A Theory of “Crying Wolf”: The Economics of Money Laundering Enforcement

April 1, 2007

Preview Citation

Format: Chicago

Elöd Takáts. A Theory of “Crying Wolf”: The Economics of Money Laundering Enforcement, (USA: International Monetary Fund, 2007) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper shows how excessive reporting, called "crying wolf", can dilute the information value of reports. Excessive reporting is investigated by undertaking the first formal analysis of money laundering enforcement. Banks monitor transactions and report suspicious activity to government agencies, which use these reports to identify investigation targets. Banks face fines should they fail to report money laundering. However, excessive fines force banks to report transactions which are less suspicious. The empirical evidence is shown to be consistent with the model's predictions. The model is used to suggest implementable corrective policy measures, such as decreasing fines and introducing reporting fees.

Subject: Auditing, Banking, Legal support in revenue administration, Money laundering, Tax incentives

Keywords: Agency problem, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/081
Stock No:

WPIEA2007081
ISBN:

9781451866452
ISSN:

1018-5941

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