Money Laundering Control Systems, External Auditorspecialization and Tax Haven Use: An Empirical Analysis ofU.S. Multinational Financial Corporations

This study investigates the association between money laundering control systems(MLCS) and tax haven use based on a sample of U.S. multinational financial corpora-tions (MFCs). We also examine the impact of external auditor specialization on theassociation between MLCS and tax haven use. We find that MLCS is significantlynegatively associated with tax haven use. Our result is also economically significant.Based on our regression estimates, a one-standard deviation increase in MLCS isassociated with a decrease in tax haven use by around 2.75%. Additional analysisshows that external auditor specialization magnifies the negative associationbetween MLCS and tax haven use. Overall, our study indicates that MLCS and theexternal audit function have important consequences for tax haven use by MFCs.

Keywords: auditor specialization, money laundering control systems, tax havens

JEL Classification: G21; H26; M42

Suggested Citation: Suggested Citation

Al-Hadi, Ahmed and Taylor, Grantley and Richardson, Grant and Eulaiwi, Baban, Money Laundering Control Systems, External Auditorspecialization and Tax Haven Use: An Empirical Analysis ofU.S. Multinational Financial Corporations (May 16, 2021). International Journal of Auditing, Available at SSRN: https://ssrn.com/abstract=3847417