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Money Laundering in the EU: A Comprehensive Analysis of Financial Crime



Money laundering has become a significant concern in the European Union (EU), facilitated in large part by the rise of globalisation and digitalisation. In its latest report titled “The Other Side of the Coin: An Analysis of Financial and Economic Crime,” the first report of its kind, Europol sheds light on the methods used by criminal organisations in the EU for money laundering. The 58-page report was published in September 2023 and based on Europol intelligence. This article delves into the key findings of the report, and lays out the various techniques used for money laundering in the EU.Money Laundering Methods in the EU

According to Europol, approximately 70% of criminal organisations in the EU employ basic money laundering techniques, while the remaining 30% utilize professional money laundering networks or underground banking systems. These criminals take advantage of technological advancements and continuously evolve their money laundering methods.

 

1. Cash Smuggling

Cash smuggling remains a prevalent method used by criminal networks to launder money in the EU. Cash is temporarily stored in caches and then transported by various means, and coordinated by cash couriers. Cash couriers may be financially vulnerable people who have been targetted by a criminal organisation, or may be part of the organisation. Cash smuggling is frequently intercepted at land borders and airports in the EU, and recently large cash seizures have occurred at land borders in eastern Europe, where smugglers were transferring cash to or from Russia.

 

2. Money Mules

Money mules play a crucial role in the money laundering process, often unknowingly facilitating the movement of illicit funds through their personal or business bank accounts. This is crucial to money laundering schemes which aim to distance funds from criminals or victims. Criminal networks target vulnerable individuals for money mule recruitment, such as students, migrants, and financially vulnerable people, and use social media for communication. Coordinators manage money mules, ensuring that they remain unaware of the illicit nature of their activities.

 

3. Digital Assets

Digital assets have emerged as a popular medium for money laundering in the EU. Criminal organisations exploit cryptocurrencies and other digital currencies to obfuscate the origin and destination of illicit funds. The decentralized nature of these assets makes it challenging for law enforcement agencies to trace and seize the funds. Professional money laundering networks now offer cryptocurrency for money laundering and criminal proceeds, including for fraud, cyber-attacks, and dark web services. They also use stable coins for retaining and moving value. Money laundering rings will open several accounts on cryptocurrency exchanges using money mules or fake identities, and moved across cryptocurrencies to distance the funds from a criminal source.

 

4. Trade-Based Money Laundering

Trade-based money laundering involves disguising illicit funds as legitimate trade transactions. Criminal networks exploit the complexity of international trade to manipulate invoices, overstate or understate the value of goods, and use shell companies to launder money. This method allows them to transfer funds across borders while appearing to engage in legitimate business activities.Money launderers purchase a commercial product, such as second-hand vehicles, metals, clothes, watches, or real estate; the item has given the funds legitimacy and invoices are created; the item is then sold again, perhaps in another jurisdiction so as to move value geographically.

 

5. Underground Banking

Informal value transfer systems are a network of people that moves money or equivalent value payable to a third party in another location. These underground banking systems are used to move proceeds of human trafficking, smuggling, and property crime. One such form of underground banking is hawala networks found in Islamic communities in the EU.

 

6. Investments

Criminal organisations also exploit investments as a means of money laundering in the EU. They funnel illicit funds into legitimate businesses or investment projects, allowing them to legitimize their proceeds of crime. This method not only provides a cover for money laundering but also enables criminals to benefit from the profits generated by these investments. Criminals still use gold, as it can be sold over the counter anywhere. Criminal organisations may also use sporting clubs or events, using front men to buy the asset, then moving money and masking it as player payments, transfer fees or television rights.

 

7. Legal Business Structures

Approximately 80% of criminal networks opt to use legitimate business structures to layer legal and illegal funds. These entities shield the beneficial owners behind complex corporate structures and offshore entities, making it difficult for authorities to identify the true origins of the funds. Criminal organisations take advantage of the opacity provided by these business structures to legitimize their illicit activities.

Money laundering can be hidden by a large volume of small transactions in cash payments, in businesses like corner shops, restaurants, construction companies, jewellers and art dealers. Complex payment chains may be built across jurisdictions, using shell companies and proxy persons to open bank accounts and transfer funds.


Professional Money Launderers and Crime-as-a-Service


Europol’s report highlights the emergence of professional money launderers who operate as intermediaries between criminal organisations and the financial system. These money launderers offer banking and escrow services to high-level organized crime, allowing them to distance themselves from their illicit funds.


Professional money launderers adopt a “crime-as-a-service” business model, providing an underground financial system to facilitate transactions for criminal organisations. Money brokers maintain central financial records and charge a commission ranging from 5% to 20% for their services. These money brokers are well-connected with criminal networks, often based outside the EU

but with local coordinators in multiple jurisdictions.


Local coordinators play a crucial role in the money laundering process by managing a network of cash couriers to handle transactions. These couriers are responsible for physically moving the cash, ensuring the seamless flow of illicit funds without attracting suspicion. Coordinators maintain communication with brokers and implement their instructions to facilitate money laundering operations.


Chinese money laundering networks, for instance, employ cash couriers or legitimate transport companies to smuggle large sums of cash across borders. They also leverage more sophisticated methods by brokering contracts between parties in different jurisdictions, enabling them to transfer value without physically moving cash.


Europol’s report highlights a successful operation in Spain in 2022 where a crime-as-a-service ring was dismantled. The group, managed by a broker in Dubai, had been laundering up to EUR 15 million per month. Spanish authorities arrested six suspects involved in local coordination and cash courier activities.


Bribery and Corruption

Bribery and corruption are prevalent tools employed by criminal organisations in the EU to achieve their objectives. Europol’s report highlights the networks of corrupted individuals established by criminal organisations to facilitate their illicit activities. Bribes may be handled through offshore companies, property transactions, or luxury items, making it difficult to trace the origin of the illicit funds.


Asset Recovery

Europol emphasizes that asset recovery is the strongest weapon in the fight against money laundering. The EU follows a comprehensive asset recovery process, starting with identification, freezing, seizing, confiscating, and disposing of assets. Regulation (EU) 2018/1805 covers freezing and confiscation across EU Member States, but a new directive is currently under proposal to address asset recovery comprehensively. The proposed directive will require Member States to establish asset registries and collect data on illicit proceeds and their handling.

Despite these efforts, challenges remain. Confiscating assets that have moved outside the EU or are stored in digital assets presents a significant obstacle. The low percentage of criminal gains confiscated (only 2% of annual proceeds of organised crime in the EU) is partly due to the lack of parallel and collaborative investigations by Member States. The proposed directive aims to close this loophole by fostering greater cooperation among EU Member States in combating money laundering.


In conclusion, Europol’s first report on financial crime sheds light on the complex and evolving nature of money laundering in the EU. Criminal organisations leverage technological advancements, exploit legal business structures, recruit money mules, and engage in bribery and corruption to launder their illicit funds. The report highlights the challenges the EU faces in cross-border illegal money movement, and the need for EU Member States to share data and work in parallel. The EU’s asset recovery efforts play a crucial role in deterring and disrupting money laundering operations, but further collaboration and regulation are necessary to combat financial crime effectively.


Efficient Frontiers International Limited works with financial institutions to help them meet their anti-money-laundering, anti-bribery-and-corruption, and counter-terrorism-financing obligations. We provide regulatory advisory and know-your-customer and transaction-monitoring remediation.


 

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