The Impact of Anti-Money Laundering Regulation on Payment Flows: Evidence from SWIFT Data

52 Pages Posted: 7 Jan 2017

See all articles by Matthew Collin

Matthew Collin

University of Oxford

Samantha Cook

Independent

Kimmo Soramaki

Financial Network Analytics Ltd

Date Written: December 20, 2016

Abstract

Regulatory pressure on international banks to fight money laundering (ML) and terrorist financing (TF) increased substantially in the past decade. At the same time there has been a rise in the number of complaints of banks denying transactions or closing the accounts of customers either based in high risk countries or attempting to send money there, a process known as de-risking. In this paper, we investigate the impact of an increase in regulatory risk, driven by the inclusion of countries on an internationally-recognized list of high risk jurisdictions, on subsequent cross-border payments. We find countries that have been added to a high risk greylist face up to a 10 percent decline in the number of cross border payments received from other jurisdictions, but no change in the number sent. We also find that a greylisted country is more likely to see a decline in payments from other countries with weak AML/CFT institutions. We find limited evidence that these effects manifest in cross border trade or other flows. Given that countries that are placed on these lists tend to be poorer on average, these impacts are likely to be more strongly felt in developing countries.

Keywords: Money laundering, risk, banking, cross-border payments

Suggested Citation

Collin, Matthew and Cook, Samantha and Soramaki, Kimmo, The Impact of Anti-Money Laundering Regulation on Payment Flows: Evidence from SWIFT Data (December 20, 2016). Center for Global Development Working Paper No. 445. Available at SSRN: https://ssrn.com/abstract=2893790 or http://dx.doi.org/10.2139/ssrn.2893790

Matthew Collin (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Samantha Cook

Independent ( email )

Kimmo Soramaki

Financial Network Analytics Ltd ( email )

Spain

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