Looking at ‘Crying Wolf’ from a Different Perspective: An Attempt at Detecting Banks Under- and Over-Reporting of Suspicious Transactions

Mario Gara () and Claudio Pauselli
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Mario Gara: Bank of Italy
Claudio Pauselli: Bank of Italy

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2020, vol. 6, issue 2, No 5, 299-324

Abstract: Abstract This study aims to assess banks’ compliance in reporting suspicious transactions. It does so by estimating an econometric model on the suspicious transaction reports (STRs) filed by individual Italian banks from each of the provincial districts they operate in. Regressors include (1) indicators of banks’ operational activities, (2) measures of money laundering risk and (3) proxies of economic activity, all of which at local level. At an operational level, the model provides a tool that supervisory authorities can use to detect potentially under-reporting intermediaries, thus better targeting off-site controls and on-site inspections. More in general, the results provide some insights on banks’ reporting behavior at large. The main threat to the effectiveness of anti-money laundering systems is considered the asymmetry in the incentives: since sanctions apply only to omitted reports, banks have an incentive to over-report, thus potentially flooding the authorities with noise (‘crying wolf’ syndrome). Results show that the STR-filing strategies adopted by the banks being scrutinized may not necessarily give rise to this scenario.

Keywords: Anti-money laundering regulation; Financial crime; Count data; Negative binomial (search for similar items in EconPapers)
JEL-codes: C25 G21 G28 K23 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40797-020-00122-3

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