How China Accidentally Created a Billion Dollar Scam Industry

In 2021, online scams suddenly became dramatically more effective. Previously, the victims were mostly seniors, and the amounts stolen, relatively small — a few hundred here or there in iTunes gift cards. Those were the simple days. A friend request from the “IRS. ” A cartoonishly rich “Nigerian prince. ” An inheritance from a “cousin” you don’t have. Not anymore. The median victim in one recent survey lost one hundred thousand dollars. A third were driven into debt. And the targets — CEOs, police officers, even financial advisors — are increasingly young and tech-savvy — about 37 years old on average. Gone are the days of petty, opportunistic swindling. Organized, industrial-scale cartels have taken over. And it all happened seemingly overnight. In just two years, the total losses from cybercrime more than doubled. Normally, new scams evolve gradually over the course of years. By the time they’ve been perfected, authorities have already inoculated the public against them. But not this one. It’s as if it was developed in a lab, then suddenly unleashed, in its most lethal form, on unsuspecting targets. At least, that’s how it looks from the U. S. Kevin Mei and Professor John Griffin at UT Austin recently analyzed thousands of cryptocurrency transactions associated with these scams — payments, in other words, made by victims. What they found is that if you look only at U. S. -based crypto exchanges, like Coinbase, Gemini, and FTX, these scams did, indeed, appear out of nowhere. But, when you look at all exchanges, you can see that these scams had been going on long before they reached America’s shores. So who were the first victims? Each of these rows represents an hour of the day. The larger the rectangle, the more scams occurred at that time. Before 2021, these scams were highly concentrated in just one window: China’s afternoon and evening. After 2021, they occur at all hours of the day. For years, this new scam was directed almost exclusively against Chinese victims. Then, in 2021, it was abruptly re-directed toward unprepared Canadians, Europeans, and, above all, Americans. But why? Sponsored by Nebula, the exclusive home of “Abolish Everything,” our new fast-paced live comedy debate show, “China, Actually,” my 7-part deep dive on China, and many more Original series. October 1st, 1949 was a very bad day for Chinese dissidents, academics, and entrepreneurs. Over the next three decades, the Communist Party would force millions of these persecuted groups out of the country. But poets and activists weren’t the only groups feared by the state. Strong, one-party governments also fear organized crime, for many of the same reasons. Gangs, triads, and other criminal syndicates challenge the party’s monopoly on power. Dissidents fled to nearby, Chinese-speaking territories like Hong Kong and Macau in search of freedom. But so did the triads. Where the state is weak, criminals thrive. And Hong Kong, then a British colony, was 6,000 miles removed from the throne. Older viewers will have grown up watching dramatized depictions of this criminal underworld in the form of 1970s Bruce Lee action movies. But if the triads found in Hong Kong a hospitable climate, they truly realized their full potential in nearby Macau, then ruled by Portugal. Lisbon was even less interested in policing this tiny enclave just 100th the size of Rhode Island than London was in Hong Kong. Plus, Macau had legalized casinos. And where there’s gambling, crime is never far behind. For a time, this was a pretty dangerous place. There were turf wars in broad daylight. Corruption was rampant. And violence became routine. Then, in 1997, and 99, Hong Kong and Macau were handed back to China

as separate, semi-autonomous regions. Suddenly, the throne was a whole lot closer. And the king had no patience for lawlessness. China was in the midst of an unprecedented economic transformation. And turf wars are, as you might imagine, bad for business. Everyone assumed this was the end of the triads’ reign. Instead, the Party offered them a truce. Beijing had big plans for Macau. Soon after the handover, all the American casino giants — Wynn Resorts, Las Vegas Sands, and MGM — were invited in for the first time. The goal was to transform the city from a seedy outpost on Asia’s periphery to the global center of gambling. But for that to happen — for MGM to invest billions of dollars in this new market — it would need to be reasonably sure its customers wouldn’t get shot while playing blackjack. In other words, the triads would have to respect the Party’s red lines — no open drug smuggling, no hitmen, no bullets in broad daylight. But, in exchange for their cooperation, they would be offered a new, even more profitable, form of employment… The triads would be offered a cut of what would soon become the world’s most lucrative gaming market. Here’s how it worked: China, recall, was in the middle of an economic explosion. People all over