Digital Euro Faces Money Laundering Test as ECB Taps Feedzai for Fraud Detection

Money laundering has long been one of the greatest risks facing financial innovation, and the emergence of central bank digital currencies has magnified that challenge. The European Central Bank’s decision to appoint Portugal-based Feedzai as a lead fraud detection partner for the digital euro highlights the scale of preparation underway to counter financial crime. While the announcement has been officially framed around fraud prevention, the compliance community notes 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.”

The digital euro, set to expand into wider testing before its launch, represents one of the most significant shifts in Europe’s payments system. Unlike private cryptocurrencies, often opaque and decentralized, the digital euro will carry direct issuance from the ECB. This guarantees state backing but also creates a massive, attractive target for organized crime. Experts warn that criminals will attempt to probe weaknesses in onboarding processes, transaction monitoring, and cross-border flows. Money laundering risks in a CBDC framework are varied: illicit actors could build layered networks of wallets, exploit instantaneous transaction speeds to complicate oversight, or manipulate merchants to act as laundering intermediaries. The scale of potential exposure is stark—billions of transactions are expected annually across the eurozone, and “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-powered risk scoring technology is designed to mitigate such threats, but its strength will depend on its ability to adapt continuously to emerging laundering typologies.

History shows that every payment innovation has been accompanied by criminal adaptation. Cash became vulnerable to bulk smuggling, prepaid cards enabled anonymous reloading, and cryptocurrencies gave rise to mixers and tumblers. CBDCs are no different. Criminals could break down transactions to stay below detection thresholds, use synthetic identities to open wallets across borders, or combine CBDCs with unregulated digital assets. Converting laundered digital euro balances into privacy coins or foreign currencies via unregulated exchanges would blur the line between supervised and unsupervised markets, complicating detection.

The debate over anonymity in offline CBDC use adds another risk. The digital euro is being designed with an offline payment function that allows transactions without internet connectivity, an innovation aimed at resilience and financial inclusion. Yet this feature carries parallels to physical cash. For money launderers, “the ability to transfer funds offline without real-time monitoring could become a powerful loophole.” Unless restrictions are watertight, offline wallets risk functioning as unregistered bearer instruments.

Artificial intelligence is touted as the solution. AI-driven monitoring can track behavioral data, transaction chains, and cross-platform interactions in real time. But criminals have repeatedly shown their ability to adapt to surveillance. In cryptocurrency markets, laundering services emerged specifically to obscure blockchain trails once assumed to be transparent. Analysts expect launderers will engineer typologies targeting weaknesses in CBDC monitoring algorithms. This means compliance teams must reinforce AI with human-led investigation, cross-border intelligence sharing, and rigorous scenario testing.

The ECB’s choice of Feedzai is part of a wider strategy to outsource technical expertise while retaining regulatory authority. In partnership with PwC, Feedzai will supply transaction scoring capable of processing billions of payments, each screened for fraud and compliance risk before approval. Similar systems exist in commercial banking, but the digital euro introduces unprecedented scale and a layer of public accountability. The system must adhere to EU anti-money laundering directives, suspicious transaction reporting standards, and privacy regulations. Europe’s AML framework—anchored in the Fourth, Fifth, and Sixth Directives—will soon be reinforced by the new EU AML Regulation and the Anti-Money Laundering Authority. Yet for the digital euro, compliance demands 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.”

This setup also raises questions of accountability. Should laundering cases evade detection, responsibility will be divided between the ECB, its technology partners, and national supervisors. Such blurred lines of responsibility were at the heart of prior AML failures in Europe’s banking sector. The ECB is under pressure to ensure such weaknesses do not resurface in the CBDC framework.

At the same time, the offline component of the digital euro is being developed by Germany-based Giesecke+Devrient in cooperation with Nexi and Capgemini. This design feature remains among the most controversial for AML practitioners, since offline wallet-to-wallet transfers could allow anonymous laundering. Regulators promise strict limits, traceability, and safeguards, but skeptics warn that “even small loopholes could be exploited at scale.” If offline wallets can store or transfer meaningful sums, criminal networks may adopt them as modern equivalents of cash-filled suitcases.

The ECB’s financial outlay—estimated between €79.1 million and €273 million for fraud and risk management—reflects the seriousness of its commitment. Yet experts caution that budget alone cannot solve the laundering risk. Effective prevention requires integration of technology with regulatory oversight, robust reporting, and cross-border cooperation. The system’s credibility will depend not only on whether Feedzai’s AI can flag illicit patterns but also on whether financial intelligence units across Europe respond in a timely and consistent manner.

Europe’s standing as a leader in AML enforcement now hinges on the success of the digital euro. If safeguards prove strong and laundering attempts are effectively contained, the eurozone could set a global benchmark for CBDC integrity. Observers in the United States, China, and other jurisdictions with ongoing CBDC projects are monitoring developments closely. A secure rollout would demonstrate that AML protections can be embedded from the inception of a digital currency, not bolted on afterward.

The stakes, however, are high. “Failure… could be catastrophic.” A single high-profile laundering case in the digital euro’s early phase could undermine public confidence, derail the ECB’s innovation agenda, and damage Europe’s reputation as a global AML leader. As cryptocurrency markets have shown, once laundering typologies gain momentum, they spread rapidly and are hard to stop.

The ECB faces not only a technological challenge but a reputational one. It must prove that a state-backed CBDC can resist exploitation more effectively than private-sector alternatives. For compliance professionals, the launch of the digital euro will serve as a landmark test of whether advanced technology, robust regulation, and coordinated supervision can stay a step ahead of money launderers.

By fLEXI tEAM