Forward the Original Title: What is a crypto money mule scam and how to avoid it?

Key takeaways

A crypto money mule scam involves unsuspecting individuals transferring stolen cryptocurrency for criminals, thinking they are part of legitimate activities.

Common recruitment tactics include fake job offers, investment schemes or partnerships with decentralized exchanges that involve moving illicit funds.

Warning signs include unsolicited job offers, requests to move crypto to unknown wallets and promises of high returns for minimal effort.

Even if the mule is unaware of their involvement in illegal activities, they can face severe legal consequences, including money laundering charges, fines or imprisonment.

Back in 2017, Jamie Dimon, CEO of JPMorgan Chase, remarked, “If you were a drug dealer, a murderer, stuff like that, you are better off doing it in Bitcoin than US dollars.”

This idea still holds true in 2024 — despite broader adoption and more advanced on chain analytics, crypto’s decentralized nature and anonymity continue to attract criminals, allowing them to move funds and hide identities with ease.

However, even with these advantages, the blockchain isn’t the perfect tool for money laundering — arguably the most crucial part of any illicit operation. Crypto criminals still have to rely on money mules, often unsuspecting individuals who transfer illicit funds on their behalf.

Indeed, individuals are often tricked into these activities through schemes known as crypto money mule scams.

But how exactly does a crypto money mule scam work, and what are the warning signs and legal risks? Let’s take a look.

What is a crypto money mule scam?

A “money mule” is someone who transfers stolen or illegally obtained funds on behalf of others, often in exchange for a small cut. In traditional finance, this usually involves moving money through bank accounts.

In cryptocurrency, the concept is the same, but instead of bank transfers, money mules handle digital assets like Bitcoin, Ether or other cryptocurrencies.

Perhaps a hacker gains access to someone’s cryptocurrency wallet through phishing and needs to withdraw it to an address under their control that doesn’t link back to them.

Alternatively, a scammer might plan to rug pull their project and require a crypto money mule to withdraw the invested money before closing the project, obscuring their own identity. In any case, in a crypto money mule scam, the mule is used to move illicit crypto between wallets or exchanges, helping criminals hide the origin of stolen funds.

The person acting as the mule might not even realize they’re involved in illegal activity. Scammers often target unsuspecting individuals with job offers, investment schemes or even romantic relationships to recruit them. Once the mule transfers the crypto, it becomes much harder for authorities to trace the money back to its illegal source.

Crypto money mules play a critical role in these operations because cryptocurrencies are harder to track and recover than traditional currencies, making them ideal for money laundering. Even though the mule may not be directly involved in the crime that generated the funds, they’re still a key part of the process of “cleaning” the money.

Did you know? Although similar in definition, a money mule transfers illegally obtained funds, whereas a “fencer” deals with stolen physical goods. Both are involved in criminal activities, but they operate in different areas — money vs. goods.

How does a crypto money mule scam work?

Now that you’ve understood the “why,” let’s look at the “how” of the scam. There are six key stages, as outlined below.

Recruitment: Scammers lure victims with fake job offers, typically involving crypto transfers. The mule, thinking it’s a legitimate role, agrees to participate.

Onboarding: The mule is given a crypto wallet or asked to use their own to receive and transfer cryptocurrency. They’re often paid a small commission for these transactions.

Transactions: The mule starts transferring crypto between wallets, unknowingly laundering illicit funds. They think they’re performing routine tasks as part of their job.

Laundering: As the mule transfers the funds, scammers move the money through multiple wallets, making it harder to trace. The mule continues believing they’re helping in a legal operation.

Detection: Authorities or exchanges flag the suspicious activity. The mule is often the first point of contact for investigations and may realize too late that they’ve been scammed.

Aftermath: The scammers vanish, leaving the mule to face potential legal consequences, including charges of money laundering, frozen accounts or fines. Despite their lack of knowledge, the mule is still held accountable.

Did you know? One of the largest money mule operations uncovered involved 8,755 money mules identified in a Europol-led investigation, with 2,469 arrests made globally. This massive operation, part of the European Money Mule Action (EMMA) initiative, spanned multiple countries and sectors, including cooperation with banks, cryptocurrency exchanges and fintech companies. The mules were involved in facilitating fraudulent transactions, helping criminals launder over 17.5 million euros between September and November 2022.

Examples of crypto money mule scams

There are three main ways that you can get unknowingly sucked into being a crypto money mule.

1. Remote job with a twist

Imagine being hired as a remote “account manager” for an international crypto payment company. You go through a legitimate-looking interview process, complete onboarding, and even receive a contract.

Once employed, your role is to process customer refunds by transferring crypto back to “clients” or other company accounts. You’re given detailed instructions on which wallets to send the funds to and receive regular payments for your work.

What you don’t know is that the crypto you’re moving is stolen, and each transaction is part of a larger money-laundering operation, funneling illicitly gained funds through your account.

2. Crypto investment partner

In this scenario, a victim is offered a role in a high-yield investment scheme. As part of the investment group, they’re asked to help “expedite transactions” between investors by moving crypto between specific wallets to “optimize returns.”

The scam operates under the guise of making trades on behalf of multiple investors. The victim, thinking they’re aiding in securing quick profits and solidifying their own position in the investment circle, unknowingly helps move stolen crypto through decentralized exchanges. By the time they realize the scheme was a scam, authorities are already looking into their role in laundering funds.

