Last Updated on February 10, 2025 by Caesar
Do you know how financial institutions come to know about predicate offenses? In U.S criminal law, a predicate offence AML or a crime is considered a crime when it is associated with a major crime.
A finance expert has rightly said that the justice system lacks the tools to enable effective prosecutions.
Predicate crimes can be prosecuted alone or can be connected with any main crime, such as money laundering and bribery. In this article, the reader will learn about the predicate offence meaning and its importance in finance.
What is Predicate Offense?
Any criminal activity that generates a proceeds for another activity is referred to as a predicate offence AML. A predicate crime involves many illegal activities that form the base for other illegal acts. Different governments of countries say that these offenses are illegal and hence Money laundering can be controlled by controlling the predicate offenses
Money laundering is not a single act, and it always consists of a number of advanced techniques to conceal the laundering of money. These common techniques are layering and placement, which criminals use for smurfing.
There are 2 predicate offenses that are associated with money laundering classified by local and some international corporations.
Bonus: Explore more about the predicate offence AML to understand the main causes of money laundering and save your business.
What Activities will be considered as Predicate Offences?
FATF has recommended all countries apply strict money laundering laws to all serious crimes to cover the broad range of predicate offenses. There are 21 predicate offences that have been identified with money laundering by FATF.
The list of 21 predicate crimes declared by FATF gives a clear understanding of what is a predicate offence for those who want to know about it in detail.
Corruption, forgery, human trafficking, financing of terrorist and involvement in drugs are listed in the list of FATF as major predicate offenses.
Predicate Offense with Example
Money laundering crimes can differ from country to country and outlined in national criminal law according to their needs.
Predicate offence examples include narcotic drugs, tax stealing, murder, human trafficking, corruption, fraud, and smuggling.
It can be understood as if a public officer misused the public office and got corrupted in getting funds for illegal works. The money laundering act will be highlighted if funds are used to purchase the metals while violation of predicate will be corruption or bribery.
Then buying jewels and diamonds from laundered money is a predicate offense.
Importance of Predicate Offense in Finance
Financial institutions such as banks and business firms that are more susceptible to predicate offence can face reputational and legal damage such as:
- Legal Risks
- Operational Risks
- Social Costs
- Money laundering risks
- Terrorism and terrorism financing risks
A country’s economy and financial society face the consequences of predicate offence if they do not follow the AML laws. Market exploitation weakens the financial system leads to a loss of profit for the government, and negatively impacts foreign investment.
Common Red Flags Associated with Predicate Offences
Financial institutions must use advanced technology to identify the red flags or signs associated with predicate offense before getting into trouble against ML/TF risks and the risks from other illicit activities.
Such red flags include:
- For authorities, it becomes difficult to trace the original source of funds or assets.
- There is no consistency between the business and the expenditures
- Unusual transactional patterns
- If there are transactions having high risks
Moreover, Financial institutions need to hire a Compliance Officer who reviews their internal rules and procedures to curb illegal financial activities and their predicate offenses in following the AML regulations and to remain updated.
Challenges in Addressing Predicate Offense
The Financial Intelligence Units face a lot of challenges in the identification of predicate offenses due to the development of advanced criminal techniques. They must identify the intricate network of entities involved and hidden behind the layers of transactions.
Uncovering the sophisticated nature of criminal activities further complicates the investigations, as criminals also use advanced methods to escape from detection.
Gathering direct or documentary evidence to establish the committing of a crime is also a major difficulty that requires cross-border cooperation.
Visit our website and learn how predicate offences of money laundering can be minimized, mainly by scrutinizing the activities of local criminals with foreign networks and strict anti-corruption measures through automation and strict policy adoption of criminal detection.
