Efficiency of Money Laundering Countermeasures: Case Studies from European Union Member States

Cotoc, Corina-Narcisa; Nițu, Maria; Şcheau, Mircea Constantin; Cozma, Adeline-Cristina

doi:10.3390/risks9060120

Cited by 8 publications

(7 citation statements)

References 34 publications

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“…Research has shown that corporate governance and its components have the most significant impact when it comes to reducing the level of fraud, which can be explained by the efficiency of corporate governance mechanisms in reducing the possibility of dishonest financial reporting and ML, which improves the reliability of accounting figures (Razali and Arshad 2014). There are several articles related to suspicious ML transactions (Levi et al 2018;Gilmour 2020;He 2010;Achim et al 2018;Achim et al 2021;Cotoc et al 2021). Today, however, as we face an economic crisis all over the world, this problem needs to be investigated through the lens of corporate governance effectiveness.…”

Section: Introductionmentioning

confidence: 99%

The Effect of Corporate Governance Structure on Fraud and Money Laundering

Mousavi

Zimon

Salehi

et al. 2022

Risks

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This paper aims to assess the effect of corporate governance mechanisms, including board members’ and audit committee members’ characteristics, particularly their independence, expertise in terms of finance and industry and efforts on the level of fraud and money laundering (ML) in financial statements of the listed firm on the Tehran Stock Exchange. The procedure of the study is descriptive correlation based on published information from firms listed on the Tehran Stock Exchange from 2014 to 2020, using a sample of 154 firms with 1071 observations. The method used for hypothesis testing is linear regression using panel data. The Benish model is used measure the level of fraud in financial statements, and for ML, the auditors’ opinion are used. The results show that board characteristics, including independence, financial expertise, industry expertise and board effort, as well as audit committee features, such as independence, financial expertise, industry expertise and audit committee effort, have a significant and negative impact on the fraudulent financial reporting and ML. Moreover, since this paper was carried out in an emerging financial market, particularly in Iran, to figure out the effect of corporate governance structures on financial statement fraud and ML, it can provide helpful information for investors and policymakers in this regard.

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Section: Introductionmentioning

confidence: 99%

The Effect of Corporate Governance Structure on Fraud and Money Laundering

Mousavi

Zimon

Salehi

et al. 2022

Risks

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“…Lederman (2018), who focuses on tax compliance, also lends support to these studies, reporting evidence of significant impact of enforcement in the case of moderating tax compliance. On the other hand, focusing on the EU Member States, Cotoc et al (2021) emphasizes the need for higher international coordination and cooperation to improve effectiveness of money laundering A major strand of the existing literature focuses on money laundering risk judgment (Trumbo, 1999;Sprinkle, 2003;Arasa, 2015;Parida and Kumar, 2020;Mohd-Sanusi et al, 2021;Jamil et al, 2022), which is somewhat more relevant to the present study. These studies tackle a broad range of issues with respect to money laundering risk.…”

Section: Review Of the Literaturementioning

confidence: 99%

Section: Review Of the Literaturementioning

confidence: 99%

Perceptions on jurisdiction risk: a cross-country analysis

Feridun

2023

JMLC

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Purpose The purpose of this article is to make a contribution to the existing knowledge by using the unique cross-jurisdiction data drawn from the FCA’s REP-CRIM submissions to explore dynamics behind firms’ perceptions on financial crime. Capturing firm’s sentiment is notoriously challenging, and any relevant regulatory data is usually not available in the public domain. A recent exception is the UK Financial Conduct Authority’s (FCA’s) financial crime data return (REP-CRIM) submissions which include the cross-country regulatory data on the UK financial institutions’ perceptions of jurisdiction risk. Despite a broad literature with respect to financial crime, there exists an important gap in the existing knowledge with respect to factors that are associated with the perceptions of firms with respect to jurisdiction risk, which this article aims to close. Design/methodology/approach Using cross-country regulatory data on the UK financial institutions’ perceptions of jurisdiction risk, this study empirically determines that perceptions of jurisdiction risk is significantly and positively associated with anti-money laundering and countering the financing of terrorism (AML/CFT) framework, as well as with tax burden on business and institutional and legal risk in the case of 165 jurisdictions. Findings The findings lend support to the proposition that unsystematic efforts and too much publicity may ascertain the high-risk image of a jurisdiction, deterring cross-border business. Policy implications that emerge from the study also add to the case for strengthening institutional and legal frameworks, as well as relieving the tax burden on doing business. Research limitations/implications Findings of the present study should be interpreted with caution, as the dependent variable used in the present study reflects UK firms’ perceptions of jurisdiction risk, which may depend on various factors such as different risk appetites and the countries in which firms carry out business, and not necessarily the actual level of risks based on financial crime statistics. For example, a jurisdiction which may indeed be considered high risk, would not necessarily be ranking high on the FCA’s list of UK firms’ jurisdiction risk perceptions due to few firms operating in that particular country. As a result, the list could differ from the Financial Action Task Force’s black and grey lists. Findings based on the regulatory data on the UK financial institutions’ perceptions of jurisdiction risk should be considered preliminary in nature, given that they are based on a single year cross sectional data. As global and country-level AML/CFT efforts continue to intensify and as more regulatory data becomes publicly available, it would be imperative to bring further empirical evidence to bear on the question of whether financial crime perceptions are likely to be more pronounced for jurisdictions where AML/CFT efforts are more intensified. Likewise, from a policy standpoint, it would be equally important to explore further the role that institutional and legal risk, as well as tax burden on businesses, play in shaping firms’ perceptions of jurisdiction risk. Practical implications Findings lend support to the proposition that unsystematic efforts and too much publicity may ascertain the high-risk image of a jurisdiction, deterring cross-border business. Therefore, rather than waiting for more data to be made available by other financial regulators, which could lead to a more conclusive evidence in the future, on balance, the findings of this study add to the case for carefully designing and systematically implementing AML/CFT measures in a less publicized manner. Findings lend support to the theoretical postulation that disorderly efforts and undue publicity regarding AML/CFT efforts serve to ascertain the high-risk image of a jurisdiction, which could deter cross-border business and could be detrimental to how firms undertake due diligence. They also suggest that disorderly implementation of AML/CFT measures may hinder access to formal financial service and jeopardize authorities’ ability to trace the movement of funds, which may also add to negative perceptions of jurisdiction risk. Social implications Findings are in line with the theoretical expectations that perceptions of jurisdiction risk would be expected to be higher in countries with inadequate disclosure rules, lax regulation and opacity jurisdiction. Likewise, results are aligned with the expectations that tax burden on business would be expected to be in a positive relationship with jurisdiction risk, as it would increase the likelihood of tax evasion, which incentivizes financial crime. Therefore, policy implications that emerge from the study also add to the case for strengthening institutional and legal frameworks and relieving the tax burden on doing business as part of efforts to improve the international image of jurisdictions with respect to financial crime risks. Originality/value Using the cross-country regulatory data on the UK financial institutions’ perceptions of jurisdiction risk, this study has empirically determined that perceptions of jurisdiction risk is significantly and positively associated with AML/CFT framework, as well as with tax burden on business and institutional and legal risk. These findings have implications from a policy standpoint.

