Financial sector development, anti-money laundering regulations and economic growth

Ofoeda, Isaac; Agbloyor, Elikplimi Komla; Abor, Joshua Yindenaba

doi:10.1108/ijoem-12-2021-1823

Cited by 11 publications

(15 citation statements)

References 50 publications

(142 reference statements)

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“…4.1.1 | Robustness checks: Accounting for regional and income differences It is possible for the estimated results to vary across the developing nations due to differences in structure and institutional quality. These heterogeneous features may influence the effectiveness of AML regulations and the functionalities of the financial markets (Ofoeda, Agbloyor, & Abor, 2022a, 2022b. For instance, Asian economies may have good institutional quality compared to sub-Saharan African economies.…”

Section: Estimation Strategiesmentioning

confidence: 99%

“…The International Monetary Fund (IMF, 2001) defines money laundering as ‘an act of transferring illegally obtained money, investments and properties through an outside party to conceal the true source’. This implies that the fundamental purpose of ML activities is to make illegal funds appear clean by masking or obscuring their sources while allowing the money launderers to use the funds without raising suspicion or being detected by law enforcement agents (Ofoeda, Agbloyor, & Abor, 2022a; Ofoeda, Agbloyor, & Abor, 2022b; Ofoeda, Agbloyor, & Abor, 2022d; Ofoeda, Agbloyor, Abor, & Achampong, 2022). Thus, ML promotes secrecy, disguise, and it is an attempt to gain undue profit by the perpetrators.…”

Section: Introductionmentioning

confidence: 99%

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Benefit or burden? An exploratory analysis of the impact of anti‐money laundering regulations on sustainable development in developing economies

Ajide,

Ojeyinka

2023

Sustainable Development

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Over the years, efforts have been put in place to address money laundering activities including financial crime and illicit funding controls. These efforts have been recognized to promote financial integrity and effective governance systems. They have been further adjudged by the United Nations' sustainable development (Goal‐16) with a major concern to achieve peaceful, just and inclusive development. Previous studies reveal that money laundering activities have major implications for economic growth. However, little is known about the main implications of anti‐money laundering (AML) regulations on sustainable development. On this note, this study contributes to the ongoing debate by investigating the relationship between AML regulations and sustainable development in 72 developing economies, consisting 29 upper middle income, 33 low middle income and 10 low income countries. Using instrumental variable generalized method of moment (IV‐GMM), panel quantile estimation technique and dynamic panel threshold analysis, the findings are as follows. First, AML regulations promote sustainable development. Second, the panel quantile regression reveals that countries with moderate AML regulations attain higher sustainable development than those with excessive regulations. Further results on regional analysis show that AML regulations are more effective in Latin America, South Asia, Europe & Central Asia and Middle East & North Africa than in Sub‐Saharan Africa and East Asia & Pacific. These results are robust and stable after conducting a number of robustness analyses. The study suggests that effective AML regulations should be moderate and well‐implemented to further improve economic, social and environmental sustainability in developing countries.

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Section: Estimation Strategiesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Benefit or burden? An exploratory analysis of the impact of anti‐money laundering regulations on sustainable development in developing economies

Ajide,

Ojeyinka

2023

Sustainable Development

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“…Such approach could also be detrimental to how firms undertake due diligence (FSA, 2011). Disorderly implementation of AML/CFT measures may also hinder access to formal financial service and jeopardize authorities’ ability to trace the movement of funds, which may also be perceived negatively by foreign businesses (Bester et al , 2008; Isern and Koker, 2008; Mccarthy et al , 2015; Ofoeda et al , 2022).…”

Section: Conceptual Frameworkmentioning

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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“…It is also more generally referred to as a financial crime (Buchanan, 2004;AlQudah et al, 2022) that can put the financial sector stability and solvency at danger, especially in less developed nations with less advanced financial systems (Aluko and Bagheri, 2012;Ofoeda et al, 2022a;Durguti et al, 2023). It is perceived, moreover, as a potential hindrance to countries' overall well-being (Dobrowolski and Sułkowski, 2019;Janjua and Khan, 2020;Ofoeda et al, 2022a). National and international organizations, including the Financial Action Task Force, the Basel Committee on Banking Supervision, the United Nations Office on Drugs and Crime, the International Monetary Fund, the World Bank and the Organization of Economic Cooperation and Development (OECD), recommend strongly fighting money laundering (see for instance Schott, 2006;OECD, 2009;Jakobi, 2015;Chatain et al, 2022).…”

Section: Introductionmentioning

confidence: 99%

“…Deng et al , 2009; Zdanowicz, 2009; Salehi et al , 2017). It is also more generally referred to as a financial crime (Buchanan, 2004; AlQudah et al , 2022) that can put the financial sector stability and solvency at danger, especially in less developed nations with less advanced financial systems (Aluko and Bagheri, 2012; Ofoeda et al , 2022a; Durguti et al , 2023). It is perceived, moreover, as a potential hindrance to countries’ overall well-being (Dobrowolski and Sułkowski, 2019; Janjua and Khan, 2020; Ofoeda et al , 2022a).…”

Section: Introductionmentioning

confidence: 99%

Is money laundering a hurdle to achieving Sustainable Development Goals?

Gueddari

Saafi²,

Nouira

2023

JMLC

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Purpose The purpose of this study provide answers to the following research questions: Whether and to what extent money laundering affects the achievability and the trend of Sustainable Development Goals (SDGs)?; Does the influence of money laundering on the SDGs’ achievement differ from developing to developed countries?; How does the influence of money laundering vary among the 17 SDGs? Design/methodology/approach The paper’s analysis involves two key parts. In the first part, the authors perform a multivariate analysis to examine the influence of money laundering on the achievement of SDGs, and then in the second part, the authors make use of an ordered probit regression model to investigate the impact of money laundering on the trend of attaining each SDG. Findings Using a sample of 98 developed and developing countries, the regression results from multivariate analysis estimates show that money laundering has a strong inhibiting effect on the achievement of almost all the SDGs in the whole sample of countries and the sub-sample of developing countries, whereas no significant effect is observed for developed countries. However, for the SDG trends, the ordered probit estimates reveal that the harmful effect of money laundering occurs for all countries regardless their development level. In addition, perhaps surprisingly, the results from both the approaches yield also evidence advocating that money laundering activities might be associated with positive externalities on production and consumption. In fact, money laundering is found to have a significant positive influence on the achievement and the trend of SDG12 (Sustainable Consumption and Production). Overall, this study’s findings do have interesting policy implications, especially for developing countries. In these countries, prioritising the formulation and implementation of sound anti-money laundering policies is a necessary requirement for their progress towards achieving the SDGs. Originality/value The long-standing tradition of previous empirical studies examining the nexus between money laundering and sustainable development concentrates mainly on the economic dimension of sustainability (i.e. economic growth). However, little is known about the consequences of money laundering activities on the environment and the societies. Consequently, this study seeks to fill this gap by assessing the influence of money laundering on the achievement of the economic, environmental and social goals of sustainable development. To the best of the authors’ knowledge, this is the first integrated study to analyse the potential repercussions of money laundering on the SDGs’ achievement.

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Financial sector development, anti-money laundering regulations and economic growth

Cited by 11 publications

References 50 publications

Benefit or burden? An exploratory analysis of the impact of anti‐money laundering regulations on sustainable development in developing economies

Benefit or burden? An exploratory analysis of the impact of anti‐money laundering regulations on sustainable development in developing economies

Perceptions on jurisdiction risk: a cross-country analysis

Is money laundering a hurdle to achieving Sustainable Development Goals?

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