Money laundering is one of the defining risks for any financial innovation, and central bank digital currencies bring that challenge into sharper focus. The European Central Bank’s decision to contract Portugal-based Feedzai as a lead fraud detection partner for the digital euro underlines how central authorities are preparing for this battle. The announcement is officially centered on fraud prevention, yet the compliance community understands that anti-money laundering measures cannot be treated as a separate domain. Fraud, terrorist financing, and money laundering are interconnected, and systems built to protect the digital euro must integrate safeguards for all three threats simultaneously.
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Money laundering risks in central bank digital currencies
The digital euro, expected to move into broader testing before launch, represents a monumental shift in European payments. Unlike private cryptocurrencies, which are largely decentralized and often opaque, the digital euro will be issued directly by the ECB. That carries both advantages and dangers. It guarantees state backing, but it also creates a large, tempting target for organized crime. Criminals will undoubtedly test the system’s limits, probing for weaknesses in onboarding, transaction monitoring, and cross-border flows.
Money laundering in the CBDC context could take many forms. Criminals might create layered networks of wallets, exploit real-time transaction speeds to confuse monitoring, or manipulate legitimate merchants to act as laundering intermediaries. The risk is heightened by the scale: billions of transactions will occur annually across the eurozone once the system is fully live. Even if a fraction of one percent of those transactions were connected to illicit funds, the laundering exposure could reach tens of billions of euros. Feedzai’s AI-driven risk scoring is intended to prevent such abuse, but its effectiveness will depend on constant calibration against new laundering typologies.
How criminals exploit payment innovations
Every time financial infrastructure evolves, criminals adapt just as quickly. The digital euro will be no exception. Cash, card payments, online banking, and cryptocurrencies all brought initial optimism before vulnerabilities were exposed. Cash was exploited through bulk smuggling, prepaid cards through anonymous reloading, and cryptocurrencies through mixers and tumblers. CBDCs carry similar vulnerabilities, though with more complex state oversight.
Criminals could exploit CBDCs by structuring transactions under thresholds designed to avoid detection. They may create synthetic identities with forged credentials to open multiple wallets across jurisdictions. A higher level of risk arises when illicit actors combine CBDCs with other digital assets, for example, converting laundered digital euro balances into privacy coins or foreign currencies via unregulated exchange platforms. Such hybrid laundering pathways blur the line between regulated and unregulated markets, making detection harder.
The anonymity debate around offline CBDC use adds another dimension. One of the selling points of the digital euro is an offline payment option that allows transactions without immediate internet connectivity. This feature promotes resilience and inclusion, but it can also resemble the anonymity of physical cash. For money launderers, the ability to transfer funds offline without real-time monitoring could become a powerful loophole. If restrictions are not airtight, offline CBDC wallets may act as modern equivalents of unregistered bearer instruments.
Artificial intelligence is promoted as the antidote to these risks. AI monitoring systems can analyze behavioral data, transaction sequences, and cross-channel interactions in real time. However, criminal organizations have shown remarkable skill in adapting to surveillance models. In cryptocurrency markets, laundering services arose precisely to obscure blockchain trails that regulators thought were immutable. It is highly likely that launderers will design typologies tailored to exploit CBDCs, targeting weaknesses in transaction scoring algorithms. Compliance teams across Europe will therefore need to complement AI systems with human-led investigations, regulatory intelligence sharing, and proactive scenario testing.
The role of Feedzai and the regulatory architecture
The ECB’s selection of Feedzai reflects a broader strategy: outsourcing technological expertise while retaining regulatory authority. Feedzai, in partnership with PwC, will provide transaction scoring technology capable of evaluating billions of transfers. Each digital euro payment will be assessed for fraud and compliance risk before approval. This is not entirely new — commercial banks already deploy similar tools — but the difference lies in scale and public responsibility.
Feedzai’s system must align with EU anti-money laundering directives, suspicious transaction reporting standards, and privacy regulations. The Fourth, Fifth, and Sixth AML Directives form the backbone of Europe’s legislative framework, with further reinforcement coming from the new EU-wide AML Regulation and the Anti-Money Laundering Authority expected to be operational in the coming years. For the digital euro, compliance must go further. Transaction data, wallet identifiers, and behavioral analytics all need to be processed in a way that respects the General Data Protection Regulation while still giving investigators actionable intelligence.
The partnership also raises questions about accountability. If laundering cases slip through the system, responsibility will be shared between the ECB, the technology vendor, and national supervisors. This triad must be carefully managed. Previous AML failures in Europe, particularly in the banking sector, often involved blurred lines of accountability between regulators, financial institutions, and technology providers. The ECB cannot afford similar weaknesses in the CBDC environment.
Parallel to Feedzai’s role, Germany-based Giesecke+Devrient is working on the offline component of the digital euro, alongside Nexi and Capgemini. Offline transactions are perhaps the most controversial aspect of CBDC design from an AML perspective. Allowing wallet-to-wallet transfers without internet verification increases the risk of anonymous laundering. Regulators insist that limits, traceability features, and safeguards will exist, but skeptics argue that even small loopholes could be exploited at scale. If offline wallets can store and transfer meaningful amounts, criminal groups may adopt them as modern equivalents of suitcases of cash.
A high-stakes test for Europe’s credibility
The ECB’s financial commitment to fraud and risk management — estimated between €79.1 million and €273 million — shows the seriousness with which it approaches the issue. Yet money laundering prevention is not solved by budget allocation alone. Technology must be integrated into a broader system of regulatory oversight, reporting obligations, and cross-border cooperation. The effectiveness of the digital euro will not only depend on whether Feedzai’s AI flags transactions, but also whether national financial intelligence units act upon them quickly and consistently.
Europe’s reputation as a leader in AML enforcement is at stake. If the digital euro is launched with strong safeguards and manages to deter significant laundering attempts, it could set a global benchmark. Other jurisdictions are watching closely, from the United States to China, each with their own CBDC projects at various stages. Success in Europe would demonstrate that CBDCs can be designed to integrate AML compliance from the ground up, not bolted on as an afterthought.
Failure, however, could be catastrophic. If high-profile laundering cases emerge soon after launch, confidence in the digital euro could collapse, undermining both the ECB’s financial innovation agenda and Europe’s credibility as a global AML authority. The lesson from cryptocurrency markets is clear: once laundering typologies gain traction, they spread rapidly and are difficult to contain. A single breach could encourage broader criminal exploitation.
The ECB is therefore facing not just a technological challenge but a reputational one. The institution must show that state-backed digital currencies can be more resilient against financial crime than private sector alternatives. For compliance professionals, the rollout of the digital euro will be an unparalleled test case in whether technology, regulation, and supervision can finally work together to stay ahead of launderers.
Related Links
- European Central Bank
- European Commission Anti-Money Laundering
- European Banking Authority
- Financial Action Task Force
- Europol Financial Crime
Source: Finextra
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