the country were striking rich every day of the week. But getting that money out of China wasn’t easy. …Unless you gambled it. Get caught with a million dollars in cash at the Macau airport? That’s going to raise some eyebrows. But win a million dollars playing baccarat? No one bats an eye. That’s just another Tuesday at The Venetian Macao. Of course, that still leaves one problem: to play, you’ll somehow need to get your hands on some casino chips. And China will only let you take fifty grand out of the country each year. Normally, The Venetian would love to lend you some money, except that gambling debts aren’t legally enforceable back in China. And Las Vegas Sands isn’t going to risk you running across the border, where they can’t collect their money. Enter: the triads. They have no problem enforcing debts. They’re really efficient at it. In fact, they don’t even need to waste a judge’s precious time! Triads, in other words, operated as middlemen — bridging the gap between the big spenders in China and the casinos in Macau. Legally, they would register as “junkets,” effectively “promoters. ” They would rub shoulders with Chinese millionaires, put them on a private jet to Macau, give them chips to play with, and take them to private “VIP” rooms with high limits, attentive staff, bottomless Baijiu, and above all, complete discretion. Casinos got high-paying, low-risk customers, junkets received a healthy commission, and the government could claim massive economic growth. In 2019, tiny Macau generated $36 billion in gaming revenue — over half of which came from these “VIPs. ” Las Vegas generated just twelve. The former made most of its money from the global 1% betting millions of dollars in dimly-lit back rooms. The latter optimized for volume — making a modest profit, one bachelorette party at a time. Those back rooms became so insanely profitable, in fact, that Las Vegas Sands gave up on bachelorette parties altogether — selling all of its Vegas properties and doubling down on Macau, despite its name. And just like that, China killed three birds with one stone — swiftly shoving the city’s crime problem under the rug, taking its economy to new heights, and showing the world Hong Kong and Macau were in better hands now than under London or Lisbon. Plus, it got hired thugs on standby. Beijing would occasionally call on the triads to do its dirty work — beating up pro-democracy protestors in Hong Kong, for instance. Then came Xi Jinping. After assuming power in 2012, Xi became convinced that China had fundamentally lost its way. Its relentless obsession with economic growth, he believed, had blinded the Party to what was truly good for the nation.

Sure, in 2014, Macau’s GDP per capita was $88,000, nearly twice the United Kingdom’s. But at what cost? That $88,000 was earned by funneling wealth out of China — in many cases, by corrupt government officials. The truce had served its purpose. But the triads had long since overplayed their hand and overstayed their welcome. And this time, Beijing wasn’t negotiating. In 2021, the founder of Macau’s largest junket was arrested and sentenced to 18 years in jail. The message was clear: Beijing wanted Macau to become more like Las Vegas. Smoke-filled rooms should be bulldozed and replaced with family-friendly resorts — even if that means much slower growth. Gambling revenues plummeted. The party was over. After a 7-decade reprieve, the Communist Party had finally caught up with the triads. Which meant, once again, they had to find a new home. And the obvious choice was Southeast Asia — a region notorious for its instability. This area, for example, called the “Golden Triangle,” is where most of the world’s opium is grown. The triads wasted no time. They quickly built casinos in the Philippines, Thailand, Cambodia, and Myanmar — some legal, others not, and some nestled in “special economic zones,” beyond the reach even of police. The pitch to customers was simple: Beijing now had its eye on Macau. But if you were a rich businessman or a corrupt bureaucrat still looking to discreetly funnel your wealth out of China — or just hang out and play some baccarat — come to the Philippines! But things quickly went sideways. About five minutes after they got resettled, the plan was once again disrupted — this time, by the pandemic. After China sealed its borders, these casinos immediately lost access to nearly all their customers for three long years. So, they got creative. First, they did what we all did — they tried work-from-home. Players, from inside China, would illegally bet money remotely, from their phones, while watching live video of a dealer, thousands of miles away. But given the risks involved for gamblers, never mind that Zoom is no substitute for the stimulating atmosphere of a casino, this wasn’t nearly as profitable. Thus, they started branching out. They only pivoted to gambling back in Macau, after all, because they had to. The goal was simply to make money. And that’s when they discovered online