The European Union recently released its “Serious and Organized Crime Threat Assessment 2021 (SOCTA),” a major report on the latest trends and threats from criminal groups operating in the EU.  The report provides key findings on how criminal activity is evolving based on the Covid-19 pandemic, changing technology, cryptocurrency, and other factors. Despite its focus on the EU, these serious and organized crime threats are prevalent across the globe, and by exploring the roles of criminals within such processes, this assessment seeks to outline how a better understanding of those roles allows for a more targeted operational approach in the fight against them.  

Let’s take a close look at five of the key findings and their implications for government regulators, financial institutions, and law enforcement agencies:

  1. Money laundering is a growing issue
    “The scale and complexity of money laundering activities in the EU have previously been underestimated. Serious and organized crime […] fundamentally relies on the ability to launder vast amounts of criminal profits.”
  2. Criminals rely on legitimate business entities to facilitate their illegal activity
    “Legal business structures such as companies or other entities are used to facilitate virtually all types of criminal activity with an impact on the EU. More than 80 % of the criminal networks active in the EU use legal business structures for their criminal activities.” 
  3. Criminals have seized new opportunities created by the global pandemic 
    “The Covid-19 pandemic has had a significant impact on the serious and organized crime landscape in the EU. Criminals were quick to adapt [their modes of operation] to take advantage of the pandemic.”
     
  4. Criminal groups continue to evolve and adapt
    Criminal networks are extremely adaptable and flexible in response to new measures and changes in legislation, the market/economic situation and law enforcement action. [Their] fraudulent schemes are constantly evolving and improving in order to take advantage of the weaknesses of the state and legislation.
  5. Value-added tax (VAT) fraud and excise tax fraud continues to generate billions of Euros in losses
    “VAT fraud consists of avoiding the payment of VAT or fraudulently claiming repayments of VAT from national authorities following an illicit chain of transactions. Missing Trader Intra Community (MTIC) fraud is the abuse of the VAT system rules for cross-border transactions, involving the acquisition of goods […] from another Member State which are then sold through a chain of companies […] with VAT added. The VAT is then not paid to the tax authorities.” 

Losses are estimated at 50 billion euros or more each year. 

 

Realizing the Benefits of a Data-Enabled Future 

There is a common denominator in these five findings – virtually every challenge, crime type, and trend named in the SOCTA Report could be met, mitigated, or solved by harnessing the power of advanced data analytics. Having the right data in the right place with the right tools would enable investigators and analysts to make smarter, faster decisions.   

The potential benefits of that ideal data-enabled future are tremendous.  Despite the fact that currently there is a large gap between the reality and the promise of this ideal future, with key challenges that demand resolution – including addressing privacy issues, defining operating models, agreeing on data sharing standards, and more – it’s encouraging to see the steady progress that is being made today.  

 

Building Automated Systems for Greater Efficiency  

A growing number of financial institutions, Financial Intelligence Units, and other government regulators are deploying advanced analytic platforms in their anti-money laundering (AML) operations.  As the number of transactions needing to be monitored increases year on year, many organizations have concluded that building more automated systems is essential in order both to scale up and to become more efficient. 

A specific example is the case of London-based bank HSBC, which deployed the Quantexa platform in 2019. The system combines bank data and external data, such as company ownership information, to identify links between counterparties and transactions and map out networks. It automatically screens all trade finance transactions against over 50 different scenarios that indicate signs of money laundering, such as associated networks and payment patterns.  

Criminals using legitimate business entities as part of their activities is not a new development, but several factors are making that activity more challenging to detect and prevent.  The digital revolution means that companies can be set up, licensed, bought, and sold without face-to-face interaction, and the speed with which those actions can happen has made it harder for banks, regulators, and law enforcement to match pace. 

For banks needing to comply with Know Your Customer (KYC) regulations, and for investigators needing to identify shell companies engaged in crime quickly enough to act before the company owners/managers disappear, it’s essential to have a dynamic, comprehensive picture of customers and companies. Today’s advanced analytic platforms use Artificial Intelligence (AI), entity resolution, and network generation to provide that complete picture, with the speed needed to keep up with – and get ahead of the criminals. 

 

Identifying Criminal Activity at Speed with Advanced Analytics 

Criminals have capitalized on societal and economic changes caused by the Covid-19 pandemic by shifting their focus and adapting their illicit activities. The new areas of opportunity have included counterfeiting and distribution of substandard goods, cybercrime, organized property crime, and other types of fraud schemes. Businesses operating in sectors that have been particularly hard hit by the health crisis – such as hospitality, catering, and tourism – are becoming more vulnerable to criminal infiltration. 

The EU report noted that VAT fraud continues to be a major source of revenue loss for tax authorities.  A key success factor for criminals executing this type of fraud is their ability to create layers of transactions between companies and to do so very quickly so that by the time regulators recognize fraud warning signs, the criminals have closed the companies involved and moved on, profiting by having collected tax “refunds” for taxes that were never paid.  Using an analytic platform and risk models to spot VAT (or “carousel fraud”) more quickly can be very successful.  For example, one national tax department in the EU reduced VAT fraud loss by 98% after deploying the Quantexa platform.  

 

Combatting Serious & Organized Crime on a Global Scale 

While organized criminal groups will continue to evolve and find new ways to exploit events like the global pandemic and changing technology,  both government and private sector organizations have more options than ever before for using data and advanced analytic tools to identify criminal activity quickly, prevent many losses before they occur and become more efficient than ever, in spite of limited resources.  

Ready to change the way you think about citizen-centric government?  

Use this practical guidance to help tax authorities make the most of data, analytics, and artificial intelligence. 

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