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The economics of crime and money laundering: does anti-money laundering policy reduce crime?

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  • J. Ferwerda

Abstract

Anti-money laundering policy has become a major issue in the Western world, especially in the United States after 9-11. Basically all countries in the world are more or less forced to cooperate in the global fight against money laundering. In this paper, the criminalization of money laundering is modelled, assuming rational behaviour of criminals, following the law and economics strand of the literature which is described as the economics of crime. The theoretical model shows that a) the probability to be caught for money laundering, b) the sentence for money laundering, c) the probability to be convicted for the predicate crime and d) the transaction costs of money laundering are negatively related to the amount of crime. Under the assumption that these factors are all positively influenced by a stricter anti-money laundering policy, the hypothesis empirically tested in this paper is that anti-money laundering policy deters potential criminals from illegal behavior and therefore lowers the crime rate. Since the data on anti-money laundering policy, used in the literature so far, is not all-embracing, a new unique indicator is constructed by using all the information from the mutual evaluation reports on money laundering of the FATF, IMF and World Bank. This unique dataset is used in an empirical estimation based on a Mundlak specification to test the effect of antimoney laundering policy on the crime rate. Among the four policy areas measured – the role of laws, the institutional framework, the duties of the private sector in law enforcement, and international cooperation, the latter turned out to be the most important policy area for reducing crime. This should be an extra incentive for countries and international organizations to continue their efforts to promote and develop international cooperation in the fight against money laundering.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/31795/08-35.pdf
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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 08-35.

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Length: 19 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:use:tkiwps:0835

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Keywords: Anti-Money Laundering Policy and Crime;

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Cited by:
  1. Tim Krieger & Daniel Meierrieks, 2011. "Terrorist Financing and Money Laundering," Working Papers CIE 40, University of Paderborn, CIE Center for International Economics.
  2. Fanta, F & Mohsin, H, 2010. "Anti-Money Laundry regulation and Crime: A two-period model of money-in-the-utility-function," MPRA Paper 25773, University Library of Munich, Germany.
  3. Patrycja Chodnicka, 2012. "Geographical Risk Of Money Laundering In The European Banking System," Oeconomia Copernicana, Polskie Towarzystwo Ekonomiczne Oddzial w Toruniu, Wydzial Nauk Ekonomicznych i Zarzadzania UMK, vol. 3, pages 103-123.
  4. Tim Krieger & Daniel Meierrieks, 2011. "Terrorist Financing and Money Laundering," Working Papers 40, University of Paderborn, CIE Center for International Economics.

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