Trace predicates and proceeds

Trace predicates and proceeds

A shop depositing cash and paying a supplier does not, by that fact alone, launder money. Begin with two separate questions: is there evidence that the money is proceeds of prohibited activity, and is there conduct that conceals source or ownership or changes its apparent character? The predicate offence is the activity that generated the proceeds. The FATF glossary names categories including fraud, corruption, tax crime, and environmental crime, while domestic law defines the elements of each offence. An analyst uses those categories to form testable hypotheses, not to issue a criminal finding in a customer file.

The placement, layering, and integration model can help read some flows. Placement moves proceeds into a financial channel or tradable asset; layering creates transactions or entities that distance funds from their source; integration uses them later in apparently legitimate activity. UNODC explains this familiar model, but it is not a checklist that every case must complete in sequence. An asset may be bought directly, stages may overlap, and funds may move through existing accounts without a new cash deposit. Absence of visible placement does not establish innocence.

Build a flow map from concrete fields. Who paid? Who owns and controls the account? When did funds enter and leave? What purpose was declared, and what record supports it? Was there an intermediary or a final asset purchase? Attach an evidence source and confidence level to each arrow. A bank statement proves movement but not its commercial reason. An invoice records a claim for payment but not that a service happened. Compare invoices with contracts, shipping, delivery, and the parties’ ordinary activity. Contradictions among those records are more informative than a complicated diagram.

Avoid three leaps. Unusual is not identical to illegal; it is a reason to ask a question. A formally valid document is not a complete explanation; test whether the activity it describes happened. A single account may not show the whole network; payments can be spread across companies and accounts. Information requests should not accuse the customer or disclose a possible report where law or policy forbids doing so. Record observed facts, hypotheses, alternative explanations, and evidence that would change the conclusion, then escalate through the authorized process.