A predicate offence is an unlawful act that forms a part of a more severe
criminal act or organization. It acts as the foundation for additional illegal
activities. A predicate offence is a fundamental criminal act that serves as a
building block for the commission of another offense, often related to money
laundering or organized crime. These offences are the source of illegal profits
that are later concealed through money laundering. They may involve a range of
illegal actions, such as drug trafficking, fraud, bribery, human trafficking, or
terrorism.
The scope of predicate offences is not limited to traditional criminal
activities but also encompasses emerging areas like cybercrime and environmental
crimes. By identifying and classifying these underlying offences, authorities
can track the movement of illicit funds and untangle complex money laundering
schemes. It is vital to recognize the diversity and ever-changing nature of
predicate offences in order to effectively investigate and prevent money
laundering.
According to section 2(y) of the Prevention of Money Laundering Act, 2002,
predicate or scheduled offence refers to the offences mentioned in Part A of the
Schedule to the Act or the offences listed in Part B of the Schedule provided
that the total value connected with such offences is at least INR 1 crore. In
these two Schedules, we can find a comprehensive and long list of offences
governed by various penal legislations such as the Indian Penal Code, 1860,
Narcotic Drugs and Psychotropic Substances Act, 1985, Unlawful Activities
(Prevention) Act, 1967, Prevention of Corruption Act, 1988, and even the
Securities and Exchange Board of India Act, 1992, which come into play when one
reads the definition and money laundering together.
According to Section 2(u) of the PMLA, it states that 'proceeds of crime' would
refer not only to property arising out of the scheduled offense but also
encompass any such property which may directly or indirectly be derived or
obtained as a result of any criminal activity related to the scheduled offence.
Predicate Offences Link to Money Laundering:
Predicate offences refer to unlawful actions that produce profits which are then
concealed through money laundering in order to give the appearance of being
lawful. Money laundering is the act of hiding the illicit source of funds and
merging them into the legitimate economy. These predicate offences act as the
initial illegal actions that generate the tainted funds. By laundering money,
criminals are able to reap the benefits of their illegal actions while
attempting to evade detection by law enforcement.
Explanation of Predicate Offence:
The initial predicate offence for drug trafficking is considered to occur when
drugs are sold in violation of the law. If the individual then attempts to hide
the proceeds from these illegal sales by channelling the money through
legitimate enterprises or financial activities, the predicate offence transforms
into money laundering. In this scenario, drug trafficking serves as the
predicate crime that ultimately leads to the commission of money laundering, as
it generates the illicit funds being laundered.
Some Predicate Offences:
Drug Trafficking: One of the most prevalent predicate offences is drug
trafficking. The illicit drug trade yields significant profits for criminal
syndicates globally. These groups engage in money laundering tactics to
camouflage the origin of their proceeds and give the appearance of legitimacy.
This may involve transforming cash earnings into assets like real estate or
luxury items, utilizing money transfer services, or establishing front
businesses to blend unlawful funds with legitimate income.
Fraud and Financial Crimes: Fraudulent schemes, including identity theft, credit
card fraud, and Ponzi schemes, also act as predicate offences for money
laundering. Perpetrators of these offences often attempt to conceal their
ill-gotten gains by transferring funds through intricate networks of bank
accounts and shell companies. Money laundering techniques used in fraud cases
may involve layering, where funds are moved through numerous transactions to
obscure their paper trail, and integration, where laundered funds are
reintroduced into the economy through seemingly lawful assets.
Corruption and Bribery: Another significant offence is corruption, which
encompasses bribery and embezzlement. Those in positions of authority or
influence may exploit their power for personal gain by diverting public funds or
accepting bribes in exchange for preferential treatment. Laundering the proceeds
from corrupt activities involves disguising the source of funds through
seemingly legitimate transactions, such as investing in real estate or offshore
accounts.
Human Trafficking: A form of modern slavery, human trafficking generates profits
through the exploitation of vulnerable individuals for forced labour, sexual
exploitation, or other illicit purposes. The profits from this heinous crime may
be laundered through businesses or financial institutions to conceal their
origin and facilitate the continuous operation of criminal networks.
