Nasdaq Verafin: Europe's US$750bn Financial Crime Crisis

A report by Nasdaq Verafin has uncovered the staggering scale of financial crime across Europe, with an estimated US$750.2bn in illicit funds flowing through the region's financial system in 2023, equivalent to 2.3% of European GDP.

The Financial Crime Insights: Europe Special Edition paints a concerning picture of the challenges facing financial institutions as they combat increasingly sophisticated criminal networks operating across borders.

Fraud losses totaled US$103.6bn last year, with the European Union accounting for US$61.5bn, the United Kingdom US$33.2bn and the Nordic region US$3.4bn.

“Criminals have adapted to the real-time and cross-border nature of the payments systems in Europe and beyond, targeting consumers with Authorised Push Payment (APP) and other fraud scams, and moving funds faster and further than ever,” says Stephanie Champion, Executive Vice President and Head of Nasdaq Verafin, which provides financial crime management technology solutions.

Cross-Border Crime Flourishing Amid Regulatory Changes

The report highlights cross-border transactions as a major vulnerability, with US$194.9bn in illicit funds moving across European borders—representing more than a quarter of all money laundering activity in the region. 

Germany, France, Italy and the UK accounted for more than half of these cross-border flows.

Simultaneously, European institutions are navigating significant regulatory changes. 

The EU's new Anti-Money Laundering Package includes provisions under Article 75 for information sharing between financial institutions, while the UK's Economic Crime and Corporate Transparency Act offers similar mechanisms for collaboration.

Despite these developments, implementation challenges remain. Only 51% of EU respondents said they were more likely to share information with peers under the new regulations, with many citing concerns about regulatory guidance, competition and legal risks.

“The regulator needs to come to the table, frankly,” says one executive interviewed for the report, emphasising the need for clearer direction from authorities.

Money Mules and APP Fraud Drive Criminal Activity

Money mules—individuals transferring funds on behalf of criminals—emerged as the top concern among survey respondents, with an estimated US$58.2bn moved by these operatives across Europe last year.

“A hot topic in the mule space is the inevitable growth in what we call unwitting mules—mules who've been recruited to launder money, who have no idea that they're breaking the law,” explains one industry executive. 

“You see more genuine bank accounts being used as a one-off payment so there's absolutely no indication or any red flag that they're about to launder money.”

Authorised Push Payment (APP) fraud, where customers are manipulated into transferring funds to criminals posing as legitimate entities, represents another significant threat. 

The UK's Payment Systems Regulator has implemented a Reimbursement Policy mandating an equal split of APP fraud losses between sending and receiving institutions for domestic payments up to £85,000.

“With the 50-50 liability split between the victims and the bank receiving the funds, there's much more focus and incentives on smaller banks... they need to have monitoring systems in place to detect new accounts, up their game on the KYC front, and ensure they can deal with both victims of APP fraud and detect mule accounts,” notes another executive.

Technology Investment Critical Amid Resource Constraints

The report reveals a concerning resource gap, with only 22% of respondents stating their institutions have adequate personnel or technology to combat financial crime. 

Despite this, 74% plan to increase investment in artificial intelligence and machine learning technologies over the next two years.

Financial institutions across Europe are exploring how consortium data approaches and advanced analytics can help them identify criminal networks that operate across multiple banks. 

Many are also considering reorganising their anti-financial crime programs, with some moving toward integrated fraud and anti-money laundering (FRAML) approaches.

Research from Nasdaq and Boston Consulting Group suggests that implementing new technology systems could reduce operational costs for risk and compliance functions by 10-20%.

“Ultimately a long-term sustainable model is about being able to collaborate, to share information, to try and get to that place where not only are you sharing with other institutions and with law enforcement, but also online platforms and tech companies,” explains a UK Financial Intelligence Unit executive cited in the report.

Explore the latest edition of FinTech Magazine and be part of the conversation at our global conference series, FinTech LIVE. 

Discover all our upcoming events and secure your tickets today.

FinTech Magazine is a BizClik brand