Dancing with the devil: Country size and the incentive to tolerate money laundering
The incidence of money laundering, and the zeal with which international anti-money laundering (AML) policy is pursued, varies significantly from country to country, region to region. There are, however, quite substantial social costs associated with a policy of toleration, and this begs the question as to why such a variance should exist. In this paper we claim that, due to the globalisation of crime, if a single country should break the "chain of accountability", then it will provide a safe haven for criminals and attract the total financial proceeds of crime. Because smaller economies are best able to insulate themselves from the costs of crime, we argue that smaller countries bear only a tiny share of the total costs relative to the potential benefits of investment that money laundering offers, and so have a higher incentive to tolerate the practice compared to their larger neighbours. As such, we claim that the existence of a money laundering market is due to a policy of AML 'defection', and that the degree of 'defection' depends largely on the size of the country. We present a simple model of policy competition which formalises this intuition, and conclude by exploring a number of policy recommendations which flow from this.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Amedeo Argentiero & Michele Bagella & Francesco Busato, 2008.
"Money laundering in a two-sector model: using theory for measurement,"
European Journal of Law and Economics,
Springer, vol. 26(3), pages 341-359, December.
- 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.
- Daron Acemoglu, 1993.
"Reward Structures and the Allocation of Talent,"
CEP Discussion Papers
dp0143, Centre for Economic Performance, LSE.
- ElÃ¶d TakÃ¡ts, 2007.
"A Theory of "Crying Wolf": The Economics of Money Laundering Enforcement,"
IMF Working Papers
07/81, International Monetary Fund.
- Előd Takáts, 2011. "A Theory of "Crying Wolf" : The Economics of Money Laundering Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 27(1), pages 32-78.
- Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
- Edwin M. Truman & Peter Reuter, 2004. "Chasing Dirty Money: The Fight Against Anti-Money Laundering," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 381, May.
- Brigitte Unger & Gregory Rawlings, 2008. "Competing for criminal money," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 10(3), pages 331-352.
- Hans-Werner Sinn, 2004.
"The New Systems Competition,"
Perspektiven der Wirtschaftspolitik,
Verein für Socialpolitik, vol. 5(1), pages 23-38, 02.
- Hans-Werner Sinn, 2001. "The New Systems Competition," CESifo Working Paper Series 623, CESifo Group Munich.
- Sinn, Hans-Werner, 2004. "The new systems competition," Munich Reprints in Economics 19608, University of Munich, Department of Economics.
- Hans-Werner Sinn, 2002. "The New Systems Competition," NBER Working Papers 8747, National Bureau of Economic Research, Inc.
- Donato Masciandaro, 2005. "False and Reluctant Friends? National Money Laundering Regulation, International Compliance and Non-Cooperative Countries," European Journal of Law and Economics, Springer, vol. 20(1), pages 17-30, July.
- B. Unger & J. Ferwerda, 2008. "Regulating Money Laundering and Tax Havens: The Role of Blacklisting," Working Papers 08-12, Utrecht School of Economics.
- Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
- Anderson, David A, 1999. "The Aggregate Burden of Crime," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 611-42, October.
- Ehrlich, Isaac, 1973. "Participation in Illegitimate Activities: A Theoretical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 521-65, May-June.
When requesting a correction, please mention this item's handle: RePEc:eee:irlaec:v:30:y:2010:i:3:p:244-252. 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: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.