What is a romance scam?

By 2027, it is estimated that 440 million people will use online dating apps to find love, making them one of the primary catalysts for igniting relationships. While happily ever afters are common on these platforms, so, unfortunately, are scams that exploit trust for financial gain.

According to research conducted by Lloyds Bank, the number of people who fell prey to romance scams in 2023 increased by 22 percent compared to the year prior. With one in ten dating profiles believed to be fake, heightened vigilance is needed by more than those using the platforms. Financial institutions (FIs) need to be able to recognize the red flag indicators associated with romance fraud and implement dynamic processes that can detect and block suspicious transactions. 

This article explores the nuances of romance scams, highlighting the common tactics used by fraudsters and the methods firms can employ to mitigate risk and safeguard their customers.

What is a romance scam?

A romance scam is a deceptive scheme where individuals, often posing as potential romantic partners, manipulate emotions to establish trust before exploiting victims financially. These scams typically involve creating a false identity, building a romantic connection, and then requesting money or financial assistance under false pretenses. 

Tactics used by romance fraudsters

While men are more likely to fall for romance fraud tactics, women tend to report higher average losses. Lloyds Bank also found that individuals aged between 65 and 74 consistently lose the most money to these scams each year, with an average of £13,123 – the highest amount of any age group. 

But how do these situations occur? Fraudsters typically employ some of the following common tactics to deceive their victims:

• Gifts and tokens: Scammers may send gifts or small tokens of affection to manipulate victims emotionally and establish a sense of reciprocity before requesting larger sums of money.
• Fake identities: Scammers often create fictional personas with compelling backstories to establish trust and emotional connection. In some cases, fraudsters impersonate professionals, like military personnel or business executives, to add credibility to their stories and gain trust.
• Love-bombing: This is when perpetrators shower victims with affection, compliments, and promises of a future together to quickly foster emotional dependence.
• Scripted conversations: Fraudsters often use pre-written scripts and templates to streamline communication, ensuring a consistent and effective approach with multiple victims.
• Threats and blackmail: In some cases, fraudsters resort to threats or blackmail, leveraging personal information shared during the scam to coerce victims into providing more money.
• Multiple victims: Romance fraudsters are known to engage with multiple victims simultaneously, juggling different deceptive relationships to maximize financial gains. In many cases, the victims are elderly individuals – also known as elder financial exploitation (EFE). 

Romance fraud red flags

The Federal Bureau of Investigation (FBI) has reported that scammers are increasingly utilizing romance scams as a conduit to persuade victims into cryptocurrency investments or trading ventures. Over an eight-month period in 2021, the FBI Internet Crime Complaint Center (IC3) documented a staggering 18,000 complaints related to romance scams, resulting in approximate losses of $133.4 million. 

This surge in financial exploitation underscores the need for heightened vigilance from firms as fraudsters seamlessly integrate the allure of love with the complexities of both traditional and digital financial landscapes. Key financial red flags to look out for include:

• Unusual transaction patterns: Frequent, unexpected, or large financial transactions, especially those involving overseas transfers.
• Crypto loans: A customer takes out a large loan and uses the proceeds to purchase virtual currency or wires the proceeds to a virtual asset service provider (VASP) for the purchase of virtual currency.
• Sudden requests for large sums: Rapid and substantial requests for funds, particularly coupled with a romantic narrative or emergency situation.
• Inconsistent account information: Discrepancies between the customer’s provided information and their transaction patterns, such as sudden changes in contact details or addresses.
• Unusual withdrawals or cash advances: Accounts with large balances that are inactive or have limited activity begin to show constant, uncharacteristic, sudden, abnormally frequent, or significant withdrawals of large amounts of money being transferred to a VASP or being exchanged for virtual currency.
• Multiple unrelated parties sending money: Detection of numerous individuals sending funds to the same beneficiary, especially if there’s no clear connection, may be a sign of a romance scam network.
• Isolated transactions outside typical customer behavior: Transactions that deviate significantly from a customer’s usual spending patterns or financial behavior. 

Behavioral red flags

In addition to the financial indicators above, the following customer behaviors could be indicative of a romance scam taking place: 

• Lack of experience: A customer who has no prior history of using, exchanging, or interacting with virtual currency attempts to exchange a significant amount of fiat currency from an existing or newly opened bank account for virtual currency. They may also try to initiate high-value transfers to VASPs.
• Responding to solicitation: A customer receives an unsolicited message online or via text and expresses interest in an investment opportunity using virtual currency that supposedly offers significant returns.
• Succumbing to coercion: A customer mentions they were instructed by an individual who recently contacted them to exchange fiat currency for virtual currency at a virtual currency kiosk. They were then asked to deposit the virtual currency at an address provided by the individual.

