and China should work together to combat cyber-scam syndicates: it is another avenue for trust-building between the two superpowers, showing that they can work together for mutual benefit. While law enforcement cooperation may be a casualty of U.S.-China tensions, the challenges of deeper cooperation in this realm are not insurmountable. The recent summit between Presidents Biden and Xi yielded a tentative agreement to cooperate on counternarcotics. This cooperation should be extended to cyber-scam syndicates.