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

    Research output: Working paperAcademic

    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.
    Original languageEnglish
    Place of PublicationUtrecht
    PublisherUU USE Tjalling C. Koopmans Research Institute
    Number of pages19
    Publication statusPublished - 2008

    Publication series

    Name Discussion Paper Series / Tjalling C. Koopmans Research Institute
    No.35
    Volume08
    ISSN (Electronic)2666-8238

    Keywords

    • Anti-Money Laundering Policy and Crime

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