Bank Secrecy, Illicit Money and Offshore Financial Centers

38 Pages Posted: 29 May 2009

See all articles by Pierre M. Picard

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA); Universite du Luxembourg

Patrice Pieretti

Universite du Luxembourg; Centre de Recherche en Économie Appliquée (CREA)

Date Written: May 2009

Abstract

International and national institutions regularly put pressure on offshore financial centers and their clients to enforce compliance with anti-money laundering regulations and that in spite of the existence of bank secrecy. This paper discusses the winners and losers of such policies. Surprisingly, aggregate proffits and tax revenues can increase under those policies. In addition, we show that offshore banks can be encouraged to comply with rigorous monitoring of the investor's identity and the origin of his/her funds when the pressure creates sufficiently high risk of reputational harm to this investor. Nevertheless, the effcient pressure policy is dichotomous in the sense that a social planner chooses zero pressure or the pressure that just entices offshore banks to comply. By contrast, the implementation of those pressure policies on an onshore institution may be inefficient. Finally, we show that deeper financial integration fosters compliance by the offshore center while it also gives better incentives for delegated organizations to effectively induce compliance.

Keywords: money laundering, offshore banking, compliance

JEL Classification: F21, K42

Suggested Citation

Picard, Pierre M. and Pieretti, Patrice, Bank Secrecy, Illicit Money and Offshore Financial Centers (May 2009). Paolo Baffi Centre Research Paper No. 2009-45, Available at SSRN: https://ssrn.com/abstract=1411584 or http://dx.doi.org/10.2139/ssrn.1411584

Pierre M. Picard (Contact Author)

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

Patrice Pieretti

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
823
Abstract Views
3,490
rank
41,818
PlumX Metrics