Predicate Offence definition and meaning | AML glossary
Predicate offence definition: What it means in AML compliance.
A predicate offence refers to a criminal activity that generates illicit proceeds, which can then be laundered through money laundering schemes. Under Anti-Money Laundering (AML) laws, predicate offences are the criminal acts that lay the foundation for money laundering. These offences are often related to drug trafficking, fraud, corruption, or tax evasion. Once illegal funds are generated through these activities, they can be integrated into the financial system through laundering.
What are common predicate offences that lead to money laundering?
Predicate offences are the criminal acts that generate illicit proceeds, which are later funnelled through money laundering schemes to make them appear legitimate. Some of the most common predicate offences include:
- Drug trafficking: Illicit drugs are produced, distributed, and sold for profit, generating illegal funds.
- Fraud: Financial fraud, such as investment fraud or credit card fraud, creates proceeds that can be laundered.
- Tax evasion: Evading tax obligations generates illegal financial gains that are often laundered.
- Corruption: Bribery, kickbacks, and other corrupt practices generate illegal profits.
- Human trafficking: The exploitation of individuals for forced labour or sexual services produces criminal revenue.
Why predicate offences matter to compliance.
Predicate offences are at the core of AML compliance because they represent the initial stage in the money laundering cycle – the generation of illegal funds. Without these underlying criminal activities, there would be no proceeds to launder. Regulators expect financial institutions to monitor for signs that funds entering their systems may originate from predicate offences. Compliance teams must ensure they are detecting and reporting suspicious activities tied to these offences to:
- Stay compliant: Adhering to AML regulations, which require monitoring and reporting of criminal activities.
- Prevent financial crime: Identifying predicate offences helps prevent money laundering and protects businesses from becoming complicit in criminal activities.
- Avoid legal consequences: Failing to identify predicate offences can lead to fines, legal penalties, and reputational damage.
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