Europol reports rapid rise in digital crime

Almost 70% of criminal networks operating in the EU make use of one form of money laundering or another to fund their activities and conceal their assets, according to latest analysis from Europol, the EU’s law enforcement agency.

Europol’s first ever threat assessment report on the topic – entitled The other side of the coin: an analysis of financial and economic crime in the EU – sheds light on the system which, from the shadows, sustains criminals worldwide and is a major driver of cybercrime.

Europol’s analysis found that more than 60% of the criminal networks operating in the EU use corruptive methods to achieve their illicit objectives.

Some 80% of the criminal networks misuse legal business structures for criminal activities, the research shows.

The analysis also finds that the criminal landscape in this area is fragmented, with key players often located outside of the EU.

Digitisation is aiding the criminals, says Europol. “The techniques and tools used by the criminals advance quickly, as they take advantage of technological and geopolitical developments,” it concluded.

The agency says that asset recovery remains one of the most powerful tools to fight back. “It deprives criminals of their ill-gotten assets and prevents them from reinvesting them in further crime or integrating them into the mainstream economy,” it says.

Europol notes that more effort is being made by EU legislators, member states and law enforcement to “corrode” the economic power of serious and organised crime through the recovery of confiscated assets.

But it found that the amount of captured proceeds still remains too low at below 2% of the yearly estimated proceeds of organised crime, according to data collected on seized assets for the purpose of the report.

Not surprisingly, the Covid-19 pandemic led to an unprecedented shift towards online services, so that normal activities could continue remotely despite restrictions on movement of people and goods.

Existing digital services were expanded and many others moved online. This naturally increased the threat that risk and security managers are now dealing with.

“An extensive remote working regime was introduced in many business sectors, including staff performing critical and sensitive tasks. With consumers increasingly looking online for goods and services, offenders quickly adapted their modi operandi to the digital environment, abusing weakened IT protocols, setting up fake investment websites, trading in illicit and counterfeit goods, and targeting e-commerce businesses, in particular for fraud,” says the Europol report.

“The digital acceleration of society led to a significant increase in cyber-enabled financial and economic crimes. Financial crime performed through the use of computer technology is particularly attractive to criminals, as it helps to obscure money flows and allows faster and greater profits. The cyber component offers serious and organised crime a greater pool of targets to victimise multiple times,” it adds.

At the same time, the rise of digital commerce means criminals are developing technologies that help keep threat actors anonymous and boost collaboration among criminals.

“Encrypted messaging apps, dark web marketplaces, cryptocurrencies and other privacy-enhancing technologies protect their identity, making law enforcement detection increasingly challenging. Besides, illicit digital products and technical services can also be hired or purchased by criminals in a crime-as-a-service business model, allowing criminals who are not particularly tech-savvy to perform illicit activities that entail knowledge of technology,” explains Europol.

The law enforcement agency says that rapid technological advances in the financial sector have provided opportunities for cyber criminals.

“Fintech integrates technology to improve financial services, which drives innovation, expands financial inclusion and reduces operational costs. Fintech is now integrated into traditional banking, but also in non-bank and non-financial organisations. Yet it provides many opportunities for criminal abuse,” says Europol, underlining again that with opportunity inevitably comes risk.

“Other developments in finance have led to the arrival of digital banking, or neo banks, which are virtual financial institutions with no physical branches. Such banks are increasingly popular, often growing quickly and at the expense of proper compliance processes, which risks disproportionate rates of financial fraud and money laundering offences. In this context, the use of digital payments for money-laundering purposes has been observed in all member states, and this practice appears to be growing at varying rates,” says Europol.

“Virtual IBANs (vIBANs) enable fast international payments that mask the identity of the master account, the issuer and country of origin, making it harder to detect suspicious transactions, and adding an extra step to investigations. The misuse of vIBANs has been observed in recent criminal investigations into various fraud types,” it adds.

Buy now pay later (BNPL) financing, also known as point-of-sale instalment loans, has also grown and criminals have been exploiting current weaknesses in the BNPL application process for theft.

“Since BNPL services do not conduct formal credit checks, offenders can often pass the algorithmic checks and use legitimate users’ accounts to illicitly order items. Machine learning, artificial intelligence (AI) and deepfake technology can be used for virtually all types of financial and economic crime. Chat-bots based on AI, such as ChatGPT, could be easily used in online fraud schemes. Deepfake technology can help circumventing remote on-boarding measures. CEO fraud is a particular risk, as information on high-profile figures at financial institutions is publicly available,” says Europol.

Catherine De Bolle, executive director at the agency, commented: “Serious and organised crime continues to threaten the internal security of the EU. The criminal landscape constantly evolves, as criminals seek out new opportunities and exploit crises for their own interests. Criminal actors involved in economic and financial crimes are highly adept at taking advantage of our economy for their purposes, and at targeting increasing numbers of victims. They capitalise on vulnerabilities in society’s systems to generate billions in illicit profits, while applying various strategies, often cyber-enabled, to remain undetected and secure their earnings.”