Case brief: Clean transactions, tainted roots
Luc reviewed a client flagged for unusually large and regular wire transfers. At first glance, the activity seemed ordinary—clean records, steady flows, no alerts from counterparties. The client, a professional operating in a low-risk sector, had all the right paperwork.
But something didn’t fit. The volume of funds moving through the account far exceeded the business profile provided at onboarding.
Ella, digging through open-source intelligence, found the missing piece: the transfers were linked to a shell entity associated with illegal logging operations in Southeast Asia. “This is what we call a textbook predicate offense,” she said. “The laundering is happening here—but the crime that generated the money happened there.”
What Is a predicate offense?
A predicate offense is the original crime that generates illicit proceeds—the “dirty money” that someone later tries to clean.
In legal terms, money laundering is a derivative crime—it exists only because another serious offense came first. That primary offense is what the launderer is trying to conceal or distance from the funds.
Common predicate offenses include:
- Drug trafficking
- Human trafficking and modern slavery
- Fraud and tax evasion
- Corruption and bribery
- Environmental crime (e.g., illegal deforestation, hazardous waste dumping)
- Arms and wildlife smuggling
- Funds for terrorist financing (when illicitly sourced)
Under Directive (EU) 2018/1673 and the newer Anti-Money Laundering Regulation (Regulation (EU) 2024/1624), a wide range of serious criminal activities, as defined by the respective legislation, can qualify as a predicate offense. This comprehensive approach aligns with FATF standards and ensures that laundering isn’t treated in a vacuum.
Why predicate offenses matter in AML
Most AML controls are geared toward how money moves. But true risk awareness begins by asking: Why is the money moving? What’s behind the transaction?
Understanding predicate offenses allows financial institutions to:
- File more meaningful Suspicious Transaction Reports (STRs) that actually support investigations.
- Refine customer due diligence (CDD) by factoring in risk indicators linked to predicate crimes.
- Improve risk scoring for industries, jurisdictions, and counterparties known for predicate activity.
- Avoid indirect complicity in serious crime—especially when dealing with clean-looking clients in high-risk sectors.
As Marcus once put it:
“If money laundering is the cleanup, the predicate offence is the spill. You can’t contain the damage unless you understand what caused it.”
Red flags: Silent signals, loud implications
Launderers often rely on seemingly normal transactions. That’s why institutions must dig deeper than surface-level compliance:
- Does the customer operate in or receive funds from a high-risk jurisdiction or industry?
- Are source of wealth and transaction volumes aligned with the declared economic activity?
- Are there links to offshore structures or opaque corporate vehicles?
- Do adverse media reports or watchlists hint at links to illicit trade or criminal networks?
Even without conclusive proof, institutions should name the suspected predicate offense in their reporting—doing so gives FIUs the actionable intelligence they need to investigate further.
Final thought: Name the crime
A strong AML program doesn’t stop at flagging “suspicious activity.” It follows the thread back to the origin.
The difference between a good STR and a great one? The former raises a flag. The latter names a potential crime: This may be fraud. This could involve trafficking. This might relate to illegal mining or sanctions evasion.
Naming the predicate offense transforms your report from noise into signal. It turns a transaction alert into a potential case file.
