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Strategies to avoid blacklisting: The case of statistics on money laundering
Joras Ferwerda1, Ioana Sorina Deleanu2, Brigitte Unger1
1Utrecht University School of Economics, Utrecht University, Utrecht, The Netherlands.
Abstract:
Financial and legal entities (e.g. banks, casinos, notaries etc.) have to report money laundering suspicions. Countries' engagement in fighting money laundering is evaluated-among others-with statistics on how often these suspicions are reported. Lack of compliance can result in economically harmful blacklisting. Nevertheless, these blacklists repeatedly become empty-in what is known as the emptying blacklist paradox. We develop a principal-agent model with intermediate agents and show that non-harmonized statistics can lead to strategic reporting to avoid blacklisting, and explain the emptying blacklist paradox. We recommend the harmonization of the standards to report suspicion of money laundering.
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