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Unintended Consequences of Money-Laundering Regulations

Author

Listed:
  • Fabrizio Colella

    (USI University)

  • Keith Maskus

    (University of Colorado at Boulder)

  • Alessandro Peri

    (University of Colorado at Boulder)

Abstract

Tighter money-laundering regulations in offshore financial havens may inadvertently spur incentives to launder money domestically. Our study exploits regulations targeting financially based money laundering in Caribbean jurisdictions to uncover the creation of front companies in the United States. We find that counties exposed via offshore financial links to these jurisdictions experienced an increase in business activities after the tightening of anti-money-laundering regulations. The effect is more pronounced among small firms, in sectors at high risk of money laundering, and in regions with high intensities of drug trafficking. Our work provides the first empirical evidence of the real effects of policy-induced money-laundering leakage.

Suggested Citation

  • Fabrizio Colella & Keith Maskus & Alessandro Peri, 2024. "Unintended Consequences of Money-Laundering Regulations," RF Berlin - CReAM Discussion Paper Series 2403, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    • Handle: RePEc:crm:wpaper:2403
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    References listed on IDEAS

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    More about this item

    Keywords

    Money laundering; money-laundering leakage; business establishments; offshore leaks; regulatory reforms; monopolistic competition;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H00 - Public Economics - - General - - - General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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