Terrorism Financing: Providing financial support to terrorist organizations or
activities is known as terrorism financing. Predicate offences for this type of
financing may include illicit fundraising through means such as extortion or
robbery, as well as using legitimate businesses or charities as fronts to
disguise the flow of funds. The goal of laundering proceeds from terrorism
financing is to conceal the connection between the funds and their intended
terrorist activities, making it challenging for authorities to track and disrupt
these dangerous networks.
Challenges in Combating Predicate Offence:
Effectively combating predicate offences presents significant obstacles due to
their transnational nature. These crimes operate across borders, exploiting the
complexities of different legal systems and jurisdictions. As a result, tracing
illegal gains and prosecuting offenders becomes a challenging task. To address
these challenges, cooperation between law enforcement agencies and intelligence
organizations is crucial. By sharing information, intelligence, and best
practices, countries can improve the effectiveness of their investigations and
prosecutions. This collaboration enables a coordinated response to dismantle
transnational criminal networks engaged in predicate offences.
Moreover, the
establishment of specialized units and task forces dedicated to combating these
crimes promotes international cooperation. These units bring together experts
from various jurisdictions, allowing for the exchange of knowledge, skills, and
resources. By pooling their efforts, countries can more effectively address the
transnational aspects of predicate offences.
Sectors Vulnerable to Predicate Offences and Money Laundering:
Numerous industries are highly susceptible to predicate offences and money
laundering as a result of the type of work they do and the possibility for
illegal financial activities. These include banking and financial services, real
estate, law and accounting services, casinos and gambling, trading of precious
metals and gemstones, and the art market. These industries frequently handle
significant amounts of money, intricate transactions, and valuable assets,
rendering them appealing to individuals seeking to launder money.
Precautions to Safeguard against Predicate Offences:
Individuals can adopt various strategies to protect themselves from falling prey
to predicate offences and money laundering scams. These include exercising
caution when dealing with unsolicited offers or requests for financial
transactions that appear dubious or too good to be true. It is important to
thoroughly research the legitimacy and reputation of individuals or businesses
before engaging in any financial activities with them.
Additionally, individuals
should secure their personal and financial information, such as passwords and
sensitive data, to prevent identity theft and fraudulent activities. In case of
any suspicion of money laundering or suspicious transactions, it is advisable to
promptly report it to the relevant authorities or financial institutions.
Keeping oneself updated about the latest trends, warning signs, and prevention
techniques related to money laundering and predicate offences is also crucial.
Court Judgments:
- On April 8, 2024, the Supreme Court declared the money laundering case against former IAS officer Anil Tuteja, his son Yash, and other accused in the alleged liquor scam in Chhattisgarh as null and void. The court concluded that there was no predicate offence in the case and proceeds of crime. Justices Abhay S Oka and Ujjal Bhuyan stated that the complaint filed for a tax offence cannot be considered as a predicate offence to warrant an investigation by the Enforcement Directorate for money laundering.
- On November 29, 2023, the Supreme Court ruled in the case of Pavana Dibbur v. Directorate of Enforcement
that there were no proceeds of crime involved. The court concluded that the criminal conspiracy in question was not linked to any of the predicate offences in PMLA, and therefore, the Prevention of Money Laundering Act (PMLA) could not be invoked. As a result, the complaint filed by the Enforcement Directorate (ED) before the Special Court was dismissed by the Supreme Court.
- The Bombay High Court, in the matter of Hasan Ali Khan v Union of India, ruled that the Prevention of Money Laundering (PML) Act is violated only when there is an effort to establish a lawful source of income for a tainted property, specifically related to the proceeds of crime.
Conclusion:
The predicate offences that serve as the basis for money laundering provide
criminals with the means to earn profits from illegal activities while also
hiding the source of those profits. It is crucial to comprehend the
characteristics and consequences of predicate offences in order to create
successful measures to combat money laundering and reduce its negative impact on
communities. Through the establishment of thorough legal structures, improved
regulatory supervision, intensified enforcement efforts, and the facilitation of
international collaboration, authorities can disrupt the illegal movement of
funds resulting from predicate offences and protect the honesty of financial
systems and the principles of justice. However, it should also be ensured that
the PMLA is not turned into a tool to oppress and harass the dissidents.
Written By: Md.Imran Wahab, IPS, IGP, Provisioning, West Bengal
Email:
[email protected], Ph no: 9836576565
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