Predicate Crimes

The concept of predicate crimes can be traced to American Law and were initially classified under drug related offences, however legislation has since broadened the definition to include any serious crime and ever since the 2004 Financial Action Task Force (FATF) recommendations, predicate crimes have guided Anti -Money Laundering (AML) definitions and several jurisdictions have a list of crimes they consider to constitute serious crimes, however the ununiformed variation in definitions has resulted in several bad actors taking advantage to circumvent the law and evade detection. 

Predicate crimes are of particular interest to me as I am currently undergoing my PhD research within this area and I hope to discover important findings that will make important contribution to the financial crime landscape.

What constitutes a predicate crime?

A predicate crime is a key concept of Money Laundering and ML can only happen after a predicate crime has been committed, a predicate crime is therefore a component of a larger crime. For example, Mr Joe goes out to sell “heroin” on the streets of Long Island and cash was payed, the predicate crime in this instance is the selling of Class A drugs. 

Various jurisdictions have different approaches as to how a predicate crime is interpreted, the United Kingdom for example who are no longer a part of the EU has the Proceeds of Crime Act (POCA) 2002 legislation that adopts an “all crime approach” which serves as a predicate offence to ML. In the United States, predicate crimes are known as “specified unlawful activities” and there are over 200 known SUAs which covers well known key areas. The introduction of the 6th EU Money Laundering Directive is indeed a welcome development, with the aim of providing a uniform approach to AML/CFT regulations by proving a list of 22 predicate offences that constitutes Money Laundering across the EU states, including certain tax crimes, environmental crimes, cybercrime and self – funding.

With several guidance and reports put together by organisations such as the Financial Action Task Force (FATF) and the European Union (EU), it is imperative to highlight that the onus ultimately lies on financial institutions, designated non-financial business and other regulated businesses to take a unified approach in other to mitigate their risk of money - laundering, organised crime, terrorist financing and other related predicate offences.

If your organisation, professional body or civic group would like to learn more about this subject matter or any other areas within my line of interest, you are most welcome to get in touch with me via email- contact@emgfinancialcrimeconsulting.co.uk

Trade Based Money Laundering (TBML)

Taking a historical look at the Black-Market Peso Exchange (BMPE) in the 1970s where Latin America drug cartels moved the proceed of cocaine sales to Colombia, this is a form of TBML because of the paramount importance of imported products that require hard currency. Over the years, there has been an understanding of TBML to a wide extent, however the issue has been staying abreast with the variants and changes in the political economic, legal and regulatory landscape that has sparked a huge shift in TBML typologies, which still permits the flow of billions of dollars across various jurisdictions.

Today criminals are constantly seeking other avenues besides the use of financial institutions to explore ways dirty money can be converted into legitimate funds, infact the Wolfsberg Group, an association of 13 global banks in its 90-page guidance on Trade Finance & AML does highlight that 90% of world trade is not financed by banking institutions. TBML offers a spectacular way of moving value across borders for transnational organised crime, also for terrorism and the proliferation of financing. TBML provides the opportunity to move a staggering amount of money across borders without anyone realising it as criminals use legitimate trades to move value around to obtain dirty money. Literally any industry involved in any trading activity could be involved, there is nothing tied to the nature of the good or services, rather it is the value.

 The highlighted below is a very good example of “overinvoicing” often used to explain TBML from a money launderers perspective.

"We have Andy & Bob, two different trading entities looking to trade goods with eachother and then you have got "Smith" who is involved in the sale of narcotics/human trafficking and they have got the proceeds of that crime, that needs to be moved back to Andy in a different jurisdiction, so Andy and Bob are going to trade and that’s going to result in the value moving, hence what has happened is Andy would sell Bob some goods, but the amount Andy  charges for those goods is higher than the actual values, so Bob  would then buy those goods, sell them on the open market and then retrieve the value but has made a loss as Andy was overpayed. So what happened effectively is the difference between the amount Bob has payed Andy for those goods and the amount Bob got from selling those goods is the amount of value that has moved from Bob to Andy, so it’s a sneaky thing going on, as that illicit value generated in one country has moved to another"

From the above example, we can see how difficult it is to detect a TBML transaction as it does not resonate with direct trade, additionally if Andy & Bob agree amongst themselves, all the bank will see is the payment settlement, no underlying transactions is obvious as per trade facilitation. 

In an attempt to provide guidance on TBML, there have been several great publications by the Financial Action Task Force, the UK Financial Conduct Authority, Singapore Association of Banks and other national regulators on the techniques and red flags, but at the end of the day, one common theme of any whitepaper or publications is does something feel unusual and does not make economic sense.

If you would like to know more about this subject matter or any other areas within my line of interest, you are most welcome to get in touch with me via email contact@emgfinancialcrimeconsulting.co.uk