Predicate crimes are underlying criminal activities that generate illicit proceeds that criminals seek to launder. These crimes can include drug trafficking, fraud, corruption, tax evasion, and other illegal activities. Anti-money laundering (AML) regulations aim to identify and prevent the laundering of proceeds from predicate crimes.
Understanding Predicate Crimes in Context
Predicate crimes are not standalone offenses—they are the underlying crimes that generate illicit proceeds which individuals or entities then attempt to conceal or integrate into the financial system through money laundering. These crimes form the foundation upon which money laundering charges are built. Without a predicate offense, there is no “dirty” money to clean, and thus no basis for the laundering process.
In essence, predicate crimes represent the “source” activity that laundering schemes aim to disguise, and they often span both financial and non-financial sectors.
Examples of Predicate Offenses
Globally recognized predicate offenses vary by jurisdiction but typically include a wide range of serious crimes. Examples include:
Fraud (e.g., credit card fraud, healthcare fraud, securities fraud)
Corruption and bribery
Drug trafficking
Human trafficking and smuggling
Tax evasion
Terrorist financing
Illegal arms trading
Environmental crimes (e.g., illegal logging, wildlife trafficking)
Cybercrime (e.g., hacking, ransomware, phishing-related theft)
In many jurisdictions, the list of predicate offenses continues to expand in response to emerging threats and evolving criminal methodologies.
International Standards and Legal Frameworks
The Financial Action Task Force (FATF), the global standard-setter on anti-money laundering (AML) and counter-terrorist financing (CTF), recommends that countries criminalize money laundering based on a wide range of predicate offenses. FATF’s “designated categories of offenses” serve as a benchmark for determining which crimes should be classified as predicates.
Jurisdictions that do not criminalize a sufficiently broad set of predicate offenses risk being placed on FATF’s grey or black list, which can have serious economic and reputational consequences.
Importance in AML Compliance Programs
For financial institutions, understanding and identifying predicate crimes is essential to designing effective risk-based AML programs. Key applications include:
Suspicious Activity Reporting (SARs): Analysts must recognize behaviors or transactions that suggest underlying criminal activity.
Enhanced Due Diligence (EDD): High-risk clients or sectors commonly linked to predicate offenses should be subject to stricter vetting.
Transaction Monitoring: Systems must be able to detect typologies consistent with predicate offenses, such as layering patterns used to obscure proceeds from fraud or drug sales.
Risk Assessments: Institutions must factor predicate crime exposure into geographic, product, and customer risk models.
Failing to recognize connections to predicate crimes can result in regulatory breaches, fines, and unintentional facilitation of money laundering.
Red Flags and Indicators
Certain red flags may indicate that a predicate crime is being committed or that criminal proceeds are being introduced into the financial system. These include:
Clients with unexplained wealth or inconsistent source of funds
High-value transactions with no clear economic purpose
Transfers to/from jurisdictions known for predicate crime activity
Use of shell companies or opaque ownership structures
Sudden changes in account activity following major external events (e.g., political unrest, regulatory action)
Financial institutions must have controls in place to identify and respond to these risk indicators.
Conclusion
Understanding predicate crimes is fundamental to the fight against money laundering and the broader financial crime ecosystem. By identifying the root sources of illicit funds, regulators and financial institutions can better detect, disrupt, and prevent the laundering of criminal proceeds—protecting both the financial system and broader society.
