IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/25773.html
   My bibliography  Save this paper

Anti-Money Laundry regulation and Crime: A two-period model of money-in-the-utility-function

Author

Listed:
  • Fanta, F
  • Mohsin, H

Abstract

The paper presents a two period model with two types of money i.e. dirty and cleans (legal) money in utility function. Clean money is earned from working in legal sector and dirty from illegal sector. Our two-two period model reveals that an increase in labor wage in legal sector unambiguously decease the labor hours allocated for illegal sector by increasing the opportunity cost for illegal activities. However, the crime-reducing impact of anti-money laundry regulation and the probability of the agent to be caught require both parameters should be above some threshold. This finding is extension to the existing literature. This threshold is a function of the marginal rate of substitution of ‘dirty’ money for consumption and the responsiveness of illegal income to the policy parameter. Higher threshold implies the need for tougher anti-money laundry regime. Therefore, the marginal rate of substitution between ‘dirty’ money and consumption, and the elasticity of illegal income to the policy parameter are the key in the formulation of anti money laundering policy.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:25773
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/25773/1/MPRA_paper_25773.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Donato Masciandaro, 1999. "Money Laundering: the Economics of Regulation," European Journal of Law and Economics, Springer, vol. 7(3), pages 225-240, May.
    3. Alberto Chong & Florencio Lopez-De-Silanes, 2015. "Money Laundering and Its Regulation," Economics and Politics, Wiley Blackwell, vol. 27(1), pages 78-123, March.
    4. Tito Belchior Siva Moreira, 2007. "A Two-Period Model of Money Laundering and Organized Crime," Economics Bulletin, AccessEcon, vol. 11(3), pages 1-5.
    5. Alberto Chong & Florencio Lopez-De-Silanes, 2015. "Money Laundering and Its Regulation," Economics and Politics, Wiley Blackwell, vol. 27(1), pages 78-123, 03.
    6. Camera, Gabriele, 2001. "Dirty money," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 377-415, April.
    7. repec:ebl:ecbull:v:11:y:2007:i:3:p:1-5 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Raffaella Barone & Donato Masciandaro, 2011. "Organized crime, money laundering and legal economy: theory and simulations," European Journal of Law and Economics, Springer, vol. 32(1), pages 115-142, August.
    2. Carmela D’Avino, 2023. "Money laundering and AML regulatory and judicial system regimes: investigation of FinCEN files," European Journal of Law and Economics, Springer, vol. 55(2), pages 195-223, April.
    3. Tomas Williams & Pablo Slutzky & Mauricio Villamizar-Villegas, 2019. "Drug Money and Bank Lending: The Unintended Consequences of Anti-Money Laundering Policies," Working Papers 2019-5, The George Washington University, Institute for International Economic Policy, revised May 2020.
    4. Premti, Arjan & Jafarinejad, Mohammad & Balani, Henry, 2021. "The impact of the Fourth Anti-Money Laundering Directive on the valuation of EU banks," Research in International Business and Finance, Elsevier, vol. 57(C).
    5. Raffaella Barone & Domenico Delle Side & Donato Masciandaro, 2018. "Drug trafficking, money laundering and the business cycle: Does secular stagnation include crime?," Metroeconomica, Wiley Blackwell, vol. 69(2), pages 409-426, May.
    6. Christian Friedrich & Reiner Quick, 2019. "An analysis of anti-money laundering in the German non-financial sector," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(4), pages 1099-1137, December.
    7. Lucia dalla Pellegrina & Giorgio Di Maio & Donato Masciandaro & Margherita Saraceno, 2020. "Organized crime, suspicious transaction reporting and anti-money laundering regulation," Regional Studies, Taylor & Francis Journals, vol. 54(12), pages 1761-1775, December.
    8. Zhang, Guike & Gao, Zengan & Dong, June & Mei, Dexiang, 2023. "Machine learning approaches for constructing the national anti-money laundering index," Finance Research Letters, Elsevier, vol. 52(C).
    9. Ferrante, Livio & Reito, Francesco & Spagano, Salvatore & Torrisi, Gianpiero, 2021. "Shall we follow the money? Anti-mafia policies and electoral competition," Journal of Policy Modeling, Elsevier, vol. 43(5), pages 1110-1130.
    10. Yallwe, Hagos Alem & Buscemi, Antonino, 2011. "Money laundry and financial development," MPRA Paper 32219, University Library of Munich, Germany.
    11. Daehan Kim & Mehmet Huseyin Bilgin & Doojin Ryu, 2021. "Are suspicious activity reporting requirements for cryptocurrency exchanges effective?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-17, December.
    12. Imanpour, Maryam & Rosenkranz, Stephanie & Westbrock, Bastian & Unger, Brigitte & Ferwerda, Joras, 2019. "A microeconomic foundation for optimal money laundering policies," International Review of Law and Economics, Elsevier, vol. 60(C).
    13. 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.
    14. Ricardo Azevedo Araujo & Tito Belchior Silva Moreira, 2012. "An Economic Investigation of Confiscation as a Tool against Money Laundering," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 13(2), pages 271-280.
    15. Arnoldo R. Camacho, 2013. "Modelling the Risk Profiles of Clients in the Fight Against Money Laundering and Terrorism Financing," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 12(2), pages 97-120, December.
    16. Raffaella Barone & Donato Masciandaro & Friedrich Schneider, 2022. "Corruption and money laundering: You scratch my back, i’ll scratch yours," Metroeconomica, Wiley Blackwell, vol. 73(1), pages 318-342, February.
    17. Pietro A. Bianchi & Antonio Marra & Donato Masciandaro & Nicola Pecchiari, 2017. "Is It Worth Having the Sopranos on Board? Corporate Governance Pollution and Organized Crime: The Case of Italy," BAFFI CAREFIN Working Papers 1759, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    18. Gabriele Camera & Marco Casari & Stefania Bortolotti, 2016. "An Experiment on Retail Payments Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 363-392, March.
    19. 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.
    20. D. Bartolozzi & M. Gara & D.J. Marchetti & D. Masciandaro, 2019. "Designing The Anti-Money Laundering Supervisor: Theory, Institutions And Empirics," BAFFI CAREFIN Working Papers 19126, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    More about this item

    Keywords

    Money laundry; crime; money in utility function; money;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:25773. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.