Examples of romance scams

Pig butchering

Pig butchering is a scam that combines investment schemes, romance scams, and cryptocurrency fraud. The analogy comes from the idea of fattening up a pig before butchering it. In this type of scam, a group of cryptocurrency scammers search dating and social media sites for victims. They create fake accounts and contact potential victims through sites like Tinder or WhatsApp. The objective is to gain the victim’s trust and become their “lover” or “friend” through friendly discussions. The scammer may even pretend to be a long-lost contact of the victim. 

In one pig butchering case, US authorities seized $9 million worth of cryptocurrency, which was traced to a criminal organization that scammed over 70 victims through romance and crypto confidence scams. The funds were laundered through various cryptocurrency addresses and exchanged for different cryptocurrencies using a technique called chain hopping. 

Financial emergency deception

In this scenario, a scammer establishes a romantic connection and later fabricates a financial emergency. The fraudster convinces the victim that they are in dire need of funds due to a sudden illness, legal trouble, or an unforeseen crisis, exploiting the victim’s emotions to extract money.

Netflix’s 2022 documentary, The Tinder Swindler, put a spotlight on this type of scam, where conman Shimon Hayut allegedly swindled dozens of people across the globe out of millions through a Ponzi scheme. While dating multiple women online, he followed a pattern of creating a fake emergency – claiming enemies had frozen his bank account or that a business deal had gone wrong – and then asking his dates for money to help him. His victims arranged the money through loans and from their personal savings. Meanwhile, Hayut used the money to fund his luxurious dates with his next target.

Beneficiary and inheritance scams

Scammers may also craft elaborate stories involving a significant inheritance, claiming to be the recipient of a substantial fortune but facing obstacles in accessing the funds. Seeking emotional and financial support from the victim, fraudsters often weave a tale of shared wealth and future prosperity. The unsuspecting victim is enticed with promises of a shared life of affluence, only to end up financially drained and emotionally betrayed by the fraudulent narrative.

In 2022, the Federal Trade Commission (FTC) received 2,762 reports of “foreign money and inheritance scams” – a 13 percent increase from 2021. In one instance, three individuals were charged with running an inheritance fraud scheme across various online dating platforms. According to court documents, the defendants allegedly contacted victims and falsely informed them they had received a large inheritance and convinced the victims to send them money to claim the lump sum, resulting in a total loss of over $750,000.

How can firms detect romance scams?

A multi-faceted approach that combines technology, employee education, and collaboration with law enforcement is needed for firms to fortify their defenses against romance scams. Key best practices include:

• Implementing behavioral analytics to detect unusual patterns in customer interactions, such as rapid escalation in online relationships or unexpected financial transactions associated with potential romance scams.
• Strengthening identity verification processes, ensuring thorough validation of customer information. Fraudsters often use fake identities in romance scams, and robust verification can help uncover inconsistencies.
• Conducting internal training programs to educate staff about the signs of romance scams. Increasing awareness among employees can enhance the institution’s ability to detect and prevent fraudulent activities.
• Analyzing communication patterns with customers, looking for scripted messages or unnatural language that might indicate the use of pre-written templates – a common tactic in romance scams.
• Cross-referencing customer information with fraud databases to identify potential red flags or connections to known fraudulent activities associated with romance scams.
• Utilizing real-time transaction monitoring systems to detect suspicious activities promptly. Romance scams can evolve quickly, and continuous monitoring enhances the chances of early detection and intervention.
• Fostering collaboration with law enforcement agencies to share information and stay abreast of emerging trends in romance scams. These partnerships can enhance the effectiveness of fraud detection efforts.
• Embracing cutting-edge fraud detection solutions that leverage artificial intelligence (AI) and machine learning (ML). These technologies can analyze vast datasets, identify patterns, and adapt to evolving tactics employed by romance scammers.

Mitigate romance fraud risks with an AI-based solution

The rise of romance scams is a growing concern, and firms need to have advanced fraud detection solutions in place to address this issue. The Financial Action Task Force (FATF) has recommended the use of AI and ML technologies to help firms detect potential risks and prioritize alerts to make remediation more efficient. Automated fraud detection solutions can also help firms comply with legal and regulatory requirements by monitoring transactions in real time. A risk-based approach built around customer profiles, security, and payment flows is also key to a robust fraud risk-mitigation program.

To learn more, click here to see how Fraud Detection by ComplyAdvantage compares to other solutions in the market.