The Intersection of Fraud, Sanctions and Organised Crime
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July 28, 2026
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This article from Risk & Compliance Magazine was first published in July, 2026. The entire article is available at: https://riskandcompliancemagazine.com/jul-sep-2026-issue (Subscription required)
How Is the Reclassification of Organized Crime as a National Security or Terrorism Threat Reshaping Fraud and Sanctions Enforcement Priorities?
Mendes: Illicit activity is illicit activity. From the financial institutions’ operations perspective, the reclassification does not change anything. Rather, it reshapes how governments are thinking about the threat and how that results in changes in enforcement. Fraud was traditionally seen as an economic crime. Today, it is often considered as strategically destabilizing a nation or location. This reclassification has shifted the way sanctions are used. Historically, sanctions were used as a foreign policy tool to implement force. Now, they are used more as a way to undermine a geopolitical objective. There has also been a shift in the way teams are organized, to allow for better communication and coordination when escalating priorities. As a result, fraud teams are now looking more for networks than individuals.
Costaldo: Historically, unlike the teams that monitored sanctions compliance, the teams that managed fraud were separate, isolated, and siloed. There has been a shift, especially with the adoption of artificial intelligence (“AI”) and the need for complex data analysis, to bring the related information from each of these types of compliance vehicles together. There is now a lot more synergy and consolidation of information. For example, a crime may end up being money laundering, but it started as fraud via an account takeover.
Angotti: Reclassifying organized crime does not, on the face of things, change much. Regardless of the change, financial institutions must still perform their risk assessments to identify where they have risks and determine how they can detect and prevent illegal activity. One way things are changing, though, is a subtle shift in the makeup of the proceeds of crime. The US dollar is still the currency of choice for criminals, but as stablecoins become more popular, they are becoming a bigger part of the composition of illicit funds. Compared to other kinds of digital assets, stablecoins have become a particularly effective vehicle to evade sanctions because they are an actual payment method and are able to hold their value. We are already seeing a ruble-backed stablecoin that Russia has issued to avoid US sanctions, and we have seen the same with the Chinese yuan.
Ornelas: The reclassification of organized crime as a national security issue has really highlighted the risks associated with technology and digital currencies. While they are innovations, they carry a lot of risk, especially when they originate from certain geographies, like Russia or Iran. There are threats coming from those regions that require greater coordination globally, beyond the enforcement efforts of a single nation..
How Effective Are Current Sanctions Frameworks in Targeting the Full Lifecycle of Organized Crime-Linked Activity, from Production to Financial Flows?
Costaldo: Unless they have advanced network capabilities to really be able to connect the dots, it will be challenging for organizations to identify this activity themselves. Larger organizations and multinational organizations will have more of a picture, especially large clearing institutions. On the other hand, if there are banks that are highly connected to financial technology companies (“fintechs”) that create an amazing layering mechanism for criminals, they will lose that visibility very quickly. Sanctions frameworks are not designed to capture the activity from production to financial flows, but they are supposed to get the end part of the flow. I’ve heard law enforcement say that it actually is really helpful for them to then connect the dots to where production is happening to be able to break down the entire supply chain of criminal networks that function like an enterprise.
Mendes: The government and certain banks have gotten better at targeting the full lifecycle of organized crime-linked activity but are still pretty far behind. The current sanctions frameworks in place are moderately effective; however, sanctions are probably the least effective framework right now in targeting organized crime due to its complex nature. It’s just like looking for needles in haystacks. The only way to be really effective when it comes to sanctions is to restrict global mobility; however, you are now limiting access to people who should have access to the financial system. It is a delicate balance. Another challenge government and banks face are organized crimes involving synthetic drugs, illegal mining, counterfeiting, and human trafficking. These crimes tend to be operated in areas with weak government and in corrupt jurisdictions where there is more risk and lack of compliance.
Ornelas: Current sanctions frameworks face significant limitations in addressing the full lifecycle of organized crime activity, particularly as illicit schemes increasingly originate in or transit through foreign jurisdictions. Financial institutions
Angotti: It’s harder now for financial institutions because we have gone from lists of designated persons and entities and targeted countries for sanctions to sectoral sanctions and other sorts of more targeted sanctions regimes. These are more difficult to investigate and understand than just a list of designated individuals or countries. Also, it can be very difficult to identify sanctions evasion or violations of export controls or prohibited investment targets, which can be difficult to see in your transactions. It’s a matter of deep due diligence on products and services at higher risk of sanctions evasion. I once had a client that was a cosmetics company and didn’t realize that the false eyelashes they thought they imported from Malaysia were actually coming from North Korea. The transactions looked normal, and it was difficult to identify the anomalies in the supply chain that would have been red flags of evasion. For foreign banks in higher risk jurisdictions, the pressure to better identify evasion is often on the US correspondent bank. The US banks are often the ones that identify potential sanctions violations through their correspondents, and they do not want to face sanctions violations penalties because their correspondents missed something.
To What Extent Are Financial Institutions Now the Primary Battleground in Efforts to Disrupt Organized Crime Activity?
Costaldo: Perhaps this is the inertia needed to invest again in technology. Technology and centralized information unlock immense value for banks, rom having a better understanding of their customers’ identity and behavior, to being able to better grow their business, earn customer growth, and ultimately better serve their customers while also maintaining compliance with their regulatory obligations.