scamming. Of course, they didn’t truly “discover” online scamming. But they did perfect it — introducing a whole new level of sophistication. It starts, like earlier scams, with a message from a stranger. “Is this Kevin? ” “No,” you say, “you’ve got the wrong number. ” Previously, this is where the scammer would make their move, immediately asking for money to help remove a “virus” or sending you a link to a fake website where you’d enter your real password. Their goal was to get in and out, as fast as they could, with whatever they could — smash-and-grab. Partly, this was motivated by basic psychology. Generally speaking, the longer the scam and the larger the sum, the more skepticism it inspires. You might send $50 in a panic, but you probably won’t transfer five thousand dollars before calling your grandson. And partly, it was driven by economic necessity. Scammers don’t have much time to dedicate to any individual victim. That is, until now. What these scammers realized is that the juice is worth the squeeze. Trust, which is built through repeated exposure over a long period of time, can turn a $50 scam into a five hundred thousand dollar scam. The math works: you can target just one percent as many victims and yet still earn one hundred times as much profit. It’s called “pig butchering. ” Here, the goal is to “fatten up” your target, investing massive resources up-front for a massive payout, later on. So, instead of immediately sending a link, this is where the scammers will do their homework.

They’ll research your LinkedIn, zoom in on the background of your Instagram photos, and memorize your favorite movies. “Sorry,” they reply, “I thought you were my roommate from Boise State — go Broncos! ” That being your alma mater, your ears perk up. And as someone prone to loneliness — something the scammers selected you for — you’re not one to miss out on a potential friend. For the next few days, weeks, or even months, this person doesn’t just pretend to be your friend, they truly become your friend. They tell you “good morning,” they discuss the latest season of Severance, remember your dog’s name, and ask you how your day is going. Eventually, the topic of conversation shifts to finances. You mention that you’ve still got some student loans or, perhaps, some doubts about your retirement. They, on the other hand, are doing quite well for themselves. And as your “friend,” they want to help you get debt-free by teaching you how to “invest. ” But despite already investing months “feeding” this pig (you) they still resist the urge to make some bacon. Even now that you’ve come to trust this person, you’re probably not going to withdraw your entire 401k just because someone told you to over WhatsApp. But sure, you’ll invest $200. What’s the worst that could happen? The scammer patiently walks you through investing this money on a perfectly legal, perfectly legitimate crypto exchange. A week later, the Bitcoin you bought is up 10%. On your “friend’s” advice, you sell and withdraw it. You see $220 in your bank account, with your very own eyes. Now you’ll withdraw your 401k. “You did great,” your friend says, “now it’s time to really pay off your loans. ” He or she then directs you to a second crypto-exchange. They pressure or guilt you into “investing” more money than you’ve ever had, more than you’ve ever seen. You borrow money from your sister, you apply for more credit cards, and you “invest” it all. And then your friend, who by now may have become more than a friend, disappears. Panicked, you call the crypto exchange. And they explain to you that the second website wasn’t theirs — it just used the same name — it was a website the scammer created. Your money is gone forever. And so is the person you trusted. And that’s what makes this scam so devastating. It leaves a hole in the victim’s bank account and a hole in their heart. Now, we mentioned earlier that scammers don’t typically have much time to spend on any one victim. Yet this method is clearly highly labor-intensive. …Which is where the second part of this scam comes in — recruitment. The scammers are themselves victims. Random messages are sent to vulnerable targets — nearly all Chinese — offering well-paid jobs in Thailand, which is visa-free for Chinese citizens and just a short, few-hour flight away. Then, after landing in Thailand, these recruits are smuggled across the border to Myanmar. In 2021, Myanmar’s military overthrew the democratically elected government in a coup. Since then, the country has been fighting a violent civil war. The junta controls only a tiny fraction of the nation’s territory — mostly its cities — leaving the countryside to hundreds of resistance factions. In other words, the state isn’t just weak, as in Portuguese Macau. In most areas, there isn’t a state at all. Out of 193 countries analyzed by the Global Organized Crime Index, Myanmar is ranked #1. Somehow it makes even Afghanistan look like Disneyland. Here, criminals operate industrial-sized scam compounds with impunity. Inside, scammers, whose passports are withheld, live in densely packed dormitories and eat from on-site cafeterias. They chat with potential victims for up to 16 hours a day, 7 days a week, until they’ve earned their “right” to leave. Contact with the outside world is strictly forbidden. Needless to say, this is as profitable as it is cruel. It combines the low overhead of sweat-shop manufacturing with the high margins of luxury retail. Now, until recently, nearly all the targets were Chinese. These Chinese triads recruited scammers from China, who, naturally

