Worldwide Anti-Money Laundering Regulation: Estimating Costs and Benefits

Abstract

The aim of this article is to offer a simple framework for estimating the benefits and costs of anti-money laundering regulation, based on a prudent estimation of the economic value of the worldwide money laundering. Using the multiplier model of the relationship between criminal markets revenues and money laundering activities and data for 2004, the value of money laundering is equal to US$ 1.2 trillions (2.7%of the world GDP), while the maximum theoretical benefit in combating money laundering using financial regulation - in steady state - is equal to S$ 280 billion (0.6% of the world GDP). If the aggregate figures keep to the previous more conservative estimates, the methodology is the crucial innovation. The estimates are the product of a explicit macro framework, and they can be replicated, improved using more consistent data, or contrasted implementing alternative models.

Keywords: money laundering, financial markets, economics of regulation, costs and benefits analysis

JEL Classification: G28, F30, F33, F42, K14, K23