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Do Countries Consistently Engage in Misinforming the International Community about Their Efforts to Combat Money Laundering? Evidence Using Benford’s Law

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  • Ioana Sorina Deleanu

Abstract

Indicators of compliance and efficiency in combatting money laundering, collected by EUROSTAT, are plagued with shortcomings. In this paper, I have carried out a forensic analysis on a 2003–2010 dataset of indicators of compliance and efficiency in combatting money laundering, that European Union member states self-reported to EUROSTAT, and on the basis of which, their efforts were evaluated. I used Benford’s law to detect any anomalous statistical patterns and found that statistical anomalies were also consistent with strategic manipulation. According to Benford’s law, if we pick a random sample of numbers representing natural processes, and look at the distribution of the first digits of these numbers, we see that, contrary to popular belief, digit 1 occurs most often, then digit 2, and so on, with digit 9 occurring in less than 5% of the sample. Without prior knowledge of Benford’s law, since people are not intuitively good at creating truly random numbers, deviations thereof can capture strategic alterations. In order to eliminate other sources of deviation, I have compared deviations in situations where incentives and opportunities for manipulation existed and in situations where they did not. While my results are not a conclusive proof of strategic manipulation, they signal that countries that faced incentives and opportunities to misinform the international community about their efforts to combat money laundering may have manipulated these indicators. Finally, my analysis points to the high potential for disruption that the manipulation of national statistics has, and calls for the acknowledgment that strategic manipulation can be an unintended consequence of the international community’s pressure on countries to put combatting money laundering on the top of their national agenda.

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  • Ioana Sorina Deleanu, 2017. "Do Countries Consistently Engage in Misinforming the International Community about Their Efforts to Combat Money Laundering? Evidence Using Benford’s Law," PLOS ONE, Public Library of Science, vol. 12(1), pages 1-19, January.
  • Handle: RePEc:plo:pone00:0169632
    DOI: 10.1371/journal.pone.0169632
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    Cited by:

    1. Chian Jones Ritten & Christopher Bastian & Owen Phillips, 2021. "The relative effectiveness of law enforcement policies aimed at reducing illegal trade: Evidence from laboratory markets," PLOS ONE, Public Library of Science, vol. 16(11), pages 1-20, November.
    2. Joras Ferwerda & Ioana Sorina Deleanu & Brigitte Unger, 2019. "Strategies to avoid blacklisting: The case of statistics on money laundering," PLOS ONE, Public Library of Science, vol. 14(6), pages 1-13, June.
    3. Pankaj C. Patel & Mike G. Tsionas & Maria João Guedes, 2022. "Benford's law, small business financial reporting, and survival," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3301-3315, December.
    4. Noah Farhadi & Hooshang Lahooti, 2023. "In Data We Trust: Proving Market Manipulation on the Tehran Stock Exchange," International Journal of Business and Management, Canadian Center of Science and Education, vol. 17(4), pages 1-1, February.

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