spoke Chinese and knew what to look for in Chinese victims. Eventually, however, Beijing grew impatient. Pig butchering became both a significant drain on its economy and a source of public outrage. The United States Institute of Peace estimates that online scams generate $12. 5 billion in Cambodia alone. For comparison, the country’s entire GDP is just forty-two billion. And the United Nations believes there may be as many as 300,000 people employed in scam compounds — the vast majority against their will. So, in 2021, China banned the use of cryptocurrency completely — effectively cutting off the primary way scammers received their money. And it began putting pressure on the authorities in Myanmar to crack down. Previously, Beijing had tried to hedge its bets, neither supporting, nor condemning the coup, which it called, quote, “a major cabinet reshuffle. ” Then, in 2023, it gave notice to the junta — offering tacit support for a coordinated rebel insurgency. The rebels, after promising to wipe out scam compounds, secured more territory than they had since the civil war began. This got the junta’s attention. After dragging its feet for years, it finally began taking China's demands more seriously. Recent reports indicate that Myanmar has begun rounding up and deporting scammers in significant numbers. But the triads are nothing if not adaptable. And why tear down these massive scam compounds when their focus could just be re-directed elsewhere? Beijing will only spend political capital in Myanmar to the extent its own citizens and its own economy are affected. And the junta is motivated to keep looking the other way — money from these scams is thought to end up in the government’s pockets. And that’s how pig butchering arrived on America’s shores, seemingly out of nowhere. Like China, America has a large and wealthy middle class. And, like China, loneliness is all too common, making its population especially vulnerable. Over the past 75 years, Beijing has only ever managed to kick the can down the road or, more recently, shove the problem off to someone else. By repeatedly “cracking down” on triads — first on the mainland and then in Macau — it pushed them to increasingly lawless places, further from its reach. Each time, the triads came roaring back even stronger than before. If Washington is to do any better, it will have to address the root of the problem: global pockets of instability. And that will prove especially difficult in Myanmar, where instability is historically more the rule than the exception. In this nearly hour-long documentary, RealLifeLore explains how Myanmar became the only failed state in Southeast Asia and how the recent coup transpired — including how it was accidentally filmed in the background of a woman’s aerobics class. This, and countless more Original series, including mine, called “China, Actually,” are exclusively available on today’s sponsor, Nebula. Nebula is our creator-owned, ad-free streaming service. You give us but three dollars a month and we give you hilarious, insightful, and absorbing high-budget Original series. Recently I’ve been watching “Abolish Everything,” a fast-paced live comedy debate show. Comedians roast their pet peeve — speakerphones, dentists, “beeps” — and a panel known as the “Political Establishment” rebuts them in front of a live audience. On a completely different note, another fantastic recent Original is Tom Nicholas’ “Boomers” — a documentary about the lives and legacy of the Baby Boomers. Most of the time generations are discussed, they’re either blindly celebrated or reflexively demonized. Tom Nicholas manages to do neither — Boomers is highly nuanced but it’s also interesting and insightful. I learned new things even having made videos of my own about demographics in the past. All that is in addition to ad-free versions of the videos you already love, early and bonus videos, and a frankly amazing set of iOS and Android apps. You can even give Guest Passes to your friends so they can watch Nebula with you — for no extra charge. Now, normally, Nebula costs $6 a month. But you can get it for just half that

by signing up for a year with the link on screen or in the description below. That’s just $3 a month for all these exclusive Originals and much more. Alternatively, if you’re not a fan of subscriptions, you can buy Lifetime access to Nebula for a one-time payment of $300 using the Lifetime link below.