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

Takáts, Elöd
Authors registered in the RePEc Author Service: Elod Takats

No 07/81, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Anti-money laundering; United States; Bank supervision; Transparency; Economic models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-ban and nep-mon
Date: 2007-04-05

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