Money Laundering and Corruption: Birds of a Feather Flock Together

Abstract

This paper is the first to analyse the three-way relationship among money laundering, antimoney-laundering efforts and corruption. On the one hand, if we assume that the goal of criminals involved in corruption is to minimize the probability of being detected, then corruption represents a demand for money laundering (trigger effect), while money laundering can serve as an effective way to clean the revenue from corruption for re-investment (multiplier effect). On the other hand, criminals can try to maximize the likelihood that anti-moneylaundering activities will be ineffective. Corruption can be an effective device for maximizing this likelihood, as organized crime may corrupt financial institutions-both regulators and regulated firms-in order to prevent crime detection (accelerator effect). The paper proposes a novel theoretical framework for these interconnections, which is then used to simulate the three effects in 101 countries for the period 1990 to 2040.

Working Paper 36: Revealing the networks behind corruption and money laundering schemes

“…As Christensen (2011) and Barone et al (2019) have concluded, corruption generates demand for money laundering activities, while the possibility of laundering corruptly obtained money offers a supply-side stimulant for corrupt practices.…”