Predicate offence

Money laundering is a second crime. There has to be a first one.

The first one is the predicate offence. Somebody sells drugs, cheats investors, takes a bribe or smuggles goods. That crime produces money. Laundering is what happens to the money afterwards.

So the predicate offence is not a side detail. It is the foundation. The workbook puts it plainly: the commission of an underlying offence is a critical element for an offence to be termed a money laundering offence, because it is what generates the proceeds of crime.

India does not accept every crime as a predicate. It uses a list. That list is the Schedule to the PMLA, and a crime on it is called a scheduled offence. Chapter 2 of the workbook uses the two words together — predicate (scheduled) offences — when it describes who investigates them.

The word matters because the international rules use it, and Indian law does not.

Where the workbook uses the term. Three places, and each shows a different use.

1. Chapter 1 describes the purpose of AML law as helping to detect and report suspicious activity, including the predicate offences to money laundering and terrorist financing, securities fraud and market manipulation.
2. Chapter 2, section 2.3.4 (Other Regulatory Agencies) says that depending on the scheduled offence, agencies such as IFSCA, SEBI, CBI, customs and the police may be involved in the parallel investigation of predicate (scheduled) offences. This is where the workbook treats the two names as one thing.
3. Chapter 8, Special Recommendation II of the IX Special Recommendations requires each country to criminalise the financing of terrorism, terrorist acts and terrorist organisations, and to ensure that such offences are designated as money laundering predicate offences.

What India does with it. Chapter 4 states the pre-condition for any PMLA proceeding: a scheduled offence as defined in section 2(1)(y) and listed in Parts A, B and C of the Schedule must have been committed, and proceeds of crime must have been generated. Part A and Part C carry no monetary threshold; Part B bites only where the total value involved is one crore rupees or more.

Parallel tracks. The predicate offence and the laundering are investigated separately. The predicate goes to the agency that owns the underlying law — police, customs, CBI, SEBI or IFSCA. The laundering goes to the Directorate of Enforcement under the PMLA. One set of facts, two files.

Why Special Recommendation II is drafted the way it is. If terrorist financing is not itself a predicate offence, money raised for a terrorist act cannot be prosecuted as laundering. The Recommendation closes that gap by requiring the designation.

The Hyderabad facts are from the workbook. The rupee and dollar amounts below are assumed only to make the arithmetic run — the workbook gives no figures for this syndicate.

First Information Reports were lodged by the Cyber Crime Station, Hyderabad, under the Indian Penal Code and the Telangana State Gambling Act, against businesses that organised and assisted online gambling and ran fraudulent dating and streaming services. Lakhs of Indians were cheated, and the money was routed through bank accounts and later remitted abroad.

Separating the two offences.

Now the numbers. Suppose the syndicate nets Rs 190 crore and moves Rs 46 crore of it into a Gurugram property, while USD 1.2 million is subscribed into a GIFT IFSC fund.

• Without the FIRs, none of that money is proceeds of crime, and the PMLA has nothing to act on.
• With the FIRs, every rupee of the Rs 190 crore is proceeds of crime, and so is the property and the fund holding — obtained indirectly.

Change one fact. Say the underlying conduct were a Customs Act offence worth Rs 40 lakh. Customs offences sit in Part B, which needs Rs 1 crore or more. On the Part B route alone there is no scheduled offence, so no predicate, so no PMLA case — even though the money is dirty in the ordinary sense.

That is the whole point of the concept. The launderer's liability is borrowed from somebody else's crime.

Chapter 4 (Scheduled Offences), section 4.1, states the pre-condition and calls the underlying offence the critical element. Chapter 2, section 2.3.4, supplies the phrase predicate (scheduled) offences and the list of parallel investigating agencies. Chapter 1, section 1.3, uses the term in the purpose of AML law, and Chapter 8, section 8.3, carries Special Recommendation II.

Expect a conceptual question: what must exist before a person can be proceeded against under the PMLA? The answer is both limbs — a scheduled offence and proceeds of crime. Expect also a matching question on which agency investigates what, and one on Special Recommendation II requiring terrorist financing offences to be designated as money laundering predicate offences.

• This page is the general idea; scheduled offence is India's named list. Predicate offence is the international vocabulary, used by FATF; the PMLA never uses the word, and instead defines a scheduled offence in section 2(1)(y). Read the two pages together: the family, then the Indian member of it.
• Both limbs are needed. A scheduled offence with no proceeds, or proceeds with no scheduled offence, does not make a PMLA case.
• Not every crime qualifies in India. The predicate must be in Part A, Part B or Part C of the Schedule. A crime outside the Schedule generates money but not proceeds of crime.
• Only Part B has a value threshold — one crore rupees or more. Parts A and C have none.
• The predicate is investigated by someone else. The workbook names IFSCA, SEBI, CBI, customs and the police for the predicate, and the Directorate of Enforcement for the laundering.
• Terrorist financing has to be made a predicate offence by law. Special Recommendation II requires the designation; it is not automatic.
• Laundering is a separate and continuing offence. It does not end when the predicate offence ends; it continues so long as a person enjoys the proceeds.