Money Laundering – Top 3 Crimes Which Drive It
The Crimes Which Drive Money Laundering
Any offence that results in the generation of profits that may become the subject of an offence as specified in this UNDOC agreement is referred to as a predicate offence.
Predicate offenders are motivated to maximize earnings, hence the goal of anti-money laundering (AML) procedures is to identify these criminals by analyzing their financial behavior and interactions with the legitimate economy, including financial institutions.
Detecting transactions that lead to possible money laundering activities can help law enforcement combat financial crime and uncover criminal actors who are committing predicate crimes.
Predicate offenses are defined on a 'all crimes' basis in some countries, such as the United Kingdom, which means that money laundering offenses are not limited to a list of predicate crimes. Predicate crimes are legal in other jurisdictions, such as the European Union and the United States.
Human trafficking and migrant smuggling, for example, are listed as predicate offences in the EU's Sixth Anti-Money Laundering Directive, along with environmental crime, tax crime, cybercrime, fraud, corruption, participation in organized crime groups, and racketeering.
Human trafficking, illicit wildlife trading, and corruption are three of the predicate offenses examined in this blog. Each has a unique but damaging societal impact:
Illegal Wildlife Trafficking
In recent years, environmental crime, which includes illegal wildlife trading (IWT), has emerged as a prominent predicate crime for money laundering.
Wildlife crime is defined as "the taking, trading (supplying, selling, or trafficking) importing, exporting, processing, possessing, obtaining, and consumption of wild flora and fauna...in violation of national or international law," according to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).
Estimates of IWT revenue are tough to come by, but according to a recent World Bank analysis, it is in the range of $7-23 billion each year.
FATF's 'Money Laundering and the Illegal Wildlife Trade,' published in 2020, is the organization's first global report on IWT, which it describes as a'major transnational organized crime that drives corruption, damages biodiversity, and can have substantial public health consequences.'
The United Nations enacted a resolution in 2021 to combat IWT, requiring Member States to recognize IWT as a predicate crime under domestic money laundering offenses.
Also, when it comes to IWT, the Egmont Group (a federation of 167 financial intelligence units) has emphasized the significance of 'following the money.'
For financial institutions, the use of the legitimate financial system by illicit wildlife traffickers is where they can most easily act and where their regulatory obligations are located.
Many financial institutions now recognize IWT as a distinct financial crime risk, yet distinguishing IWT-related behavior from that suggestive of other types of crime can be difficult.
According to the United Nations Office on Drugs and Crime (UNODC), 50 percent of victims were trafficked for sexual exploitation, 38 percent for forced labor, and the rest for other forms of abuse in 2018.
Organized gangs are expanding their portfolio of activities to include human trafficking (THB) by taking advantage of global dislocation, making it one of the fastest growing worldwide criminal categories, with profits averaging $150 billion per year.
Human trafficking is described by the FATF as "one of the most significant sources of illicit proceeds in the world," besides being a violation of human rights.
Children who have been abandoned or who come from destitute households, as well as undocumented migrants, are particularly susceptible. Children and women together account for roughly 80% of all human trafficking victims.
Unfortunately, worldwide human trafficking prosecution rates are low - and dropping - with 9,876 successful cases presented in 2020, compared to 11,841 in 2019.
This low rate of convictions can be ascribed to an over-reliance on victim testimony, which puts undue pressure on those who are already traumatized, fragile, and fearful of deportation if they are undocumented migrants. As a result, human trafficking is a low-risk, high-profit crime.
The United Nations considers corruption to be one of the major roadblocks to attaining its 2030 Sustainable Development Goals, estimating that it costs world governments over $3 trillion yearly, with $1 trillion spent in bribes and the rest stolen.
The crime of 'kleptocracy,' a special sort of corruption in which (authoritarian) state leaders take significant sums from public coffers, has gotten a lot of attention in recent years.
Kleptocrats have become adept at concealing their ill-gotten gains through global webs of shell companies in offshore locations and other well-established methods, such as large real estate transactions, with associated money trails ending up in the world's largest financial centers, such as London and New York.
High-profile leaks like the Panama Papers in 2016, the Paradise Papers in 2017, the FinCEN Files in 2020, and the Pandora Papers in 2021 have revealed the scope and sophistication of corrupt methods used to hide dirty money, as well as some of the intricate schemes used to avoid taxes and work around international sanctions.
The United Nations convened a special General Assembly session on corruption in June 2021, during which it issued a political declaration expressing its commitments to combating corruption.
The 5th and 6th Anti-Money Laundering Directives in the EU, as well as the Anti-Money Laundering Act of 2020 in the US, have tightened AML legislative frameworks in recent years, partly in response to the leaks, with stricter rules introduced around the identification of ultimate beneficial owners (UBOs).
The goal of preventative measures is to identify clients who may be vulnerable to corruption, such as politicians and their connections, who are known as Politically Exposed Persons (PEPs). A regular aspect of the client onboarding process is screening against published lists of 'names' and then applying greater standards of due diligence where PEPs are detected.
What role does technology play in this?
AML procedures are in place to detect illicit activity, analyze suspicious financial behavior, and assist law enforcement in prosecuting those who commit these crimes.
Yet, the task of compliance officers and financial institutions is never-ending since criminals' ambition and inventiveness are limitless, and their ways of obtaining and concealing illicit funds are ever-evolving in sophistication.
Global improvements in technology make our daily lives easier, but they also bring up new opportunities for criminals to launder money — opportunities that AML systems must keep up to be effective.
AI is well-suited to applications like AML, as it can help detect evolving criminal typologies and even predict new patterns of criminal behavior in a manner that rules-based systems can't. By discounting the huge amounts of false positives created, AI improves the efficiency and accuracy of AML operations such as entity and payments screening.