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Understanding Predicate Offence

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.

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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