Chapter 1: What recent events highlight the global impact of scams?
In January, a 38-year-old Chinese-born entrepreneur named Chen Ji was arrested in Cambodia and extradited to China. He was one of the richest people in Cambodia and one of the best connected. He was an elite businessman who also served as a government advisor. A few months before this arrest, it was the U.S. government who went after Chen.
They designated his holding company a transnational criminal organization, and they charged him with fraud and money laundering. They also seized $15 billion worth of crypto. Where did all that crypto come from?
Chenji, in addition to running a real estate development firm and other businesses, allegedly ran a massive online scamming operation that specialized in what the Chinese call pig butchering. That means fattening up the scam victims for months or years. And then when the time is right, the slaughter. U.S.
prosecutors say that cybercrime in Cambodia generates as much as $19 billion a year, which would account for roughly half of the Cambodian GDP. The U.S. government says that scammers in Southeast Asia stole $10 billion from Americans in 2024 alone. There were other victims, too. After Chen was arrested in Cambodia, thousands of his workers fled the country.
They had reportedly been trafficked to Cambodia and they were being held against their will at scam compounds. Today on Freakonomics Radio, is it fair to call scamming an industry?
It is absolutely an industry, a very complex, always evolving, very competitive industry.
We will hear how the industry works from getting hold of your data.
Privacy is a myth. Our information is out there and it is available to the highest bidder.
To the daily economics of the industry.
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Chapter 2: How does the scam industry operate and generate revenue?
So that sounds terrible. It also sounds very handmade, right? It's kind of a one-to-one and it's very time intensive and all that.
It is. And scams have changed so much since then. This was in 2013, 2014.
So the Internet makes it a little bit easier to be more efficient, I would assume.
Absolutely. And then you're safer from prosecution. If you don't reside in the United States, why spend all of your effort trying to meet people in person? That's really costly when you can blast out an email to thousands of people. Some of the cases that we encountered were lottery scams.
And it was almost like no amount of reasoning with the older adult would be enough to safeguard them and have them walk away.
What's the lottery scam? How does that work?
You first get some windfall, some reward. Often in a lottery, it's money. But in order to get that money, you have to pay taxes. You have to pay the shipping fee or the money transfer fee. You're seeing the same scam recycled with kind of a different premise every time.
OK, now you've just hit the nail on the head, because the reason we're here, Marty, is because of an email that I received that turned out to be the first of many. And as they kept coming, I wised up to it. But the first one and then even the second one, I was more enthusiastic even after the second one. Can I just read it to you and you'll tell me what you would have made of it?
Yeah.
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Chapter 3: What statistics reveal the extent of scam victimization in America?
The FTC compiles a variety of data sets from complaints they receive directly, also from the Better Business Bureau and from state attorneys general and so on. They also try to account for under-reporting.
And so, Daffin estimates, in 2024, in the U.S., Between $31.3 billion and $195.9 billion was lost to fraud. If we make a really conservative assumption, we get $10.1 billion lost by older adults and $31.3 billion overall lost.
But if we assume instead that what we're seeing in our database only reflects 2% of losses from consumers who lost under $1,000 and 6.7% of losses for consumers who lost $1,000 or more, that's when you get the estimated loss of $195.9 billion. It's really astronomical.
And here's Marty DeLima again.
Scams absolutely ruin the lives of millions of people. They also erode our trust. They erode our trust in legitimate communication, in systems that we need to rely on, and in each other.
I'm really glad you bring that up. That was something that drew me to this idea in the first place. Because my feeling is that if you have to read every single email you get or answer every phone call or judge any in-person meeting,
through this filter of I may be being taken advantage of in some way, I mean, my reaction is just to say, well, I don't want to read any emails or get any phone calls or meet anybody. And when we look at the data in the U.S. in what's called social trust over the past 40 or 50 years, it really has declined a great deal.
And I do wonder if there's any way to connect the loss of social trust to the amount of scammery, whether it's the newer digital versions or the older in-person scammers.
People have done surveys on people who've experienced fraud and do find that there's a diminishment in social trust and interpersonal trust. The issue is that it's hard to know the timing. Were these people entered into this survey as being not as trusting to begin with, or did the scam actually cause them to lose their trust? And that's hard to separate without good longitudinal data.
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Chapter 4: Are older adults the most common targets for scams?
That is Mark Frank. He teaches communication science at the University at Buffalo. His PhD is in social psychology, and he specializes in lying and deception. For someone like him, these are busy times.
There's always this arms race with the scammers. As a scam is discovered, something to deal with it comes up. The scammers come up with something to defeat that. And then the scam catchers come up with something to catch them.
Frank says that scamming goes back to even our pre-human ancestors.
We see this ability in the great apes, right? If you drop a bunch of fruit in front of a chimpanzee, that chimpanzee will look around. And if nobody sees it, he's going to hide some away.
Frank has interviewed human scam artists. He knows how they think and why they are successful.
They're really good at identifying your motives, and they feed those back to you. It's one of the things that gives you the confidence and makes you feel they understand you. Social media, AI, the world being connected has turbocharged this. You can send a message now out to 100 million people
And if you get 0.01%, that's still 10,000 people who will maybe send you $1,000, and all of a sudden you've got $10 million. This is something the face-to-face scammer can't really pull off. There are some people who haven't heard of, you know, Nigerian princes finding a person of outstanding character like you to help them.
The piano scam is just a recycling of the age-old Nigerian prince scam.
And that, again, is the gerontologist Marty DeLima. In case you haven't heard of the Nigerian prince scam, here's how it works.
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Chapter 5: What psychological factors make individuals susceptible to scams?
And governments, some of them late to the game, are stepping up.
We've been able to return billions of dollars to consumers over the years.
I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. It was the U.S. Department of Justice that seized $15 billion worth of crypto from Chen Ji, the alleged kingpin of the pig butchering operation in Cambodia. But most of the scam fighting in the U.S. runs through the Federal Trade Commission.
The FTC's Bureau of Consumer Protection has a number of different litigating divisions.
That again is Katie Daffin, who was working at the FTC when we interviewed her.
There are folks who focus on privacy and identity protection, folks who focus on financial practices. The Division of Marketing Practices is focused on this more fraud and scam work.
Daffin worked at the FTC under four presidential administrations.
We always do our law enforcement. We always do policy work to try to make things harder for scammers. We're always trying to follow the scammers from one scam to the next. We can see sometimes how either the scammers who are on the fringes of something we just took down will go and start their own thing, or they'll team up with another company we've seen on the margins that is now scamming.
stepping forward to fill a gap after we shut down a scam. But over time, one thing that we've had more and more success at doing is spurring industry to develop technological solutions to combat fraud. I was involved in our first competition under the America Competes Act,
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