667. Here’s Why You Are Constantly Fighting Off Scammers

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1:17In January, a 38-year-old Chinese-born entrepreneur named Chen Xi 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.

2:04That 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?

2:48It 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. You can send a message now 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. So, is there anything to be done about it? Let's find out together, starting now.

3:38This is Freakonomics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner.

3:55OK, so let's start with this. Just how much scamming are Americans dealing with? There is a lot of variation in estimated prevalence of scams and fraud. That is Marty DeLima, a professor at the University of Minnesota. The best estimates, and I'm about to do a meta-analysis on this actually, indicate that fraud affects 10 percent to potentially 20 percent of Americans per year. And when you say affects someone, that's a very wide verb. Does that mean there's a loss involved? It means that they transferred money to the criminals and the base rate of exposure is incredibly high. Give me a day that you haven't received a bogus text message, a phone call, a scam email.

4:46I mean, imagine if other types of crimes targeted us at that same base rate. DeLima isn't a criminologist or a psychologist. She is a gerontologist, which means she studies human aging. And she teaches in Minnesota's School of Social Work. Her research focus is quite specific. I'm very oriented towards the older adult who's the victim of scam. So scam is a type of trauma. It's a betrayal trauma. We definitely need trained clinical mental health workers in this area. Scam victimization often leads to suicide. How well known is that connection? I could imagine given the private nature of suicide, that could be hard to enumerate.

5:31It's often not known, unfortunately. But what's been striking is talking to providers in this space, people who counsel victims and their family members, they're always surprised by how raw victims are and how their life view kind of shatters, how they hold themselves, their self-efficacy, and then the financial costs as well. It often leads to the sense of deep hopelessness that results in suicide. Are older adults the most common scam targets or maybe the most common victims? There's a myth that older adults are more trusting and that they lack sophistication with different forms of technology that causes many young adults and middle-aged adults to think that they're less susceptible to scams.

6:18But that's just not what we see necessarily in the data. You typically see that it's middle-aged adults. They tend to report victimization at the highest frequency. And it is true that for different types of scams, we see different age groups being more likely to be targeted and victimized. For example, fake job opportunities and online shopping scams, that's way more likely to be young people. We also know that some of these extortion scams are targeting young men, like young boys, teenagers and preteens. But there are some scams that do seem to affect older adults at greater rates. One example is the tech support scam.

6:57we do see that when older adults are victimized, they have far more money stolen on average. So it could be that older adults are experiencing certain types of scams where more and more money is being requested by the criminals, and it's not getting reported until the person discovers this is a scam, and by that point it adds up to$10 ,000. But it also could be that older adults have more assets to exploit. It's possible that scammers are asking for more money from those individuals. Looking at the most recent data from the Federal Trade Commission, we see that adults, I believe, 80-plus report somewhere around a median amount of$1 ,400.

7:47And then adults 50 and younger, it's closer to$400,$500. So it's like three times more. Let's hear about you for a minute. How did you come to be a gerontologist in academia looking out for fraud? When I was a graduate student, I actually sat in as part of a research project on the Los Angeles County Elder Abuse Forensic Center. That's a multidisciplinary team of law enforcement, adult protective services, health care workers. Some of the cases involved scams and fraud. And I was fascinated by those cases because in many of them, the older adult didn't seem to have clear indicators of vulnerability or cognitive impairment.

8:31So they didn't look necessarily like some of our other victims in those cases who were incredibly vulnerable, sometimes bedbound. And the perpetrators weren't individuals that they had this lifelong relationship with, like an adult son or daughter. They were strangers. Can you give me an example of the kind of financial fraud by someone who was not known to the victim that you came across as you were doing your graduate work? Some of the scam cases that would come through involved older adults who are approached by scammers in person. Sometimes they would be pumping gas at the gas station or they would be at the supermarket.

9:08And it was often a young woman who would come up to an older gentleman, say, oh, I'm in an abusive relationship. I'm running away. Can I get some money? And then that would just start this predatory relationship where in the end, in some of these cases, the woman would move in to the older adult's home, move them into a back room or get them placed in a nursing home. 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.

9:54Absolutely. 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.

