Mitigating Financial Crimes: How Anti-Money Laundering Mechanisms Shape Bank Outcomes

Anas AlQudah, Natli Mazhar Al Zoubi and Lara Al Haddad
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Anas AlQudah: Department of Banking and Finance, Yarmouk University, Jordan
Natli Mazhar Al Zoubi: Department of Banking and Finance, Yarmouk University, Jordan
Lara Al Haddad: Department of Banking and Finance, Yarmouk University, Jordan

Advances in Decision Sciences, 2024, vol. 28, issue 3, 79-105

Abstract: [Purpose] This study examines the influence of anti-money laundering (AML) mechanisms on the financial performance of Jordanian banks, alongside assessing how macroeconomic and financial factors—such as inflation, GDP, bank size, quick ratio, and financial leverage—affect performance dynamics. [Findings] The results demonstrate a significant negative relationship between AML intensity and bank performance, indicating that stringent AML enforcement can impose short-term financial burdens. In contrast, liquidity (as measured by the quick ratio) and bank size positively and significantly impact profitability. Inflation was also found to significantly increase bank performance. Meanwhile, financial leverage displayed a negative but statistically insignificant influence on performance. These findings collectively illustrate the complex interplay between compliance obligations, operational characteristics, and macroeconomic conditions in shaping bank outcomes. [Research limitations/implications] The study focuses exclusively on Jordanian banks, and caution is advised when generalizing the findings to banks operating under different regulatory frameworks or economic systems. [Practical Implications] The findings suggest that banks must carefully balance regulatory compliance costs with operational resilience strategies. Policymakers should consider frameworks that support banking sector stability without imposing excessive burdens on institutions, particularly smaller banks. [Social implications] Effective AML measures not only protect financial institutions but also foster public trust and contribute to the overall health of the financial system. [Originality/value] This paper provides comprehensive empirical insights into the intertwined effects of AML compliance and macro-financial factors on banking sector performance within an emerging market context.

Keywords: Anti-Money Laundering; Bank Performance; Financial Crime; Jordan (search for similar items in EconPapers)
JEL-codes: G21 G28 K42 M48 O16 (search for similar items in EconPapers)
Date: 2024
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