Predicate Offenses, FinCEN, and the 6MLD
16 years after the first predicate offenses were published, how close is the compliance industry to a unified definition and approach?
Predicate Offenses have guided global AML definitions since the 2004 FATF Recommendations. These recommendations have been embraced by almost all of the 100+ countries that are evaluated by the FATF for compliance with the 40 Recommendations. Only 4 countries (Bhutan, China, Haiti, and Malawi) are Partially Compliant with Recommendation 3:
Countries should criminalise money laundering on the basis of the Vienna Convention and the Palermo Convention. Countries should apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences.
While the FATF and its 37 member states strongly encourage global implementation of the predicate offenses, it is left up to individual jurisdictions to implement appropriate AML and KYC laws. This approach has led to global variations in AML legal definitions. As money laundering offenses often occur cross-border, criminal organizations have used these variations to circumvent laws and evade detection.
With the introduction of the 6th EU Money Laundering Directive (6MLD), the European Union is looking to correct these issues by codifying the crimes and risks that all EU countries must implement in their AML laws and regulations to minimize loopholes that currently exist because of varied country definitions. Since the inception of the first EU Money Laundering Directive in 1990, the European Union has left the definition of AML criminal activities up to the member states. That is now changing with the hope of minimizing these loopholes within the EU. The key difference between the current FATF Predicate offenses and 6MLD is the inclusion of Cybercrime in the EU guidelines.
In the United States, Money Laundering offenses have evolved since the BSA was passed in 1970. The applicable crime categories, called specified unlawful activities, are codified in 18 USC § 1956(c)(7) and are based heavily on the FATF Predicate Offense list.
Understanding the differences between these obligations can be key to understanding proper reporting guidelines, and areas where criminals may look to circumvent or evade regulations. The table below compares the offense types between the US, EU, and the FATF.
|Offense||EU 6MLD||FinCEN||FATF 2018||FATF 2004|
|Organized Crime / Racketeering||✓||✓||✓||✓|
|Terrorism / Terrorist Financing||✓||✓||✓||✓|
|Human Trafficking / Migrant Smuggling||✓||✓||✓||✓|
|Trafficking in Stolen Goods||✓||✓||✓||✓|
|Corruption & Bribery||✓||✓||✓||✓|
|Violent Crime (Murder & Grevious Bodily Injury)||✓||✓||✓||✓|
|Kidnapping, Illegal Restraint, and Hostage-taking||✓||✓||✓||✓|
|Robbery or Theft||✓||✓||✓||✓|
|Insider Trading & Market Manipulation||✓||✓||✓|
|Concealment of Assets||✓|
While a global, unified approach to AML and CFT regulations would help in reducing these crimes, the nature of global politics makes this task difficult. It is, therefore, on financial institutions, designated non-financial businesses and professions, FinTechs, and other regulated businesses to take a unified approach and a wide definition of risk to mitigate money laundering, organized crime, terrorist financing, and other predicate offenses.