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Cash payment anomalies and money laundering: An econometric analysis of Italian municipalities

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  • Ardizzi, Guerino
  • De Franceschis, Pierpaolo
  • Giammatteo, Michele

Abstract

In this study we analyse cash payment anomalies in Italy, at the level of municipality. Cash payments are measured as a share of total payments credited to bank accounts. By estimating an econometric model, we show that the levels of, respectively, income and financial deepening of Italian municipalities are negatively related to the use of cash, as predicted by the theory, whilst the latter is positively affected by the local intensity of criminal activity and money laundering. The analysis allows us to identify the Italian municipalities where the amount of cash transactions is farthest above what is explained by the local socioeconomic 'fundamentals'. In these municipalities one can observe the highest share of cash inflows explained by measures of local illegal activities. Based on the results, we provide territorial indicators of the risk associated to anomalous cash handling. The econometric findings, and the related distribution of money laundering provincial risk, are shown to be robust to different model specifications (cross-section GLM and linear fixed-effects panel). From the perspective of a Financial Intelligence Unit, the study has relevant operational implications: risk indicators help target on-site as well as off-site activities on riskiest municipalities. Judicial authorities and law enforcement agencies, too, could benefit in their activities from the geographical distribution of (cash-related) money laundering risk emerging from the methodology developed in this study.

Suggested Citation

  • Ardizzi, Guerino & De Franceschis, Pierpaolo & Giammatteo, Michele, 2018. "Cash payment anomalies and money laundering: An econometric analysis of Italian municipalities," International Review of Law and Economics, Elsevier, vol. 56(C), pages 105-121.
    • Handle: RePEc:eee:irlaec:v:56:y:2018:i:c:p:105-121
    DOI: 10.1016/j.irle.2018.08.001
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    Citations

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    Cited by:

    1. Michele Manna, 2022. "The bonfire of banknotes," Temi di discussione (Economic working papers) 25, Bank of Italy, Economic Research and International Relations Area.
    2. Alena Vagaská & Miroslav Gombár & Antonín Korauš, 2022. "Mathematical Modeling and Nonlinear Optimization in Determining the Minimum Risk of Legalization of Income from Criminal Activities in the Context of EU Member Countries," Mathematics, MDPI, vol. 10(24), pages 1-25, December.
    3. Giammatteo, Michele & Iezzi, Stefano & Zizza, Roberta, 2022. "Pecunia olet. Cash usage and the underground economy," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 107-127.
    4. Francesco Flaviano Russo, 2022. "Cash thresholds, cash expenditure and tax evasion," Fiscal Studies, John Wiley & Sons, vol. 43(4), pages 387-403, December.
    5. Carmela D’Avino, 2023. "Money laundering and AML regulatory and judicial system regimes: investigation of FinCEN files," European Journal of Law and Economics, Springer, vol. 55(2), pages 195-223, April.
    6. Rainone, Edoardo, 2023. "Tax evasion policies and the demand for cash," Journal of Macroeconomics, Elsevier, vol. 76(C).
    7. Valentina Aprigliano & Guerino Ardizzi & Alessia Cassetta & Alessandro Cavallero & Simone Emiliozzi & Alessandro Gambini & Nazzareno Renzi & Roberta Zizza, 2021. "Exploiting payments to track Italian economic activity: the experience at Banca d’Italia," Questioni di Economia e Finanza (Occasional Papers) 609, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Money laundering; Crime; Enterprise syndicate; Power syndicate; Regulation;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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