An evolutionary game theory approach to combat money laundering
| Date | 05 January 2010 |
| Published date | 05 January 2010 |
| DOI | https://doi.org/10.1108/13685201011010236 |
| Pages | 70-78 |
| Author | Ricardo Azevedo Araujo |
| Subject Matter | Accounting & finance |
An evolutionary game
theory approach to combat
money laundering
Ricardo Azevedo Araujo
Department of Economics, University of Brasilia, Brasilia, Brazil
Abstract
Purpose – The purpose of this paper is to show that an evolutionary approach to combat money
laundering can shed new lights on this matter.
Design/methodology/approach – An evolutionary game between financial institutions and
employees is assumed in which the decisions of the banks and employees to cope against money
laundering endogenously is evaluated. The players are allowed to review their strategies in each
period of time comparing their payoffs with the average payoff.
Findings – The paper shows that the efficiency of anti-money laundering combat relies on the
conjugation of factors such as a proper design of the anti-money laundering regulation and an
endogenous willingness of banks and workers to cope against this war. On one hand, that the number
of banks willing to fight money laundering affects the number of employees who also fight against
money laundering. On the other hand, the number of banks that decide to cope against money
laundering is also affected by number of employees that are prepared or willing to fight it. Of course,
these decisions are affected by the design of optimal regulatory system made by the government
which may reflect its commitment to combat money laundering.
Research limitations/implications – The efficiency of the anti-money laundering regulation may
be subject to endogenous characteristics of countries that range from the regulatory design to the
willingness of banks and employees to cope against money laundering.
Practical implications – This is a theoretical result that shows that an efficient combat to money
laundering depends on the joint effort of competent authorities, banks, and employees.
Originality/value – To the best of the author’s knowledge, the paper is the first attempt to approach
money laundering combat by using an evolutionary game theory approach, which allows it to focus on
the endogenous aspect of the anti-money laundering fight.
Keywords Money laundering,Game theory
Paper type Research paper
1. Introduction
Competent authorities, financial institutions, and their employees play a central role in
the war against money laundering. Recommendation 16 of FAFT states that:
[...] [i]f financial institutions suspect that funds are connected to criminal activity, they
should be permitted or required to report promptly their suspicious to the competent
authorities. Hence anti-money laundering schemes depend on the creation of mechanisms
that make banks and their employees to cope against money laundering since a great deal of
corruption combat departs from their reports on suspicious activities. Theoretically speaking
the problem is easier than handled in practice. Anti-money laundering regulations are facing
struggles everywhere to be an effective tool against money laundering (Masciandaro, 1999;
To
´th and Ga
´l, 2004; Araujo, 2009a, b).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
JMLC
13,1
70
Journal of Money Laundering Control
Vol. 13 No. 1, 2010
pp. 70-78
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201011010236
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