Money Laundering as a Financial Sector Crime - A New Approach to Measurement, with an Application to Italy

31 Pages Posted: 28 Feb 2013

See all articles by Guerino Ardizzi

Guerino Ardizzi

Bank of Italy

Carmelo Petraglia

University of Basilicata, DiMIE

Massimiliano Piacenza

University of Torino - Department of Economics and Statistics

Friedrich Schneider

Johannes Kepler University Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Gilberto Turati

Catholic University of the Sacred Heart, Rome

Date Written: February 27, 2013

Abstract

Anti-money laundering regulations have been centred on the “Know-Your-Customer” rule so far, overlooking the fact that criminal proceedings that need to be laundered are usually represented by cash. This is the first study which tries to provide an answer to the question of how much of cash deposited via an official financial institution can be traced back to criminal activities. The paper develops a new approach to measure money laundering and then proposes an application to Italy, a country where cash is still widely used in transactions and criminal activities generate significant proceeds. In particular, we define a model of cash in-flows on current accounts and proxy money laundering with two indicators for the diffusion of criminal activities related to both illegal trafficking and extortion, controlling also for structural (legal) motivations to deposit cash, as well as the need to conceal proceeds from tax evasion. Using a panel of 91 Italian provinces observed over the period 2005-2008, we find that the average total size of money laundering is sizable, around 7% of GDP, 3/4 of which is due to illegal trafficking, while 1/4 is attributable to extortions. Furthermore, the incidence of “dirty money” coming from illegal trafficking is higher in the Centre-North than in the South, while the inverse is true for money laundering coming from extortions.

Keywords: money laundering, shadow economy, banking regulation

JEL Classification: K420, H260, G280

Suggested Citation

Ardizzi, Guerino and Petraglia, Carmelo and Piacenza, Massimiliano and Schneider, Friedrich G. and Turati, Gilberto, Money Laundering as a Financial Sector Crime - A New Approach to Measurement, with an Application to Italy (February 27, 2013). CESifo Working Paper Series No. 4127, Available at SSRN: https://ssrn.com/abstract=2225763

Guerino Ardizzi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Carmelo Petraglia

University of Basilicata, DiMIE ( email )

Via dell'Ateneo Lucano 10
Potenza
Italy

Massimiliano Piacenza

University of Torino - Department of Economics and Statistics ( email )

School of Economics
Corso Unione Sovietica 218 bis
Torino, TO 10134
Italy
+39 011 6706188 (Phone)
+39 011 6706062 (Fax)

HOME PAGE: http://web.econ.unito.it/piacenza/

Friedrich G. Schneider (Contact Author)

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria
+43 732 2468 8210 (Phone)
+43 732 2468 8208 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Gilberto Turati

Catholic University of the Sacred Heart, Rome ( email )

Largo F. Vito, 1
Rome, 00168
Italy

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