A Theory of “Crying Wolf” : The Economics of Money Laundering Enforcement

Author/Editor:

Elöd Takáts

Publication Date:

April 1, 2007

Electronic Access:

Free Full Text (PDF file size is 796 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The paper shows how excessive reporting, called "crying wolf", can dilute the information value of reports. Excessive reporting is investigated by undertaking the first formal analysis of money laundering enforcement. Banks monitor transactions and report suspicious activity to government agencies, which use these reports to identify investigation targets. Banks face fines should they fail to report money laundering. However, excessive fines force banks to report transactions which are less suspicious. The empirical evidence is shown to be consistent with the model's predictions. The model is used to suggest implementable corrective policy measures, such as decreasing fines and introducing reporting fees.

Series:

Working Paper No. 07/81

Subject:

English

Publication Date:

April 1, 2007

ISBN/ISSN:

9781451866452/1018-5941

Stock No:

WPIEA2007081

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

54

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