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Bank Secrecy, Illicit Money and Offshore Financial Centers

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  • Pierre M. Picard
  • Patrice Pieretti

    ()
    (CREA, University of Luxembourg)

Abstract

International and national institutions regularly put pressure on offshore Financial centers and their clients to enforce compliance with anti-money laundering regulations and that in spite of the existence of bank secrecy. This paper discusses the winners and losers of such policies. Surprisingly, aggregate profits and tax revenues can increase under those policies. In addition, we show that o¤shore banks can be encouraged to comply with rigorous monitoring of the investor's identity and the origin of his/her funds when the pressure creates su¢ ciently high risk of reputational harm to this investor. Nevertheless, the efficient pressure policy is dichotomous in the sense that a social planner chooses zero pressure or the pressure that just entices o¤shore banks to comply. By contrast, the imple- mentation of those pressure policies on an onshore institution may be ine¢ cient. Finally, we show that deeper financial integration fosters compliance by the offshore center while it also gives better incentives for delegated organizations to effectively induce compliance.

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Bibliographic Info

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 08-18.

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Date of creation: 2008
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Handle: RePEc:luc:wpaper:08-18

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  1. FitzGerald, Valpy, 2004. "Global financial information, compliance incentives and terrorist funding," European Journal of Political Economy, Elsevier, vol. 20(2), pages 387-401, June.
  2. Donato Masciandaro, 2005. "False and Reluctant Friends? National Money Laundering Regulation, International Compliance and Non-Cooperative Countries," European Journal of Law and Economics, Springer, Springer, vol. 20(1), pages 17-30, July.
  3. Rose, Andrew K & Spiegel, Mark, 2005. "Offshore Financial Centres: Parasites or Symbionts?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5081, C.E.P.R. Discussion Papers.
  4. Abbott, Kenneth W. & Snidal, Duncan, 2000. "Hard and Soft Law in International Governance," International Organization, Cambridge University Press, Cambridge University Press, vol. 54(03), pages 421-456, June.
  5. Cremer, Helmuth & Pestieau, Pierre, 2004. "Factor mobility and redistribution," Handbook of Regional and Urban Economics, Elsevier, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 57, pages 2529-2560 Elsevier.
  6. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, Elsevier, vol. 88(6), pages 1065-1091, June.
  7. Joel Slemrod & John D. Wilson, 2006. "Tax Competition With Parasitic Tax Havens," NBER Working Papers 12225, National Bureau of Economic Research, Inc.
  8. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, American Economic Association, vol. 83(4), pages 877-92, September.
  9. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2006. "The demand for tax haven operations," Journal of Public Economics, Elsevier, Elsevier, vol. 90(3), pages 513-531, February.
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Cited by:
  1. Raffaella Barone & Donato Masciandaro, 2011. "Organized crime, money laundering and legal economy: theory and simulations," European Journal of Law and Economics, Springer, Springer, vol. 32(1), pages 115-142, August.
  2. repec:idb:brikps:81941 is not listed on IDEAS

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