Anti-Money Laundering News and Information

Understanding the revenues earned on criminal markets and their reinvestment in the EU legal economy

The aggregate annual revenues of the nine main criminal markets in the EU ranged from €92 to €188 billion in 2019, according to research that examined the scale, actors, modus operandi and trends in these markets.

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What is the issue?

Organised crime groups in the EU are becoming increasingly cross-border and transnational in their operation, with more than 5,000 groups under investigation in 2017 according to official Europol statistics. As the criminal proceeds generated from the trafficking of illegal goods and services are laundered through legitimate businesses, these criminal groups present a risk to both the EU economy and its society.

Addressing the infiltration of the legitimate economy by serious and organised crime (SOC) is one of the EU’s top priorities. Appropriate targeting of resources to tackle SOC relies upon accurate information about the extent and nature of the phenomenon.

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How did we help?

The Directorate-General Home Affairs at the European Commission commissioned RAND Europe (and partners) to provide an up-to-date picture of the dynamics of serious and organised crime in the EU.

The study was extensive, covering the scale and dynamics of the illegal economy (i.e. where organised crime groups operate to trade in illegal goods or commodities), as well as the interaction of organised crime groups with the legal economy (i.e. where organised crime groups are known to invest their criminal proceeds and infiltrate for their own gain).

This study utilised a mixed-methods approach utilising a range of quantitative and qualitative data.

  • In-depth literature reviews were carried out to map current knowledge from the last 10 years relating to each individual aspect of the study.
  • Interviews were conducted with 102 experts and stakeholders from 66 organisations, including representatives from EU institutions, member state organisations, law enforcement, asset seizure and recovery organisations, academic institutes and the private sector.
  • Surveys of Asset Recovery Offices (AROs), Asset Management Offices (AMOs) and Financial Intelligence Units (FIUs) in the 28 EU member states.
  • The analysis of a range of secondary data, including two datasets containing company ownership and public procurement information.
  • The collection of 81 proven cases of SOC investment or infiltration in the legal economy.
  • Three case studies to illustrate dynamics of SOC and the management of criminal finances by organised crime groups (OCGs).

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What did we find?

Criminal markets

  • We estimated that the annual revenues of the nine main criminal markets in the EU ranged from €92 to €188 billion in 2019.
  • There seems to have been an upward trend in revenues generated through the trafficking of illicit drugs, Missing Trade Intra-Community (MTIC) fraud, and illicit waste trafficking.
  • The analysis shows that the largest markets in terms of revenue are MTIC fraud, illicit drugs, illicit tobacco (specifically cigarettes) and illicit waste

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Investment by OCGs in the legal economy

  • The predominant sectors of known investments by OCGs in the legal economy are property/real estate, transportation and construction.
  • Cash couriers are used by OCGs for transferring proceeds generated through cash-based markets like illicit drugs, THB and illicit tobacco.
  • Electronic funds may be transferred by OCGs through money muling or ‘smurfing’.
  • Cryptocurrency exchange services and mixing or tumbler services are used for transferring cryptocurrencies and funds earned through cybercrimes.

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The freezing and confiscation of assets from SOC

  • It is not possible to reliably ascertain the overall number and value of assets frozen or confiscated at the EU-level as data collection is not centralised and still largely undertaken manually.
  • Attention should be paid to improving systems for data collection through automation, standardisation and harmonisation.

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Risk factors for SOC infiltration of companies and public procurement contracts

  • Contrary to previous research, the study found that there is no single factor or ‘red flag’ that signals a company is at risk of infiltration. The analysis demonstrates that multiple indicators must be considered at once – for example, cash intensity of the company, corruption index, share of current assets, and volatility of total assets.
  • Regarding the infiltration of public procurement contracts, single bidding, number of contracts awarded by the procuring entity, the share of a supplier in a buyer’s annual spending, and relative price are all associated with higher probabilities of SOC infiltration.

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The exploitation of the underground economy for SOC

  • OCGs are in a particularly good position to exploit underground economy practices in sectors closely linked to economic activities, such as transport and logistics, entertainment, construction and finance.
  • Underground economy mechanisms within these sectors include undeclared cargo and freight, undeclared or unreported work, poor controls and violation of regulations, as well as hidden transactions. This provides OCGs with the loopholes to perpetuate illicit activities such as trafficking of illicit goods, theft, money-laundering and fraud.

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The use of new and non-banking payment methods for SOC

  • Cryptocurrencies are regularly used in most types of cybercrime, particularly illicit trading through dark-net markets. The drivers of use include perceived anonymity, global reach, speed of transactions and regulatory and institutional gaps.
  • Hawala and similar services operate outside the regulated financial system and are regularly used in the smuggling of migrants. There are differences in use between countries.
  • Cash remains the preferred currency for OCGs, as factors such as inhibiting the use of new payment methods by OCGs range from the need for technical savviness, the risk of fraud, the elevated cost of transactions (compared with cash) and the growing risk of detection as certain products are increasingly monitored can inhibit the use of new payment methods.

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Published on RAND website

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