Mendes: Historically, financial institutions were always a central point in the compliance framework. But, now the connectivity is what's different. Financial institutions now are not just looking for suspicious activity, but also for shell companies, layering, trade anomalies, cyber-crimes, and crypto off-ramping behavior. They’ve kind of become a mini financial crime investigative unit looking at things for which they historically never had responsibility. Human trafficking is a big area that banks historically didn’t look for but are now playing a critical role in identifying. Without involvement of the banks, it's hard for authorities to pull those things together because it is about following the money and for what the money is being used.
Angotti: I think banks have always been the primary battleground. The reason criminals commit crimes is to make money. They’re not typically doing it just for sport. “Follow the money” has always been the best way to get to the criminals. If we go back to the beginning of federal law enforcement, the agents were looking at money. Remember, they convicted Al Capone of tax evasion. We are starting to see more real public-private partnerships as banks and fintech collaborate with law enforcement. This kind of information sharing is critical because both sides only have a piece of the puzzle. They need to cooperate to piece the puzzle together. The banks want to help stop human trafficking, drug trafficking and fraud, but it can be hard for them to do it without knowing nuances or how the typologies are changing, sometimes in very subtle ways. Law enforcement might have that information first.
Ornelas: A lot of institutions are emphasizing their partnerships with law enforcement. This relationship focuses on addressing how banks share their intelligence and partner with the right law enforcement network on the receiving end of a Suspicious Activity Report to prevent getting dinged but also be able to share information in real time. In the case of human trafficking, timing is a really important component. How are you going to prevent some of that from happening if you submit a report three months later?
What Role Do Professional Money Laundering Networks Play in Connecting Fraud, Sanctions Evasion and Cartel Financing?
Angotti: Professional money laundering networks have always played an important role. Organized crime is a business, and they have the same kind of operational structure that legitimate businesses do. Someone in the organization has to organize the movement of massive amounts of money around the world, often utilizing fintechs, digital assets, and stablecoins. Some parts of this activity have become easier to identify. Digital assets and stablecoins are fully traceable, and the blockchain can provide a lot of good information to law enforcement. Of course, the old standards are also still very popular; trade finance is a very popular way to move large amounts of money without anyone knowing the source of the funds.
Costaldo: Money laundering networks put criminal organizations’ money to work. We have been engaged by institutions and other organizations to help identify how they were exploited by these networks, and from firsthand experience we can attest to how vast and complex these networks are, enhancing their ability to obscure the true source of funds. Because these networks are the ones moving the money, they are able to avoid running afoul of well-established sanctions controls. Add fraud on top of this, and it makes it hard for authorities to identify the true parties involved as information is being sold on the darknet, stolen through theft, or handed over through scams that make account takeovers a common practice for criminals and a means to easily access and move money through payment networks and financial institutions while impersonating trusted and low-risk customers, thereby circumventing even the best compliance controls. To a criminal, these money-laundering networks are priceless.
Ornelas: Some professional money laundering networks can serve as the financial link between fraud, sanctions evasion, and cartel financing in a single interconnected system. By consolidating proceeds from online scams, illicit trade, and drug trafficking, and then moving those funds through shell companies, crypto channels, trade-based schemes, and high-risk jurisdictions, they blur the origin of illicit money and make it appear indistinguishable from legitimate financial activity. These networks exploit regulatory blind spots, especially low value, high-volume transactions and mule account flows, allowing fraud proceeds to mix seamlessly with funds tied to sanctioned actors or cartel operations. In doing so, they can provide the expertise, anonymity, and global reach that criminal groups need to scale their operations, making professional launderers the critical link that transforms separate criminal enterprises into a unified, transnational financial ecosystem.
How are fraud schemes evolving as a core revenue stream within cartel and transnational criminal operations?
Angotti: A good example is North Korea. Nearly 50% of its gross domestic product comes from fraudulent activity, 25% from hacking digital assets and crypto currency fraud, and another 25% from information technology (“IT”)worker fraud. Criminals send talented IT workers all over the world to do legitimate work and send the money they make back to North Korea, often through China. This is aperfect example of the intersection of fraud, sanctions, national security and money laundering.
Ornelas: Sanctions exposure is no longer confined to transactions involving well-known illicit actors or high-risk jurisdictions. Institutions must now contend with the possibility that proceeds from foreign fraud operations — including forced labor scam compounds, cartel-run digital enterprises, and criminal networks with state backing — are entering the financial system under the guise of routine consumer activity. What once appeared to be low risk, everyday transactions may in fact be the final stage of a complex, transnational fraud ecosystem.
In What Ways Is Technology – Particularly Artificial Intelligence, Crypto Assets and Digital Platforms – Changing the Scale and Sophistication of Fraud and Money Laundering?
Ornelas: Organized crime involved in fraud and money laundering now operates in much lower monetary points compared to years ago. Historically, we would mostly see hundreds of thousands of dollars moving around, and now we see one to two hundred dollars moving around. These transactions contain keywords and information a novice would not understand and make it harder for a financial institution to figure out and connect.
Angotti: Stablecoins are much more effective for laundering money than other digital assets. We’re already seeing a ruble-backed stablecoin that Russia has issued that criminals are using to avoid US sanctions.
Costaldo: AI and digital currencies are truly technical innovations that will change the way of many things, and due to their computing power, wide accessibility, ability to generate content, and break down international borders, these technologies make it very easy for criminals to up their ante. Coupled with our increasingly digital world and reliance on third-party relationships to manage risk, support operations, and enable growth, there is a lower barrier to entry for criminals, and the way in which they exploit control vulnerabilities is now super-charged and scaled by technology and the availability and exchange of information online.
Permission to use this reprint has been granted by the publisher.
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