The Multidisciplinary Economics of Money Laundering

Abstract

Money laundering has been studied for many years, but mainly by lawyers and criminologists. This dissertation presents a number of ways on how an economist – mainly in a multidisciplinary fashion – can contribute to this field of research. This dissertation answers four important questions about money laundering: Why should we fight money laundering? How is money laundered? In which sectors is money laundered? And how can we fight money laundering? The literature mentions 25 effects of money laundering that can hurt or enrich our society. This dissertation analyses one of these effects, of which the conclusion is that anti-money laundering policy can not only reduce the amount of money laundering, but also crime in general. There are multiple ways to launder money. This dissertation analyses the behavior of money launderers that use the relatively new method of trade-based money laundering. Trade-based money laundering is a specific type of money laundering where import and export prices are falsified. The conclusion of this study is that money laundering flows can be explained with a model based on the gravity equation of Isaac Newton. Trade-based money laundering flows increase when the mass (measured in GDP) of a country increases and when the distance between the countries decrease. Furthermore, our empirical results suggest that money launderers that want to send their money to countries that fiercely fight money laundering in the financial sector, use trade-based money laundering as an alternative. With the potential size of money laundering, all this laundered money should appear in certain sectors in our economy. The real estate sector with its size and money laundering possibilities is one of the potential candidates. This dissertation analyses the real estate sector and concludes that money laundering happens significantly more often with real estate that has the following properties: price fluctuations, the involvement of just-established companies and foreign owners of real estate. At the moment there is international policy that basically forces countries to fight money laundering. This dissertation shows that countries can pretend to fight money laundering, without actually doing it, because the effectiveness of their policy is measured with statistics that are not uniformly collected and have vague definitions. Therefore countries are able to produce high statistics without exerting any additional effort. This dissertation suggest an alternative audit policy.