We analyse the accomplishment rates of anti money laundering recommendations of the Financial Action Task Force (FATF) in the five Andean countries between 1989 and 1999. We find an uneven application of FATF recommendations across these countries, mainly due to differences in the regulation of the financial and banking systems and in the degree of interregional and international cooperation. We also identify the main money laundering channels adopted in each country and find a correspondence between the lack of specific domestic legislation and the development of specific local money laundering techniques. Finally, with an econometric test on money demand, we observe that a stricter FATF compliance relative to neighbouring countries has significant negative effects on excess domestic cash balances, net of the positive effect generated by the higher compliance per se. Our policy advice is therefore that a coordinated anti money laundering action is urgently needed in order to avoid such externalities.
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