Europol, the European Union Agency for Law Enforcement Cooperation, has recently released its European Financial and Economic Crime Threat Assessment for 2023, shedding light on the increasing challenges posed by financial and economic crimes in the European Union (EU). While the report acknowledges the advantages of blockchain technology in terms of independence and security, it also strongly criticises the decentralised finance (DeFi) sector for its involvement in criminal activities. In this rapidly evolving financial and economic landscape, Europol emphasises the importance of collaboration, information sharing, and public-private partnerships to effectively combat these criminal activities.
The fintech revolution, characterised by the integration of technology into financial services, has brought both opportunities and risks. Criminals have rapidly exploited these innovations, particularly within digital banking and non-bank financial institutions. Decentralised finance (DeFi), built on blockchain technology, offers greater independence and security. However, the absence of regulation in this space creates opportunities for economic crimes, as criminals use DeFi platforms to store illegal assets. Additionally, highly volatile cryptocurrencies are targeted in fraudulent schemes and money laundering.
Non-fungible tokens (NFTs) have gained immense popularity but have also attracted fraudsters due to their instant trading capabilities. NFTs present a significant risk of money laundering due to their cross-border trading features. The emergence of the metaverse, a digital space for various activities, has been adopted by the financial sector but has also seen cases of fraud and theft, indicating a potential trend for organised crime in this virtual environment.
In a recent case in January 2023, law enforcement authorities dismantled Bitzlato, a crypto platform suspected of laundering illicit funds linked to Russian entities under EU sanctions. This platform enabled the rapid conversion of various cryptocurrencies into Russian rubles, involving an estimated EUR 2.1 billion worth of assets, a substantial portion of which was linked to criminal activities.
Europol’s report highlights the role of organised crime in driving illicit financial activities, with nearly 70 percent of European criminal networks employing money laundering techniques, and 60 percent relying on corruption. Moreover, over 80 percent of these networks use legal businesses as part of their schemes. Geopolitical changes provide new opportunities for criminal activity, including EU sanctions evasion methods involving beneficial ownership concealment, fraudulent documents, intermediaries, and transactions routed through third countries.
Asset recovery is considered a crucial weapon against organised crime, but the report suggests that less than two per cent of annual criminal proceeds in the EU are currently recovered by European authorities.
Criminals are exploiting digital advances to enable their activities, including virtual banking, buy now pay later (BNPL), decentralised finance (DeFi), encrypted messaging platforms, and dark web markets. These services offer advantages such as speed and anonymity but often lack robust protection against financial crime.
Digital assets, including cryptocurrencies, are increasingly used to facilitate organised and financial crimes. For example, in a 2023 case, authorities linked around 46 percent (about EUR 1 billion) of exchanged assets to criminal activities. The appeal of virtual assets lies in their pseudo-anonymity and fast-moving nature, making it difficult for authorities to trace or freeze them.
Europol identifies several key money laundering typologies in the crypto world, including the use of crypto exchanges, crypto ATMs, and trade-based money laundering through NFTs.