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Hiding Filthy Lucre in Plain Sight: Theory and Identification of Business-Based Money Laundering

Keith Maskus (), Alessandro Peri () and Anna Rubinchik ()

No 9019, CESifo Working Paper Series from CESifo

Abstract: Proceeds from illicit activities percolate into the legal economy through several channels. We exploit international regulations targeting money laundering via the financial sector to identify the flows of “dirty money” into legitimate establishments: business-based money laundering (BBML). Our variant of the monopolistic competition model embeds a drug cartel that channels illicit proceeds into an offshore financial investment and into BBML. Tighter regulations in one channel increase the flow in the other. We use a research design that links U.S. county business activity to the evolution of anti-money-laundering regulations in Caribbean jurisdictions to provide the first empirical evidence of the phenomenon.

Keywords: money laundering; business establishment; Panama Papers; anti-money-laundering regulations; monopolistic competition (search for similar items in EconPapers)
JEL-codes: D58 F30 G28 H00 K40 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-law and nep-pay
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