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“…As firms' perceptions of financial crime risk at a jurisdiction level rapidly gain supervisory relevance and international firms continue to reconsider their operations in high-risk jurisdictions, it is imperative to bring empirical evidence to bear on the question of whether political stability, evasion of tax and regulations and regulatory stringency explain firms' perceptions of jurisdiction risks (FCA, 2021a). While different measures of financial crime risk exist, it is notoriously challenging to capture firms' perceptions of it, particularly at a cross-jurisdiction level (Simser, 2013;Cotoc et al, 2021;Perkins, 2022). Financial crime risks can vary significantly across different jurisdictions due to differences in legal and Crossjurisdictional financial crime risks regulatory frameworks, cultural norms and levels of economic development.…”

Section: Introductionmentioning

confidence: 99%

Cross-jurisdictional financial crime risks: what can we learn from the UK regulatory data?

Feridun

2023

JFC

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Purpose Financial crime presents a serious threat to the stability and integrity of the global financial system. To combat illicit financial activities, regulatory bodies worldwide have implemented various measures, including the requirement for financial institutions to assess the financial crime risks they are exposed to in the jurisdictions they operate in. These risks include inadequate anti-money laundering and countering the financing of terrorism frameworks and other financial crime risks that have significant strategic implications for firms’ geographical footprints and customer risk classifications. This paper aims to make a contribution to the literature by undertaking a cross-country analysis of 158 countries to shed light on what drives perceived jurisdiction risk of the UK financial services firms. Design/methodology/approach Capturing firms’ perceptions of financial crime risk requires significant data collection efforts, including surveys and interviews with key personnel. This can be highly resource-intensive and may require access to sensitive information that firms may be reluctant to share. Furthermore, the dynamic nature of financial crime risks means that perceptions can change rapidly in response to changes in the regulatory and geopolitical landscape. As a result, capturing and monitoring firms’ perceptions of financial crime risks requires ongoing monitoring and analysis. Capturing firms’ perceptions of financial crime risks at a cross-jurisdictional level is a particularly complex and challenging task that requires careful consideration of a range of factors. As a result of data limitations, empirical investigation of the factors underlying the firms’ perceptions of jurisdiction risk is in its infancy. This paper uses regulatory financial crime data from the UK in a multivariate regression analysis, following a general-to-specific approach where any redundant variables were removed from the general model sequentially. Findings Results suggest that perceived jurisdiction risk is significantly and positively associated with evasion of tax and regulations, while it is significantly and negatively associated with political stability and regulatory stringency. These have important implications for home and host supervisors with respect to the factors that drive perceived jurisdiction risks and the evaluation of the nature of inherent financial crime risks within regulated firms. The findings confirm the critical role of the shadow economy, political stability and regulatory rigor in shaping jurisdiction risk perceptions. From a policy standpoint, the findings support the case for taking prompt policy action to identify, prioritize and implement specific and targeted measures with respect to the shadow economy, political stability and rigor of regulations to improve international firms’ perceptions of jurisdiction risk. Originality/value While there exists different measures of financial crime risk, it is notoriously challenging to capture firms’ perceptions of it, particularly at a cross-jurisdiction level. This is because financial crime risks can vary significantly across different jurisdictions due to differences in legal and regulatory frameworks, cultural norms and levels of economic development. This makes it difficult for firms to compare and evaluate the financial crime risks they face in different jurisdictions. Besides, firms’ perceptions of financial crime risks can be influenced by a range of subjective factors, including personal experiences, media coverage and hearsay. These perceptions may not always align with objective risk assessments, which are based on more systematic and empirical methods of risk measurement. This paper contributes to the existing literature by undertaking a cross-country analysis drawing on a unique set of UK regulatory financial crime data, which is based on a total of 1,900 annual financial crime data regulatory return (REP-CRIM) submissions to the UK’s Financial Conduct Authority.

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Efficiency of Money Laundering Countermeasures: Case Studies from European Union Member States

Cited by 8 publications

References 34 publications

The Effect of Corporate Governance Structure on Fraud and Money Laundering

The Effect of Corporate Governance Structure on Fraud and Money Laundering

Perceptions on jurisdiction risk: a cross-country analysis

Cross-jurisdictional financial crime risks: what can we learn from the UK regulatory data?

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