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.
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.
Original language | English |
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Place of Publication | Utrecht |
Publisher | UU USE Tjalling C. Koopmans Research Institute |
Number of pages | 19 |
Publication status | Published - 2008 |
Publication series
Name | Discussion Paper Series / Tjalling C. Koopmans Research Institute |
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No. | 35 |
Volume | 08 |
ISSN (Electronic) | 2666-8238 |
Keywords
- Anti-Money Laundering Policy and Crime