Gravity Models of Trade-Based Money Laundering

28 Pages Posted: 14 Oct 2011 Last revised: 2 Nov 2011

See all articles by Joras Ferwerda

Joras Ferwerda

Utrecht University - School of Economics

Mark Kattenberg

Utrecht University

Han-Hsin Chang

Utrecht University

Brigit Unger

Utrecht University - School of Economics

Loek F. M. Groot

Utrecht University - School of Economics

Jacob Antoon Bikker

De Nederlandsche Bank; Utrecht University - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2011

Abstract

Several attempts have been made in the economics literature to measure money laundering. However, the adequacy of these models is difficult to assess, as money laundering takes place secretly and, hence, goes unobserved. An exception is trade-based money laundering (TBML), a special form of trade abuse that has been discovered only recently. TBML refers to criminal proceeds that are transferred around the world using fake invoices that under- or overvalue imports and exports. This article is a first attempt to test well-known prototype models proposed by Walker and Unger to predict illicit money laundering flows and to apply traditional gravity models borrowed from international trade theory. To do so, we use a dataset of Zdanowicz of TBML flows from the US to 199 countries. Our test rejects the specifications of the Walker and Unger prototype models, at least for TBML. The traditional gravity model that we present here can indeed explain TBML flows worldwide in a plausible manner. An important determinant is licit trade, the mass in which TBML is hidden. Furthermore, our results suggest that criminals use TBML in order to escape the stricter anti moneylaundering regulations of financial markets.

Keywords: Money laundering, international trade, gravity model, Walker model

JEL Classification: C21, F10

Suggested Citation

Ferwerda, Joras and Kattenberg, Mark and Chang, Han-Hsin and Unger, Brigit and Groot, Loek F. M. and Bikker, Jacob Antoon, Gravity Models of Trade-Based Money Laundering (September 1, 2011). De Nederlandsche Bank Working Paper No. 318, Available at SSRN: https://ssrn.com/abstract=1943473 or http://dx.doi.org/10.2139/ssrn.1943473

Joras Ferwerda (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Mark Kattenberg

Utrecht University ( email )

Vredenburg 138
Utrecht, 3511 BG
Netherlands

Han-Hsin Chang

Utrecht University ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

HOME PAGE: http://www.uu.nl/leg/staff/HChang

Brigit Unger

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Loek F. M. Groot

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Jacob Antoon Bikker

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

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