IDEAS home Printed from https://ideas.repec.org/p/use/tkiwps/0835.html

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

Author

Listed:
  • J. Ferwerda

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 behaviour of criminals, following the law and economics strand of the literature which is described as the economics of crime. The theoretical model shows that a) the probability to be caught for money laundering, b) the sentence for money laundering, c) the probability to be 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 so far, is not all-embracing, a new unique indicator is constructed by using all the 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 antimoney laundering policy on the crime rate. Among the four policy areas measured – the role of laws, the institutional framework, the duties of the private sector in law enforcement, and international cooperation, the latter turned out to be the most important policy area for reducing crime. This 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

  • J. Ferwerda, 2008. "The Economics of Crime and Money Laundering: Does Anti-Money Laundering Policy Reduce Crime?," Working Papers 08-35, Utrecht School of Economics.
    • Handle: RePEc:use:tkiwps:0835
    as

    Download full text from publisher

    File URL: https://dspace.library.uu.nl/bitstream/handle/1874/31795/08-35.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

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


    Cited by:

    1. 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.
    2. 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.
    3. 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.
    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. 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).
    6. Gök, İbrahim Yaşar, 2021. "Kara Finans: Kara Para Aklamada Yöntemler ve Önleyici Tedbirler [Black Finance: Methods and Preventive Measures for Money Laundering]," MPRA Paper 105582, University Library of Munich, Germany.
    7. Abroskin A.S. (Аброскин, А.С.) & Abroskina N.A. (Аброскина, Н.А.), 2016. "Methods of Analysis of Shadow of Cross-Border Capital Flows [Методы Анализа Теневых Трансграничных Потоков Капитала]," Working Papers 2134, Russian Presidential Academy of National Economy and Public Administration.
    8. 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.
    9. 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.
    10. 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.
    11. 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).
    12. Abroskin A.S. (Аброскин, А.С.) & Abroskina N.A. (Аброскина, Н.А.), 2016. "Shadow Cross-Border Capital Flows: Contemporary Concepts, Principles and Information Base of Accounting and Measurement [Теневые Трансграничные Потоки Капитала: Современные Концепции, Принципы И Информационная База Учета И Измерения]," Working Papers 2135, Russian Presidential Academy of National Economy and Public Administration.
    13. 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.
    14. 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).
    15. 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.
    16. 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.
    17. 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.
    18. Brigitte Unger, 2013. "Introduction," Chapters, in: Brigitte Unger & Daan van der Linde (ed.), Research Handbook on Money Laundering, chapter 1, pages 3-16, Edward Elgar Publishing.
    19. 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.
    20. Tim Krieger & Daniel Meierrieks, 2011. "Terrorist Financing and Money Laundering," Working Papers CIE 40, Paderborn University, CIE Center for International Economics.
    21. 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.

    More about this item

    Keywords

    ;

    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:use:tkiwps:0835. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/eiruunl.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.