Vulnerability to Money Laundering and Crime Deterrence: Evidence from Italy

51 Pages Posted: 21 Dec 2017

See all articles by Lucia Dalla Pellegrina

Lucia Dalla Pellegrina

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Giorgio Di Maio

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Donato Masciandaro

Bocconi University - Department of Economics

Margherita Saraceno

University of Pavia - Department of Law

Date Written: December 2017

Abstract

This paper examines the economy's vulnerability to money laundering in a given region. Assuming that criminals are rational investors who take into account risks and returns of both legal and illegal investments, we define vulnerability as a function of well-identified drivers. Proxies of these variables are used to empirically investigate the relationship between the institutional/economic characteristics of Italian provinces and their vulnerability to money laundering in the 2008-2013 period. We focus on the impact of the reporting of suspicious transactions to the Financial Intelligence Unit, by using instrumental variables to address endogeneity in the relationship between the number of reports made and our measure of vulnerability. Results highlight positive effects of the institutional policies adopted to fight money laundering, especially as far as the reporting of suspicious transactions is concerned. Further dimensions of local vulnerability are outlined: time-invariant heterogeneity across provinces, showing that certain areas are more systematically vulnerable because of persistent local features that cannot be individually identified; and idiosyncratic vulnerability, which pinpoints the fact that some provinces have been periodically subject to abnormally intense money-laundering activity.

Keywords: Money laundering, vulnerability, suspicious transaction reporting

JEL Classification: K14, K20, K42

Suggested Citation

Dalla Pellegrina, Lucia and Di Maio, Giorgio and Masciandaro, Donato and Saraceno, Margherita, Vulnerability to Money Laundering and Crime Deterrence: Evidence from Italy (December 2017). BAFFI CAREFIN Centre Research Paper No. 2017-66. Available at SSRN: https://ssrn.com/abstract=3090994 or http://dx.doi.org/10.2139/ssrn.3090994

Lucia Dalla Pellegrina (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Giorgio Di Maio

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Donato Masciandaro

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Margherita Saraceno

University of Pavia - Department of Law ( email )

Pavia, I-27100

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