Factors affecting money laundering: lesson for developing countries

Abstract

Purpose

The primary objective of this paper is to examine the factors that underpin the pervasiveness of money laundering. An empirical method was used to study the relationship between technology (information and communication technology infrastructure), quality of human capital, efficiency of the legal framework, ethical behavior of firms (corporate governance) and capacity for innovation on the pervasiveness of money laundering in developed and developing countries. Based on the empirical findings, key strategies and policies to reduce the pervasiveness of money laundering were examined in this paper.

Design/methodology/approach

The sample period for this study was 2004‐2005 entailing 88 developed and developing countries. The ordinary least square method was used in this paper to examine the impact of the above‐mentioned factors on the pervasiveness of money laundering.

Findings

The empirical analysis showed that efficient legal framework with good corporate governance lower the pervasiveness of money laundering activities. The empirical analysis also showed that a high‐innovative capacity contribute negatively to the pervasiveness of money laundering activities.

Research limitations/implications

One of the limitations of this study is the lack of quality data measuring pervasiveness of money laundering patterns over a longer period of time. Over the next two years, as more data becomes available, a more robust econometric modeling framework called the dynamic panel data method can be used to assess the impact of the above‐mentioned factors on the pervasiveness of money laundering. This new method will not only capture the factors contributing to variations of pervasiveness of money laundering across the different countries but also across the time period.

Practical implications

Strategies to reduce the pervasiveness of money laundering in developing countries are discussed.

Originality/value

While there are numerous studies in the literature that critically examine factors that contribute to money laundering, the number of empirical studies that examined the factors that contribute to money laundering are rather scarce. This study hopes to fill this gap in the literature.

Citation

Vaithilingam, S. and Nair, M. (2007), "Factors affecting money laundering: lesson for developing countries", Journal of Money Laundering Control, Vol. 10 No. 3, pp. 352-366. https://doi.org/10.1108/13685200710763506