Estimating the magnitude of money laundering in the United Arab Emirates (UAE): evidence from the currency demand approach (CDA)
| Date | 19 May 2023 |
| Pages | 332-347 |
| DOI | https://doi.org/10.1108/JMLC-02-2023-0043 |
| Published date | 19 May 2023 |
| Author | Mariam Aljassmi,Awadh Ahmed Mohammed Gamal,Norasibah Abdul Jalil,Joseph David,K. Kuperan Viswanathan |
Estimating the magnitude of
money laundering in the United
Arab Emirates (UAE): evidence
from the currency demand
approach (CDA)
Mariam Aljassmi,Awadh Ahmed Mohammed Gamal and
Norasibah Abdul Jalil
Department of Economics, FPE, UPSI, Tanjung Malim, Malaysia
Joseph David
Lagos Business School, Pan-Atlantic University, Lagos, Nigeria, and
K. Kuperan Viswanathan
Haas School of Business, University of California Berkeley,
Berkeley, California, USA
Abstract
Purpose –Despite the vulnerability of rapidly developing and emerging market economies, researchers
have paid less attention to the determination of the size of money laundering (ML) in these economies,
includingthe United Arab Emirates (the UAE). Therefore,this paper aims to estimate the magnitude ofML in
the UAE between1975 and 2020 based on the currency demandapproach (CDA).
Design/methodology/approach –The study uses the Gregory–Hansen cointegration technique
alongsidethe autoregressive distributed lag bounds testingprocedure to estimate the CDA model.
Findings –The resultsillustrate that an amount equivalent to about 19.034% of the GDPislaunderedin the
UAE between1975 and 2020, on average, with the value lying between 15.129%and 23.121%. In addition, the
results demonstrate the importanceof the real estate market, gold trade, remittance channels and the size of
the undergroundeconomy in facilitating the laundering of illicit funds in the country.
Originality/value –To the best of the authors’knowledge, the study is the pioneering attempt at estimating
the amount of illicit funds laundered in the UAE. Besides, the adoption of a novel, yet robust, approach basedon
the modification of the CDA technique also sets the study apart as it ensures a correct, clear, unambiguous and
indisputable estimate of the magnitude of ML is obtained. In addition, it is expected that the outcome of the study
will expand the frontiers of knowledge among policy makers and relevant agencies and ensure the adoption of
the most efficient and effective measures to curb the ML menace in the country.
Keywords Money laundering, Currency demand approach, ARDL, the UAE
Paper type Research paper
1. Introduction
One of the most remarkable features of the final decades of the 20th century is the rapid
integration of theglobal economy through trade and technological advancement.It is widely
JEL classification –C22, E41, K42
The authors acknowledge the Sultan Idris Education University (UPSI), Malaysia, for the financial
support for this research.
JMLC
27,2
332
Journalof Money Laundering
Control
Vol.27 No. 2, 2024
pp. 332-347
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-02-2023-0043
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
believed that the removal of the traditional economic barriers has created a number of
benefits, including the increase in international trade and capital mobility, rapid
development of global financial market and the diffusion of technology, among others.
However, such development was not with some costs. One notable, albeit very destructive,
of such costs is money laundering(ML) (Bhattacharjee et al., 2020). ML is simply the process
of moving, disguising and integrating the proceeds of illegal or criminal activities (such as
drug trafficking, human trafficking, illegal arms deal, grand corruption and large-scale tax
evasion) into the mainstream economy to obscure its link with the underlying activity or
people involved (Javaidand Arshed, 2021).
It is widely debated in the literature that ML activities often create both winners and
losers. On the one hand, it is argued that the inflow of illicit funds for laundering may be
beneficial to an economy through its rolein expanding the financial service sector, lowering
interest rate, creating income and improving access to finance (Alldridge, 2008;Unger,
2007). In contrast, evidence suggest that the possible economic, social and political
consequences of ML activities, if left unchecked, are, at least, profound. These include the
damage of investment potentials,destruction of the stability, integrity and reputation of the
financial sector, loss of tax revenues, enablement of crime and corruption, distortion of
international trade,capital flows and exchange rates and the inexplicable changes in interest
rate, asset prices, consumption and money demand, among others (Alldridge, 2008;
Bhattacharjeeet al., 2020;Pietschmann and Walker, 2011;Villa et al.,2019).
In the recent decades, scholars, regulatory authorities and international organizations
have put forward some estimates of the magnitude of ML at the national and global level in
an attempt to give some sense of the scale of the phenomenon. One of the notable figures of
ML was put forward by the International MonetaryFund (IMF). In 1998, IMF reported that
the size of ML is between 2% to 5% of global gross domesticproduct (GDP). The absence of
any “supporting material and methodologydocumenting how the ‘consensus’estimate was
established,”and the tendency of the estimates(or “guesstimates”) over or underestimating
the magnitude of the issue has often limit its acceptability (Walker and Unger, 2009).
Besides the IMF’s estimates,several scholars and researchers have proposed and used series
of approaches to determine the size of ML globally andwithin national economies (Ardizzi
et al., 2018;Argentiero et al.,2008;Bagella et al., 2009;De Boyrie et al.,2005;Ferwerda et al.,
2013,2020;Pietschmannand Walker, 2011;Schneider, 2007;Tanzi, 1997;Teichmann,2020a;
Unger, 2007;Walker,1999;Zdanowicz, 2005).
Despite the numerous efforts in quantifying the magnitude of ML from different
perspectives, it is apparent that the efforts are typically in favor of developed economies.
Whereas evidence point to thefact that rapidly developing and emerging market economies
are most vulnerable to the activities of money launderers, researchers have paid less
attention to the determination of the magnitude of ML in these countries (Hendriyetty and
Grewal, 2017). Unlike most rapidly developing economies, the United Arab Emirates’(the
UAE’s) geographic proximity to conflict zones and large illicit opium cultivation zones,
together with its sizableand open financial sector, booming real estate market,highly active
gold trade, large amount of remittances, cash-based economy, thriving underground
economy and the population of migrants, present the country with inherentvulnerability to
significant risks of attracting illicit funds from around the world for laundering [Centre for
Advanced DefenceStudies (C4ADS), 2018;Financial Action Task Force (FATF),2020].
Beyond the seeming vulnerability of the UAE to ML, available evidences equally
demonstrate the position of the country as a favorable pass-throughfor illicit financial flows
and a significant destinationfor illicit funds for laundering (C4ADS, 2018). Moving from one
sector to another, this position is well accentuated by the plethora of evidences which
Currency
demand
approach
333
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