A Theory of "Crying Wolf": The Economics of Money Laundering Enforcement

 
Author/Editor: Takáts, Elöd
 
Publication Date: April 01, 2007
 
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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(s): Anti-money laundering | United States | Bank supervision | Transparency | Economic models

Author's Keyword(s): Money laundering | USA Patriot Act | disclosure | auditing
 
English
Publication Date: April 01, 2007
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2007081 Pages: 54
Price:
US$18.00 (Academic Rate:
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