Predicate crimes to money laundering are criminal activities that generate illicit profits, which are then reintroduced into the economy through a process of placement, layering, and integration. From drug and human trafficking to terrorist financing and fraud, these illegal activities fuel the flow of an estimated $3.1 trillion in illicit funds through the global financial system – undermining its integrity and causing immeasurable harm to victims.
FinCEN’s AML/CFT National Priorities and subsequent Proposed Rule to Strengthen and Modernize Financial Institutions’ AML/CFT Programs are creating a regulatory imperative for financial institutions to detect and disrupt predicate crimes to money laundering. This blog outlines several predicate crimes identified by FinCEN in their Anti-Money Laundering and Countering the Financing of Terrorism National Priorities — understanding these illegal activities is essential to meeting regulatory expectations as the compliance landscape evolves.
1. Fraud
Fraud scams are varied and numerous but ultimately consist of a target being deceived into sending a payment, a payment being diverted, or funds being appropriated under false pretenses. The fraud landscape is actively evolving as fraudsters use advancements in technology to create AI-enabled deepfakes that deceive victims into believing that a loved one is in urgent need of funds.
With a Federal Reserve System report revealing that 37% of all U.S. households could not cover an emergency expense over $400 with cash or savings, the impact of fraud can be life changing for those targeted. Warning signs can vary significantly from scam to scam — more detailed insights are available in our eBook Understanding Fraud Schemes & Scams.
2. Human Trafficking
Human trafficking is a heinous crime and human rights violation in which traffickers use force, fraud, or coercion to compel victims to engage in commercial sex acts and forced labor. The numbers are staggering – globally, human trafficking generates an estimated $346.7B in illegal funds and victimizes an estimated 27.6 million people at any given time.
The proceeds from this horrible crime are laundered and reintegrated into the financial system, undermining its integrity while perpetuating the abuse of victims. Detecting and preventing human trafficking can not only help safeguard the financial system, but also expedite a victim’s escape, preventing further trauma or exploitation. You can learn more about the financial indicators of this crime in our eBook, Human Trafficking: Know the Behavior, Uncover the Crime.
3. Terrorist Financing
Financing is the lifeblood of terrorism, with funds being used to recruit, train, pay, and mobilize members, promote radical ideologies, procure weapons, and execute attacks. Globally, it is estimated that funding for terrorist acts and organizations amounts to $11.5 billion. This includes arms trafficking, foreign and domestic terrorism, and domestic violent extremism.
Terrorist organizations obfuscate their flow of funds by exploiting banks, money transmitters, and virtual currencies, leveraging legitimate and sham charity organizations, and abusing crowdfunding sites to solicit funds from unwitting donors.
Laundering funds allows terrorists to carry out nefarious activities that pose “the most direct asymmetric threat to the security of the citizens” of the United States and its NATO allies.
4. Drug Trafficking
Trade in cocaine, opioids and heroin, methamphetamine, and other illicit substances is a $782.9B industry for traffickers and Drug Trafficking Organizations (DTOs) globally – with funds being laundered through illicit means such as money laundering networks, trade-based money laundering, shell companies, and money mules.
Besides threatening the financial system, DTOs often fuel violent crime, substance abuse, and addiction within communities. With over 600,000 Canadian and U.S. lives lost to an international opioid crisis over the past two decades, drug trafficking is a predicate crime that causes devastating human suffering and fuels the global financial crime epidemic.
5. Corruption
Corruption is the abuse of authority or an official position to extract personal gain. Illegal activities such as bribery, fraud, kickbacks, and embezzlement produce dirty money to be laundered and integrated into the economy, and FinCEN urges financial institutions to remain vigilant in detecting these illicit funds. Money laundering activity from corruption threatens the integrity of the financial system while impeding economic growth, eroding public trust, and undermining social services and other supports needed by citizens and vulnerable populations.
Targeted Solutions to Enhance Detection
Predicate crimes to money laundering threaten the financial system and cause unfathomable harm to victims. Financial institutions are on the frontlines of disrupting these illegal activities – but detection can be highly challenging, requiring significant time and resources and constant evolution in step with regulatory developments.
Targeted solutions powered by AI and consortium insights can significantly improve detection of predicate offenses with alert-to-SAR ratios as low as 1 in 7, helping you effectively disrupt these illegal activities and protect the financial system.
To learn more about predicate crimes to money laundering, including red flags and approaches to mitigate risk, download our eBook Understanding Predicate Crimes to Money Laundering.
