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Money Laundering as a Financial Sector Crime. A New Approach to Measurement, with an Application to Italy

Author

Listed:
  • Guerino Ardizzi

    (Market and Payment Systems Oversight Department, Bank of Italy, Italy)

  • Carmelo Petraglia

    (Department of Mathematics, Computer Science and Economics, University of Basilicata, Italy)

  • Massimiliano Piacenza

    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

  • Friedrich Schneider

    (Department of Economics, Johannes Kepler University of Linz, Austria)

  • Gilberto Turati

    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

Abstract

Anti-money laundering regulations have been centred on the 'Know-Your-Customer' rule so far, overlooking the fact that criminal proceedings that need to be laundered are usually represented by cash. This is the first study aimed at providing an answer to the question of how much of cash deposited via an official financial institution can be traced back to criminal activities. The paper develops a new approach to measure money laundering and then proposes an application to Italy, a country where cash is still widely used in transactions and criminal activities generate significant proceeds to be laundered. In particular, we define a model of cash in-flows on current accounts and proxy money laundering with two indicators for the diffusion of criminal activities related to both illegal trafficking and extortion, controlling also for structural (legal) motivations to deposit cash, as well as the need to conceal proceeds from tax evasion. Using a panel of 91 Italian provinces observed over the period 2005-2008, we find that the amount of cash laundered is sizable, around 7% of GDP, 3/4 of which is due to illegal trafficking, while 1/4 is attributable to extortions. Furthermore, the incidence of 'dirty money' coming from illegal trafficking is higher in the Centre-North than in the South, while the inverse is true for extortions. Results are useful to discuss policy initiatives to combat money laundering.

Suggested Citation

  • Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Friedrich Schneider & Gilberto Turati, 2013. "Money Laundering as a Financial Sector Crime. A New Approach to Measurement, with an Application to Italy," Working papers 018, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    • Handle: RePEc:tur:wpapnw:018
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    File URL: http://www.bemservizi.unito.it/repec/tur/wpapnw/m18.pdf
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    References listed on IDEAS

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    Citations

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How much money laundering is there in Italy?
      by Economic Logician in Economic Logic on 2013-03-21 19:28:00

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    Cited by:

    1. Guido M. Rey, 2018. "Interactions between criminal economy and legal economy," Argomenti, University of Urbino Carlo Bo, Department of Economics, Society & Politics, vol. 10(10), pages 1-26, May-Augus.
    2. repec:idb:brikps:81941 is not listed on IDEAS
    3. Guido M. Rey, 2001. "La commistione fra economia legale ed economia criminale," ARGOMENTI, FrancoAngeli Editore, vol. 2001(2).
    4. Amedeo Argentiero & Carlo Andrea Bollino, 2015. "Uncovering Unobserved Economy: A General Equilibrium Characterization," Metroeconomica, Wiley Blackwell, vol. 66(2), pages 306-338, May.

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    More about this item

    Keywords

    Money laundering; Shadow economy; Banking regulation;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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