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

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 measuredthe 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.

Organized crime, money laundering and legal economy: theory and simulations

“…12 Masciandaro (1999) and Masciandaro et al (2007). 13 Microeconomic models on illegal activities and money laundering are presented in Masciandaro (2007), Siva Moreira (2007), Argentiero et al (2008) and Ferwenda (2009). 14 The financial sector is the most affected by money laundering (Europol 2006(Europol , 2007(Europol , 2008.…”

Minimizing Public Sector Corruption: The Economics of Crime, Identity Economics, and Money Laundering

“…It presents a realistic option that exists for public officials to 'transform illegally gained revenues into effective purchasing power. ' (Masciandro 1999, 227) For a price, laundered dirty income can now enter the overall value function as a third revenue stream that offers a similar set of consumption choices to legal income, and therefore greater utility than dirty income (Ferwada 2009).…”

Prevention of money laundering and the role of asset recovery

“…Further, the diligent public servant should also ensure that any proposed new legal measures imposing a cost to society should always be balanced against the benefits 1 that will accrue [1]. Money laundering is seen as posing an international global threat, 2 particularly amongst policy makers, facilitating serious and organised crime and undermining the integrity of the financial system 3 [see also 2,3,4,5,6]. This 'threat' imagery has been discussed by academics [see for example, 7,8] particularly with respect to a potential negative impact on the economic wellbeing of the economy.…”

“…4 There is little doubt that the legislative and regulatory changes over the past decade have seen the UK anti-money laundering (AML) landscape alter dramatically, particularly with the introduction of the Proceeds of Crime Act (POCA), 2002. This single piece of legislation, as amended by the Policing and Crime Act, 2009; the Crime and Courts Act, 2013; the Serious Crime Act, 2015; and, most recently, the Criminal Finances Act, 2017 has enabled law enforcement and courts to focus their attention specifically on the financial arrangements of criminals.…”

“…The paper starts with a brief review of the history and development of the AML legislative landscape within the UK and provides 1 There is a statutory requirement in the UK for changes to legislation to be accompanied by a cost benefit analysis, referred to as a Regulatory Impact Assessment. Refer 4 Available from:http://www.cps.gov.uk/legal/p_to_r/proceeds_of_crime_money_laundering/ (accessed 03/02 /2017) 5 Harvey (2004Harvey ( , 2008 analysed the main regulatory impact assessments undertaken by the UK government in relation to the introduction of the Money Laundering Regulations (1993, 2001, 2003 and 2007) noting that costs were largely under-reported, whilst benefits were unquantified (but assumed to be 'significant') gains to society.…”