IDEAS home Printed from https://ideas.repec.org/a/bpj/rlecon/v5y2009i2n5.html
   My bibliography  Save this article

The Economics of Crime and Money Laundering: Does Anti-Money Laundering Policy Reduce Crime?

Author

Listed:
  • Ferwerda Joras

    (Utrecht University School of Economics)

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 behavior of criminals, following the law and economics strand of the literature described as the economics of crime. The theoretical model shows that a) the probability of being caught for money laundering, b) the sentence for money laundering, c) the probability of being 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 thus far is not all-embracing, a unique indicator is constructed using 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 anti-money laundering policy on the crime rate. Among the four policy areas measured the role of law, the institutional framework, the duties of the private sector in law enforcement, and international cooperation the latter turned out to be the policy area that is associated with a lower crime rate. This result 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.

Suggested Citation

  • Ferwerda Joras, 2009. "The Economics of Crime and Money Laundering: Does Anti-Money Laundering Policy Reduce Crime?," Review of Law & Economics, De Gruyter, vol. 5(2), pages 903-929, December.
  • Handle: RePEc:bpj:rlecon:v:5:y:2009:i:2:n:5
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/rle.2009.5.2/rle.2009.5.2.1421/rle.2009.5.2.1421.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
    2. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    3. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    4. Levitt, Steven D, 1997. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime," American Economic Review, American Economic Association, vol. 87(3), pages 270-290, June.
    5. John J. DiIulio, 1996. "Help Wanted: Economists, Crime and Public Policy," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 3-24, Winter.
    6. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
    7. Soares, Rodrigo R., 2004. "Development, crime and punishment: accounting for the international differences in crime rates," Journal of Development Economics, Elsevier, vol. 73(1), pages 155-184, February.
    8. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    9. B. Unger & J. Ferwerda, 2008. "Regulating Money Laundering and Tax Havens: The Role of Blacklisting," Working Papers 08-12, Utrecht School of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Patrycja Chodnicka, 2012. "Geographical Risk Of Money Laundering In The European Banking System," Oeconomia Copernicana, Institute of Economic Research, vol. 3(3), pages 103-123, September.
    2. Unger Brigitte, 2009. "Money Laundering - A Newly Emerging Topic on the International Agenda," Review of Law & Economics, De Gruyter, vol. 5(2), pages 807-819, December.
    3. Lucia dalla Pellegrina & Giorgio Di Maio & Donato Masciandaro & Margherita Saraceno, 2017. "Vulnerability to Money Laundering and Crime Deterrence: Evidence from Italy," BAFFI CAREFIN Working Papers 1766, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Chemin, Matthieu & Mbiekop, Flaubert, 2015. "Addressing child sex tourism: The Indian case," European Journal of Political Economy, Elsevier, vol. 38(C), pages 169-180.
    5. Patrycja Chodnicka, 2012. "Money laundering risk management in banking system (Zarzadzanie ryzykiem prania pieniedzy w systemie bankowym)," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 10(39), pages 206-222.
    6. 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.
    7. Brigitte Unger, 2013. "Introduction," Chapters,in: Research Handbook on Money Laundering, chapter 1, pages 3-16 Edward Elgar Publishing.
    8. Tim Krieger & Daniel Meierrieks, 2011. "Terrorist Financing and Money Laundering," Working Papers CIE 40, Paderborn University, CIE Center for International Economics.
    9. Unger Brigitte & van Waarden Frans, 2009. "How to Dodge Drowning in Data? Rule- and Risk-Based Anti Money Laundering Policies Compared," Review of Law & Economics, De Gruyter, vol. 5(2), pages 953-985, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:rlecon:v:5:y:2009:i:2:n:5. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.