Regional Report – Europe: Fraud, cybercrime, surging now, AML must later look for launderers hiding in economic recovery, volatility

The Skinny:

  • Europe is firmly in the grip of the COVID-19 pandemic, with Spain, Italy, France and Germany among the top 10 in countries with the most total cases at more than 750,000 combined – still less than the United States at some 1.1 million.
  • Not surprisingly, with banks facing a massive surge in fraud and cybercrime attacks, that puts more pressure on anti-money laundering compliance professionals to better protect themselves and customers.
  • Europol, the bloc’s top investigative agency, is responding by more aggressively trying to share information on larger schemes across Europe and with international partners. But they face a daunting hurdle: large, sophisticated organized criminal groups are attempting to launder money and hide among the shifting transaction patterns and economic volatility.
  • What’s more, these criminal groups won’t slink back to the shadows if and when the economy improves, propped up by stimulus checks, but are expected to redouble their efforts to launder ill-gotten gains when overarching financial throughput rises.
  • As for specific criminal trends, while COVID-19-related lockdowns have made it harder for human traffickers to ply their trade, there has been an inversely proportional, sinusoidal rise in human smuggling as desperate individuals attempt to flee from already impoverished regimes, further crushed by the coronavirus, to Europe.  

By Brian Monroe
bmonroe@acfcs.org
May 1, 2020

Financial crime compliance professionals in Europe are facing a massive surge in fraud and cybercrime attacks, against themselves and customers, as organized criminal groups attempt to take advantage of the fear, uncertainty and desperation tied to COVID-19 pandemic.

Like hundreds of other regions, Europe is also in the grip of the COVID-19 pandemic, with Spain, Italy, France and Germany among the top 10 in countries with the most total cases at more than 750,000 combined – still less than the United States at some 1.1 million, according to Worldometers.  

But anti-money laundering (AML) teams can’t lose focus as illicit organizations are attempting to exploit the chaos and confusion of the coronavirus – which has locked down whole countries, shuttered businesses and plunged much of the world into a financial recession – to launder money now, and will also later move to cleanse illicit funds as economies recover.

Those are just some of the fincrime trends highlighted by the European Union Agency for Law Enforcement Cooperation, or Europol, the bloc’s top investigative body, related to what compliance professionals, regulators and investigators should be watching out for currently and in an emerging post-pandemic world.

But this is not just crystal ball gazing.

Europol has seen this before, with the counter-crime strategies now based on what has happened in prior regional disasters along with the security threats at play and general tactics employed by “serious and organized” criminal groups in the wake of the 2008 economic crisis. 

In response, the investigative agency is working harder to share information with international allies to put all the pieces of the tainted financial puzzle together to better identify large, interconnected groups working across the bloc.  

In short for AML compliance professionals and fraud teams: get ready to work even harder to separate the criminal wheat from the swirling transactional chaff – because regulators will be judging later how your teams adjusted and reacted now.

“Serious and organized crime is exploiting the changing circumstances during the pandemic,” said Catherine De Bolle, Europol’s Executive Director.

“Now more than ever, international policing needs to work with the increased connectivity both in the physical and virtual worlds. This crisis again proves that exchanging criminal information is essential to fighting crime within the law enforcement community.”

Europol has broken down how COVID-19 is affecting and could affect criminal groups in three phases:

Phase 1 – the current situation: COVID-19-related criminality, especially cybercrime, fraud and counterfeiting have followed the spread of the pandemic throughout Europe, similar to other jurisdictions that have reported a rise in phishing, scam and spam attacks tied to the pandemic, protective equipment or, more recently, stimulus checks. More on the current situation can be read in Europol’s previous reports published in March and April 2020.

Phase 2 – mid-term outlook: An easing of lockdown measures will see criminal activity return to previous levels featuring the same type of activities as before the pandemic.

However, the pandemic is likely to have created new opportunities for criminal activities that will be exploited beyond the end of the current crisis.

It is expected that the economic impact of the pandemic and the activities of those seeking to exploit it will only start to become apparent in the mid-term phase and will likely not fully manifest until the longer term.

Some of the relevant crime areas are:

  • Anti-money laundering: the pandemic and its economic fallout will exert significant pressure on the financial system and the banking sector. AML regulators must be vigilant and should expect attempts by organized crime groups to exploit a volatile economic situation to launder money using the on-shore financial system. 
  •  Shell companies: criminals will likely intensify their use of shell companies and companies based in off-shore jurisdictions with weak AML policies at the placement stage to receive cash deposits that are later transferred to other jurisdictions. 
  • The real estate and construction sectors: These will become even more attractive for money laundering both in terms of investment and as a justification for the movement of funds. 
  • Migrant smuggling: While the economic impact of the COVID-19 crisis in Europe is not yet clear, it is expected that the impact on economies in the developing world is likely to be even more profound. Prolonged economic instability and the sustained lack of opportunities in some African economies may trigger another wave of irregular migration towards the EU in the mid-term.

Phase 3 – the long-term impact: 

  • Organized crime is highly adaptable and has demonstrated the ability to extract long-term gains from crises, such as the end of the cold war or the global economic collapse of 2007 and 2008. 
  • Communities, especially vulnerable groups, tend to become more accessible to organized crime during times of crisis. Economic hardship makes communities more receptive to certain offers, such as cheaper counterfeit goods or recruitment to engage in criminal activity.
  • Mafia-type organized crime groups are likely to take advantage of a crisis and persistent economic hardship by recruiting vulnerable young people, engaging in loan-sharking, extortion and racketeering. 
  • Organized crime does not occur in isolation and the state of the wider economy plays a key role. A crisis often results in changes in consumer demand for types of goods and services. This will lead to shifts in criminal markets. 

In new normal of pandemic, working from home, job insecurity, opens door to criminal infiltration

Several factors have a significant impact on serious and organized crime during the COVID-19 pandemic, according to Europol, including that more people are online and answering strange emails that may, or may not, be from work and others may be desperate for funds due to losing a job – and not concerned about where the money originated.  

These include:

  • Online activities: more people are spending more time online throughout the day for work and leisure during the pandemic, which has increased the attack vectors and surface to launch various types of cyber-attacks, fraud schemes and other activities targeting regular users. 
  • Demand for and scarcity of certain goods, especially of healthcare products and equipment, is driving a significant portion of criminals’ activities in counterfeit and substandard goods and fraud. 
  • Payment methods: the pandemic is likely to have an impact on payment preferences beyond the duration of the pandemic. With a shift of economic activity to online platforms, cashless transactions are increasing in number, volume and frequency. 
  • Economic downturn: A potential economic downturn will fundamentally shape the serious and organized crime landscape. Economic disparity across Europe is making organized crime more socially acceptable as these groups will increasingly infiltrate economically weakened communities to portray themselves as providers of work and services.
  • Rising unemployment and reductions in legitimate investment may present greater opportunities for criminal groups, as individuals and organisations in the private and public sectors are rendered more vulnerable to compromise. Increased social tolerance for counterfeit goods and labor exploitation has the potential to result in unfair competition, higher levels of organized crime infiltration and, ultimately, illicit activity accounting for a larger share of GDP. 

“These factors shape criminal behavior and create vulnerabilities,” the group said. “Based on experience gained during prior crises, it is essential to monitor these factors to anticipate developments and pick up on warning signals.”