10:39You're seeing the same scam recycled with kind of a different premise every time. Okay. 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. Just wanted to reach out again, this person wrote. Her name, by the way, is Ms. Janeth, J-A-N-E-T-H, which sounded real enough to be real.

11:14Just wanted to reach out again. I wanted to check in regarding the message I sent earlier about the Yamaha piano that belonged to my friend's late husband. It's a special piece with a lot of meaning, and she'd be so happy if it went to someone who truly appreciates music. And then she keeps going, if you or anyone you know might be interested, she'd be happy to share more details. So should that have been enough, just that offer of a free piano to have had my guard up? It depends if you're actually in the market for a piano, right? That's the thing about these scams. It could be a totally mass market email to as many email addresses that they could scrape off the internet.

11:52But then there's the couple people out there who, you know, that sounds like a great offer. So I don't think that they were actually targeting you in particular, but I do think that it would be effective for some people. All right. My feelings are a little bit hurt that I wasn't being targeted directly. So what should I have done at this point? If you had detected it was a scam, you should report it as such using your email client. Usually there's a little button at the top of your email and your browser that says spam or report spam. And I would just click that. Oh, yeah. But but doesn't that happen a trillion times a day?

12:31Like, what is the provider actually going to do? That's not an actual fraud alert. That's just like a spammy email alert, right? It gives them data on the types of messages and where those messages are coming from that are scammed. So maybe they can block it from getting to your inbox in the first place or pre-filter it as a potential scam. But you're right. That's not the same as reporting it to the Federal Trade Commission as a scam. Would this piano email that I got rise to the level of being reportable to the FTC? Absolutely. In fact, most of the cases that are reported to the FTC have zero dollars reported as what was stolen.

13:06So most of the case reports in the FTC's database are attempted fraud, not actual victimization. Okay, so let's hear from someone at the FTC. My name is Katie Daffin, and I'm an assistant director at the FTC's Division of Marketing Practices, which is where we really run the fraud program at the Federal Trade Commission. Actually, Daffin left government recently after our interview to start her own consumer protection firm. Anyway, the FTC began actively targeting scams in the 1960s and 70s during the consumer protection movement. Those were the days of chain letters and sweepstakes fraud. In the 1990s, as part of what was called Project Telesweep, the FTC started collecting data on telemarketing fraud.

13:54Today, it collects data on scams of all types and works with other government agencies to find and prosecute scammers. Last year, there was a 25 percent increase in scam theft compared to the year before. We are seeing such large increases in reported consumer losses to fraud. And the primary driver of that is with investment, romance and imposter scams. So how much money is being scammed? 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 underreporting. And so, Daffin estimates, in 2024, in the U.S.

14:41Between$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. 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.

15:37I'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.

16:21People 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. So what share of financial fraud committed against Americans is done by overseas perpetrators? I don't have numbers on the exact proportion, but the vast majority of scams are perpetrated by transnational criminal organizations.

17:04So my Ms. Janeth with the piano is probably A, not named Ms. Janeth, and B, probably doesn't live anywhere near the U.S., correct? That is correct. So let's hear a little bit more about that. How big is the industry, let's call it? Where is it concentrated? The scam industry today is very distributed. There is a cluster of criminal organizations that fall along the border of Thailand and Myanmar. Those are called scam centers. They're largely run by Chinese crime families. There have been recent military or paramilitary actions against those scam centers. Many of them are relocating or there's copycat scam centers in countries like Ghana.

17:56So moving over to the African continent, taking over organizations and labor that has already existed there. Then we also have the Indian scam call centers or the boiler rooms. What's interesting is that each of these organizations tends to run a different type of scam. Like the scam centers in Myanmar often ran the romance to crypto scams. What does that mean? The romance to crypto scam is often unfortunately called the pig butchering scam. Ah, yes, pig butchering. What happens is a person might get a random text message like, hey, how's it going? Or are you coming to the barbecue this weekend?

18:35And some of us, again, not most of us, but some of us might say, oh, I think you have the wrong number. Who is this? And then it might lead into just some interaction, very friendly. Then maybe after quite a few text messages. These are long cons, right? These don't happen overnight. The criminal might say, oh, by the way, my uncle is trading in this new cryptocurrency. He's let me bring in a few friends. Do you want to get in on it? I can help you download this app. And these scam centers also have app developers, so they can make really legitimate looking investment apps that make it look like your crypto investment is going up and up and up.

