A Theory of "Crying Wolf": The Economics of Money Laundering Enforcement
AbstractThe paper shows how excessive reporting, called "crying wolf", can dilute the information value of reports. Excessive reporting is investigated by undertaking the first formal analysis of money laundering enforcement. Banks monitor transactions and report suspicious activity to government agencies, which use these reports to identify investigation targets. Banks face fines should they fail to report money laundering. However, excessive fines force banks to report transactions which are less suspicious. The empirical evidence is shown to be consistent with the model's predictions. The model is used to suggest implementable corrective policy measures, such as decreasing fines and introducing reporting fees.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 07/81.
Date of creation: 01 Apr 2007
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Other versions of this item:
- Előd Takáts, 2011. "A Theory of "Crying Wolf" : The Economics of Money Laundering Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 27(1), pages 32-78.
- NEP-ACC-2007-05-04 (Accounting & Auditing)
- NEP-ALL-2007-05-04 (All new papers)
- NEP-BAN-2007-05-04 (Banking)
- NEP-MON-2007-05-04 (Monetary Economics)
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