3. Crypto exchange partnership scam

A crypto trader is invited to join a new decentralized exchange (DEX) that claims to offer lucrative trading opportunities, particularly for arbitrage between different tokens. To maximize returns, the trader is asked to act as an “exchange facilitator” by helping move large sums of crypto quickly across different accounts during trading windows.

In reality, the trader is being used to launder stolen crypto by moving it between wallets on the DEX. Because the platform operates largely offchain, the transactions are hard to trace, and the trader is unknowingly caught in a scheme that makes the stolen crypto appear legitimate through repeated transactions across the platform.

In each of these examples, the unsuspecting person believes they’re participating in a legitimate activity, but they’re actually being used to help criminals launder stolen cryptocurrency, placing them at significant legal risk.

Warning signs of a money mule scam in cryptocurrency

When you’re being offered a large amount of money for minimal work, you’ll often try to overlook the red flags as you want to believe that it’s legitimate. This is called “belief bias” or “wishful thinking,” more colloquially.

So, it’s important to tighten your knowledge of the red flags. Here’s what to look out for:

Unexpected job offers involving cryptocurrency: Scammers often target people with job offers that seem too good to be true. If you didn’t apply for a job but suddenly got an offer to handle crypto transactions, that’s a major warning sign.

Requests to transfer crypto assets to unknown wallets: If a company or individual asks you to move cryptocurrency to wallets you’re unfamiliar with, this should raise alarm bells. Legitimate companies won’t ask you to handle their funds in this way.

Promises of high returns for minimal effort: Scams often dangle the idea of easy money. If a job or investment opportunity guarantees high profits without requiring much work, it’s likely a trap to get you involved in laundering stolen crypto.

Employers asking you to use your own bank account for transactions: Be wary if you’re asked to process transactions through your personal accounts. Scammers use this tactic to distance themselves from illegal activities, making it seem like you’re the one handling the stolen funds.

Did you know? Scammers typically rely on pressure tactics or secrecy to keep their victims compliant. They might rush you into making quick decisions without giving you time to think it over or ask questions. They’ll often emphasize the need for discretion, claiming that “confidentiality” is a part of the job or investment. If you’re being pressured or told to keep things secret, that’s a clear sign something’s off.

Legal consequences of being involved in a crypto money mule scam

Many feel immune from punishment, so long as they “were never aware” of the illegality. However, getting involved in a crypto money mule scam, even unknowingly, can lead to serious legal trouble. Here’s what you could be up against:

Money laundering charges: Even if you “didn’t know” the funds were stolen, law enforcement can still charge you with laundering illicit money under something called “wilful blindness” or “reckless disregard” if you were presented with the red flags but chose to ignore them due to belief bias.

Financial penalties or imprisonment: The consequences can vary depending on where you are, but the penalties are often severe. In some countries, you could face large fines, while others may impose prison sentences, especially if large sums of money or multiple transactions are involved. In the US, for instance, federal money laundering charges can lead to up to 20 years in prison and hefty fines.

Civil liability for losses incurred by victims: Aside from criminal charges, you could be held financially responsible for the losses suffered by the victims. This means you might be sued by individuals or companies that were defrauded and you could end up paying restitution.

Did you know? Ignorance of the law is not a defense. A famous example of this principle is Cheek v. United States in 1991. In this case, John Cheek, a pilot, was charged with willfully failing to file federal income tax returns, arguing that he genuinely believed that under the law, he was not obligated to pay taxes. The US Supreme Court ruled that willful ignorance or misunderstanding of tax law could not shield him from liability.

Steps to report a suspected crypto money mule scam

Of course, many red flags take time to appear. If you start to suspect you’re involved in a crypto money mule scam or come across one, taking action quickly is essential. Aside from immediately ceasing to work with the scammer, here’s how to report suspicious activities:

Report the activity to the crypto exchange or wallet provider: If the scam involves a cryptocurrency platform, it’s important to alert the exchange or wallet provider where the suspicious transactions occurred. For example, Coinbase has a feature that allows users to flag suspicious activity and report fraud. Once a report is filed, they can freeze the account or wallet involved in the scam to prevent further transfers.

Use specific online platforms for reporting to law enforcement agencies or financial crime units: Depending on where you are, there are online resources available for reporting crypto-related scams. In the US, you can report suspected money mule scams to the FBI’s Internet Crime Complaint Center (IC3). Another option is to contact the US Secret Service, which has a dedicated unit for cybercrime investigations. In the United Kingdom, you can use Action Fraud to report cryptocurrency fraud. They will forward the case to the National Crime Agency (NCA), which handles large-scale cybercrime and financial fraud investigations.

Provide detailed information: When reporting a scam, be as specific as possible. Share any relevant details, including wallet addresses, emails, transaction IDs and the dates of the transfers. The more information you provide, the easier it will be for investigators to track the activity.

By reporting the scam, you’re not only protecting yourself but also helping prevent others from falling into the same trap. In the divine words of the British Transport Police, “see it. Say it. Sorted.”

Disclaimer：

1. This article is reprinted from [cointelegraph]. Forward the Original Title “What is a crypto money mule scam and how to avoid it?”. All copyrights belong to the original author [Bradley Peak]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.