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Hiding Filthy Lucre in Plain Sight: Theory and Identification of Business-Based Money Laundering

Author

Listed:
  • Keith E. Maskus
  • Alessandro Peri
  • Anna Rubinchik

Abstract

Proceeds from illicit activities percolate into the legal economy through several channels. We exploit international regulations targeting money laundering via the financial sector to identify the flows of “dirty money” into legitimate establishments: business-based money laundering (BBML). Our variant of the monopolistic competition model embeds a drug cartel that channels illicit proceeds into an offshore financial investment and into BBML. Tighter regulations in one channel increase the flow in the other. We use a research design that links U.S. county business activity to the evolution of anti-money-laundering regulations in Caribbean jurisdictions to provide the first empirical evidence of the phenomenon.

Suggested Citation

  • Keith E. Maskus & Alessandro Peri & Anna Rubinchik, 2021. "Hiding Filthy Lucre in Plain Sight: Theory and Identification of Business-Based Money Laundering," CESifo Working Paper Series 9019, CESifo.
    • Handle: RePEc:ces:ceswps:_9019
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    References listed on IDEAS

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    More about this item

    Keywords

    money laundering; business establishment; Panama Papers; anti-money-laundering regulations; monopolistic competition;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H00 - Public Economics - - General - - - General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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