19:14And it's when you actually try to take out that cash, you realize that it's all smoke and mirrors and the money is gone. The other troubling thing is many of these scammers come back at their target pretending to help them recover their funds. So they might pretend that they're a local law firm or that they're a federal government agency. Oh, I have to say it. That's a really clever thing to do. One thing we can't forget is how much capital these criminal organizations have amassed. So they do have funds to pay marketing teams and to do A-B testing on messages. It's more sophisticated than most people know.

19:53I mean, these scam organizations have attorneys. They have HR departments. The scammers have to meet quotas. It is organized like a legitimate business. They use mass marketing tactics. But I think it's getting more and more tailored with the tools that AI affords us and scammers. they can do more kind of background research, especially on high-value targets. On individuals, you're saying? On individuals. When someone gets scammed, is it inevitably to some degree their fault? I'm not a victim blamer, but I'm just curious whether some of the scamming is so good that literally anyone, vigilant, smart, disciplined, etc., could still fall prey?

20:39There are scams that are literally so good that they could fool any of us. What are the best? Some of the best take advantage of existing problems with our slow bureaucracies, poor customer service. Let's say you get a text from your bank that says, did you make this purchase? It says you bought an Apple computer or something. So, of course, a wise, scam literate person would say, I'm pretty sure I didn't purchase an Apple computer. And this is probably a scam. But let me call my financial institution. And I'm not going to be foolish and click the number that appeared in the text message. I'm going to go on the website and I'm going to call their actual number.

21:28So here's the thing. Bank call centers are so busy that you often hear a message that we will save your place in line. Just click one, record your name, and we'll call you back when it's your turn. Scammers know this. So what will they do? They'll wait 30 minutes after they sent that text message and call you, and they will have faked the caller ID. So it will say Chase Bank, U.S. Bank, Bank of America, whatever the bank that they initially pretended to be. And ask you questions and confirm your identity. They'll probably have information about you already. They might have your full social security number, your name, your date of birth.

22:12And it works. And that would work for many of us. Once again, I'm not unimpressed. I mean, it's a business and they can be pretty good at the business plainly. Yeah. Yes. And privacy is a myth. Our information is out there. And it is available to the highest bidder. So we should expect that criminals will know our names. They'll know our social security numbers. They'll know our addresses. They'll know our mother's maiden names. And it just makes it so difficult to be able to parse what is real and what is fake. Coming up after the break, who will AI help more, the scammers or the scam chasers?

22:51I think that we're going to have AIs fighting AIs very soon. I'm Stephen Dubner. This is Freakonomics Radio. We will be right back.

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24:10The word scam entered the English language only in the 1950s. But don't be fooled. There are many older words in many languages that mean the same thing, because as long as there have been people, there has been scammery. In ancient economies, merchants cheated customers with rigged scales and fake coins. In religious contexts, there were fake miracle workers and counterfeit relics. A main ingredient in any scam is desire. Part of the reason why cons work is because we want them to work. We want to believe we're getting the deal, we're getting the special thing. That is Mark Frank. He teaches communication science at the University of Buffalo.

24:53His 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.

25:28Frank 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. It's turbocharged this. You can send a message now out to 100 million people, right? And if you get, you know, 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.

26:07There 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. The premise was, I am Nigerian royalty, and I have this big inheritance, but I need help moving it out of the country. For some reason, I've selected you to help me and you get a huge proportion of this inheritance. But first, you need to transfer money to cover some fee.

26:50And why do some scammers make their scams so obvious? The Microsoft researcher Cormac Hurley suggested one answer to that question in a 2012 paper called Why Do Nigerian Scammers Say They Are From Nigeria? DeLima explains. So scammers don't want to put a lot of effort and cost into chasing targets who aren't ultimately going to transfer them money. Right. So there's a huge cost to following up with more emails, more communication with would-be victims, but who would never actually go all the way. If you pick something, like say you're a Nigerian prince, that is so obviously a scam, the only people from a vast population that are going to fall into your net are the people who are the most susceptible.