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Money Laundering as a Financial Sector Crime. A New Approach to Measurement, with an Application to Italy

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Author Info

  • Guerino Ardizzi

    ()
    (Market and Payment Systems Oversight Department, Bank of Italy, Italy)

  • Carmelo Petraglia

    ()
    (Department of Mathematics, Computer Science and Economics, University of Basilicata, Italy)

  • Massimiliano Piacenza

    ()
    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

  • Friedrich Schneider

    ()
    (Department of Economics, Johannes Kepler University of Linz, Austria)

  • Gilberto Turati

    ()
    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

Abstract

Anti–money laundering regulations have been centred on the “Know-Your-Customer” rule so far, overlooking the fact that criminal proceedings that need to be laundered are usually represented by cash. This is the first study aimed at providing an answer to the question of how much of cash deposited via an official financial institution can be traced back to criminal activities. The paper develops a new approach to measure money laundering and then proposes an application to Italy, a country where cash is still widely used in transactions and criminal activities generate significant proceeds to be laundered. In particular, we define a model of cash in-flows on current accounts and proxy money laundering with two indicators for the diffusion of criminal activities related to both illegal trafficking and extortion, controlling also for structural (legal) motivations to deposit cash, as well as the need to conceal proceeds from tax evasion. Using a panel of 91 Italian provinces observed over the period 2005-2008, we find that the amount of cash laundered is sizable, around 7% of GDP, 3/4 of which is due to illegal trafficking, while 1/4 is attributable to extortions. Furthermore, the incidence of “dirty money” coming from illegal trafficking is higher in the Centre-North than in the South, while the inverse is true for extortions. Results are useful to discuss policy initiatives to combat money laundering.

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File URL: http://eco83.econ.unito.it/RePEc/wp/m18.pdf
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Bibliographic Info

Paper provided by Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino in its series Working papers with number 018.

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Length: 32 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:tur:wpapnw:018

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Keywords: Money laundering; Shadow economy; Banking regulation;

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References

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  1. Walker John & Unger Brigitte, 2009. "Measuring Global Money Laundering: "The Walker Gravity Model"," Review of Law & Economics, De Gruyter, vol. 5(2), pages 821-853, December.
  2. Alexeev, Michael & Janeba, Eckhard & Osborne, Stefan, 2004. "Taxation and evasion in the presence of extortion by organized crime," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 375-387, September.
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  6. Friedrich Schneider & Ursula Windischbauer, 2010. "Money Laundering: Some Facts," Economics of Security Working Paper Series 25, DIW Berlin, German Institute for Economic Research.
  7. Malte Krueger & Charles Goodhart, 2001. "The Impact of Technology on Cash Usage," FMG Discussion Papers dp374, Financial Markets Group.
  8. Andreas Buehn & Friedrich Schneider, 2012. "Shadow economies around the world: novel insights, accepted knowledge, and new estimates," International Tax and Public Finance, Springer, vol. 19(1), pages 139-171, February.
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  12. J. C. Sharman, 2010. "Shopping for Anonymous Shell Companies: An Audit Study of Anonymity and Crime in the International Financial System," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 127-40, Fall.
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  14. Capasso, Salvatore & Jappelli, Tullio, 2013. "Financial development and the underground economy," Journal of Development Economics, Elsevier, vol. 101(C), pages 167-178.
  15. Amedeo Argentiero & Michele Bagella & Francesco Busato, 2008. "Money laundering in a two sector model: using theory for measurement," CEIS Research Paper 128, Tor Vergata University, CEIS, revised 09 Sep 2008.
  16. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World - Size, Causes, and Consequences," IMF Working Papers 00/26, International Monetary Fund.
  17. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
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  19. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2012. "Measuring the underground economy with the currency demand approach: a reinterpretation of the methodology, with an application to Italy," Temi di discussione (Economic working papers) 864, Bank of Italy, Economic Research and International Relations Area.
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  1. How much money laundering is there in Italy?
    by Economic Logician in Economic Logic on 2013-03-21 14:28:00
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