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Bank Secrecy in Offshore Centres and Capital Flows: Does Blacklisting Matter?

Author

Listed:
  • Olga Balakina
  • Angelo D’Andrea
  • Donato Masciandaro

Abstract

This study analyses cross-border capital flows in order to verify the existence and direction of the effect of the soft regulation promoted by international organizations against banking secrecy which characterized the so called tax and financial heavens. This effect is called in the literature Stigma Effect but both the existence and the direction of the stigma effect are far from being obvious. The international capital flows can simply neglect the relevance of the blacklisting, or worst, the attractiveness of banking secrecy can produce a race to the bottom: the desire to elude more transparent regulation can sensibly influence the capital movements. We test whether being included and later excluded from the FATF blacklist is an effective measure that influences countries’ cross-border capital flows. Using annual panel data for the period 1996-2014, we apply our framework to 126 countries worldwide. We find evidence that in general the stigma effect does not exist.

Suggested Citation

  • Olga Balakina & Angelo D’Andrea & Donato Masciandaro, 2016. "Bank Secrecy in Offshore Centres and Capital Flows: Does Blacklisting Matter?," BAFFI CAREFIN Working Papers 1620, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
  • Handle: RePEc:baf:cbafwp:cbafwp1620
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    2. Fatica, Serena & Gregori, Wildmer Daniel, 2020. "How much profit shifting do European banks do?," Economic Modelling, Elsevier, vol. 90(C), pages 536-551.
    3. Fatica, Serena & Wildmer, Gregori, 2018. "Profit shifting by EU banks: evidence from country-by-country reporting," Working Papers 2018-04, Joint Research Centre, European Commission (Ispra site).

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    More about this item

    Keywords

    bank secrecy; offshore centres; international capital flows; name and shame regulation; money laundering;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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