The Economics of Crime and Money Laundering: Does Anti-Money Laundering Policy Reduce Crime?
AbstractAnti-money laundering policy has become a major issue in the Western world, especially in the United States after 9-11. Basically, all countries in the world are more or less forced to cooperate in the global fight against money laundering. In this paper, the criminalization of money laundering is modelled, assuming rational behavior of criminals, following the law and economics strand of the literature described as the economics of crime. The theoretical model shows that a) the probability of being caught for money laundering, b) the sentence for money laundering, c) the probability of being convicted for the predicate crime, and d) the transaction costs of money laundering are negatively related to the amount of crime. Under the assumption that these factors are all positively influenced by a stricter anti-money laundering policy, the hypothesis empirically tested in this paper is that anti-money laundering policy deters potential criminals from illegal behavior and therefore lowers the crime rate. Since the data on anti-money laundering policy used in the literature thus far is not all-embracing, a unique indicator is constructed using information from the mutual evaluation reports on money laundering of the FATF, IMF and World Bank. This unique dataset is used in an empirical estimation based on a Mundlak specification to test the effect of anti-money laundering policy on the crime rate. Among the four policy areas measured the role of law, the institutional framework, the duties of the private sector in law enforcement, and international cooperation the latter turned out to be the policy area that is associated with a lower crime rate. This result should be an extra incentive for countries and international organizations to continue their efforts to promote and develop international cooperation in the fight against money laundering.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal Review of Law & Economics.
Volume (Year): 5 (2009)
Issue (Month): 2 (December)
Contact details of provider:
Web page: http://www.degruyter.com
Other versions of this item:
- J. Ferwerda, 2008. "The economics of crime and money laundering: does anti-money laundering policy reduce crime?," Working Papers 08-35, Utrecht School of Economics.
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Fanta, F & Mohsin, H, 2010. "Anti-Money Laundry regulation and Crime: A two-period model of money-in-the-utility-function," MPRA Paper 25773, University Library of Munich, Germany.
- repec:pdn:wpaper:40 is not listed on IDEAS
- Patrycja Chodnicka, 2012. "Geographical Risk Of Money Laundering In The European Banking System," Oeconomia Copernicana, Polskie Towarzystwo Ekonomiczne Oddzial w Toruniu, Wydzial Nauk Ekonomicznych i Zarzadzania UMK, vol. 3, pages 103-123.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.