Butte County considers banning Bitcoin ATMs in wake of ongoing scams

OROVILLE — After a string of scam reports, Butte County may be on its way to banning Bitcoin ATMs throughout unincorporated parts of the county.

Kevin Hass, a detective with the Chico Police Department, gave a presentation to the Butte County Board of Supervisors during its meeting on Tuesday breaking down the use of the machines as well as the lengthy case list associated with them. In describing the machines, Hass compared them to ATMs.

“These machines are similar in nature,” Hass said. “These machines are placed inside of liquor stores, convenience stores, gas stations and places like that. If you’re not in the need or in the market to use it, then you will probably just walk on by and really not even think about it just like a regular ATM.”

Hass said there are roughly more than 50 Bitcoin machines in Butte County, predominantly in Chico and Oroville but also in Paradise and Gridley. In the reported theft cases, the machines have been used to conduct scams on residents.

“What we’re finding and what’s bringing this to law enforcement’s attention is that victims are using this machine to funnel money to scammers through the fraud itself and we’re seeing that the scammers are part of an organized crime family throughout the world,” Hass said. “…SO if you’re in the market and you want to purchase Bitcoin, then you can obviously easily find where to go but that also allows our scamming suspects to know where to send victims to use these ATMs.”

How the scam works

It is noted in the agenda report and presentation that Bitcoin machines don’t have the same regulation and oversight as a typical ATM and therefore are more often used in scams. Hass said the scams fall in line with general telephone scams where the suspect calls the person and tells them that they need to wire money for some urgent reason, for example electric or medical bills, and then guides the target toward sending the money while staying on the line.

“Once the scammer has the victim on the line, they keep talking throughout the scam,” Hass said. “Once they have convinced the victim to cooperate with the scam, then they send them to the bank in order to get the funds, keeping them on the line the entire time, even at the bank. They are instructed to lie to the bank teller when they are attempting to withdraw, say, $30,000 because if you go to the bank and you withdraw anything more than $10,000, the bank usually asks you why you are doing this.”

This is where the scammer would tell the target to lie to the bank employee. Hass used the example of saying it’s for a car or home renovation. To avoid too much attention, Hass said scammers will also have the target go to multiple banks of the same branch, taking out $10,000 apiece.

“After the money is gathered by the victim, they instruct them on where to go again,” Hass said. “They can find a Bitcoin machine within the city of Chico rather quickly. They instruct the victim how to use the machine the entire time and most of our victims are elderly folks over the age of 70 and they’re instructed on how to use the machine because they don’t understand how to use it. I would need to be instructed on how to use it myself.”

Current enforcement

Over the past 16 months, there have been 25 fraud reports provided to the Chico Police Department with about $211,000 lost in that time frame.

Because the money is stored in the machine, the department has been able to recover some of the stolen money with about $104,000 of that amount returned to the targets. Hass spoke on one of the more egregious cases his team had to work on.

“One of worst stories was an older lady out of Willows that drove into Chico and deposited $100,00 into a Bitcoin machine and we were not able to get that back,” Hass said. “So that is a devastating loss for her. Her husband had passed and she fell victim to the scammers and lost. That’s a lot of money.”

In order to recover the money, officers conducting the investigation have to act quickly. A search warrant is served for the machine in which the money was deposited and the machine has to be opened up, typically by firefighters, pending whether the owner of the machine cooperates.

“Out of the seven I’ve done, zero have cooperated in that request, citing that there’s signage and stickers (saying) all transactions are final or whatever their excuse is not to assist law enforcement in getting these monies back to the victim,” Hass said. “So ultimately, we do break the machine open, we do force it open based on a search warrant signed by a Superior Court judge to get the stolen property back.”

Hass added that this process in turn receives considerable backlash from owners of the machines who say they are losing money as a result of having to crack the machine open.

“But our goal in this is to make the mostly elderly victims in this county whole again,” Hass said.

Growing support

After the presentation to the board, multiple law enforcement officials called for a ban on the machines in Butte County.

While Supervisor Tami Ritter noted that most of the machines are within city limits and therefore would likely require those municipalities to also implement bans, the scams are often acted out over the phone. Butte County Sheriff Kory Honea said his office deals with scams daily.

“Regrettably, fraudsters and scammers do seem to focus on people who are elderly or less technologically advanced and are more apt to succumb to these kinds of pressures,” Honea said. “And anytime that we can eliminate an avenue to access victims, we should consider it strongly.”

Honea said he was skeptical of the machines citing that one Bitcoin is worth about $70,000.

“I don’t know about you, but legitimate financial transactions equaling $70,000 do not occur in liquor stores while you are feeding cash into some machine,” Honea said.

Chico Police Chief Billy Aldridge and Butte County District Attorney Mike Ramsey also gave their input during the meeting.

“We could certainly solve this in the city of Chico but then it’s just going to push it into everyone else’s jurisdictions and it’s not solving the problem and it’s not preventing victims from being victimized so in our humble opinion, we think that it should be a county-wide ban on these machines,” Aldridge said.

Ramsey followed up by saying that the machines are not bringing anything good to the county but are consistently a conduit for scams.

Supervisor Peter Durfee motioned to have county counsel work with the different incorporated jurisdictions to come up with a plan for a potential ban that will then return to the board once it’s been drawn out. The board unanimously approved.

State level

The state of California is currently looking at two bills that could stifle some of the issues associated with the machines and related scams.

The first is Senate Bill 401 which, if passed, would limit users to one transaction a day and no more than $1,000. If approved it would start on Jan. 1, 2025.

“The bill would require an operator to provide a customer with a receipt for any transaction made at the operator’s digital financial asset transaction kiosk that includes certain information, including the name of the customer and the date and time of the transaction,” the bill reads. “The bill would require an operator to provide to the department a list of all locations of digital financial asset transaction kiosks that the operator owns, operates, or manages in this state and would require the department to make that list for each operator available to the public on the department’s internet website.”

Another bill, Assembly Bill 39, addresses licensing for those implementing these machines and would tack on to SB401 if approved.

“The bill would define “digital financial asset” to mean a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender, except as specified,” AB39 reads. “The bill would exempt activity by specified entities, and would authorize the commissioner, by regulation or order, to further exempt any person or transaction, if the commissioner finds the exemption to be in the public interest, as provided.”

Chico City Manager Mark Sorensen said that while the state seems to be noticing that there’s a problem, the future remains uncertain.

“The objective is to curtail local scams where it appears that vulnerable people are convinced of a need to ‘deposit’ thousands of dollars into the Bitcoin ATMs to later discover their error and the resulting loss of thousands of dollars,” Sorensen said.

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