Macroeconomics of money laundering: effects and measurements

Author(s):

Nella Hendriyetty , (Victoria University, Melbourne, Australia)

Bhajan S. Grewal , (Victoria University, Melbourne, Australia)

Citation:

Nella Hendriyetty, Bhajan S. Grewal, (2017) "Macroeconomics of money laundering: effects and measurements", Journal of Financial Crime, Vol. 24 Issue: 1, pp.65-81, doi: 10.1108/JFC-01-2016-0004

DOI

http://dx.doi.org/10.1108/JFC-01-2016-0004

Downloads:

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Abstract:

Purpose

The purpose of this paper is to review studies focusing on the magnitude of money laundering and their effects on a country’s economy. The relevant concepts are identified on the basis of discussions in the literature by prominent scholars and policy makers. There are three main objectives in this review: first, to discuss the effects of money laundering on a country’s macro-economy; second, to seek measurements from other scholars; and finally, to seek previous findings about the magnitude and the flows of money laundering.

Design/methodology/approach

In the first part, this paper outlines the effects of money laundering on macroeconomic conditions of a country, and then the second part reviews the literature that measures the magnitude of money laundering from an economic perspective.

Findings

Money laundering affects a country’s economy by increasing shadow economy and criminal activities, illicit flows and impeding tax collection. To minimise these negative effects, it is necessary to quantify the magnitude of money laundering relative to economic conditions to identify the most vulnerable aspects of money laundering in a country. Two approaches are used in this study: the first is the capital flight approach, as money laundering will cause flows of money between countries; the second is the economic approach for measuring money laundering through economic variables (e.g. tax revenue, underground economy and income generated by criminals) separately from tax evasion.

Originality/value

The paper offers new insights for the measurement of money laundering, especially for developing countries. Most methods in quantifying money laundering have focused on developed countries, which are less applicable to developing countries.

Keywords:

Tax evasion, Macroeconomics, Money laundering, Underground economy, Capital flows

Type:

Literature Review

Publisher:

Emerald Publishing Limited

Copyright:

© Emerald Publishing Limited 2017
Published by Emerald Publishing Limited
Licensed re-use rights only