Investigating the impact of board characteristics on money laundering. Evidence from Iranian listed companies
| Date | 10 April 2020 |
| Pages | 751-767 |
| Published date | 10 April 2020 |
| DOI | https://doi.org/10.1108/JMLC-12-2019-0101 |
| Author | Shaban Mohammadi,Hadi Saeidi,Nader Naghshbandi |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Investigating the impact of board
characteristics on money
laundering
Evidence from Iranian listed companies
Shaban Mohammadi
Department of Accounting, Vocational University of Khorasan, Jalalabad, Afghanistan
Hadi Saeidi
Department of Accounting, Shirvan Branch,
Islamic Azad University, Shirvan, Iran, and
Nader Naghshbandi
Department of Accounting, Islamic Azad University, Karaj, Iran and
Department of Accounting, Hakim Nezami Institution of Higher Education,
Quchan, Iran
Abstract
Purpose –The purpose of this study is to examine the effectof board characteristics on money laundering
in Iranianlisted companies.
Design/methodology/approach –This was a descriptive-correlational study, and in terms of purpose, it
was an applied research. The statistical population of this study was all companies listed in Tehran Stock
Exchange during the years 2012-2018. A sample of 150 companies was selected by screening method. Data
analysis and hypothesis testing were performed using logistic regression and Eviews 10.
Findings –The results indicated that the board bonus and CEO duality (chief executive officer duality) had a
significant effect on money laundering. CEO gender also had a significanteffect on money laundering.
Originality/value –Sound management of risks related to mo ney laundering by the board of directors is
associated with stability, soundness and overall health of a country’sfinancial system, which enables the
integrityof the international financialsystem by meeting the BaselCommittee goals, including strengthening
the regulations, monitoring and improving current procedures, promoting financialstability and maintaining
and enhancing a good corporate reputation; however, banks and other financialinstitutionsare exposed to more
seriousrisks, especially thereputation risk, operational risk,etc., if managementdoes not play an effectiverole
in the fight against money laundering. If management considers efficient and risk-driven policies and
procedures in the fight against money laundering, then many problems and losses as well as many costs,
includingfailure tocollect receivablesand to bring legalproceedings,can be prevented.
Keywords Money laundering, CEO gender, CEO tenure, CEO duality
Paper type Research paper
1. Introduction
Money laundering is a common phenomenon in most countries around the world. It occurs
when cash or assets acquired by suspicioustransactions are moved from a place to another
to the original source of dirty money be unknown [Global Infrastructure Anti-Corruption
Centre (GIACC), 2014]. This has many adverse effects and consequences in different
economic and social areas, such as spreading of corruption and bribery at the community
level, weakened public and private sectors, decreased confidence in the financial markets,
Impact of board
characteristics
on money
laundering
751
Journalof Money Laundering
Control
Vol.23 No. 4, 2020
pp. 751-767
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-12-2019-0101
The current issue and full text archive of this journal is available on Emerald Insight at:
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reduced government revenue, strengthened financial resources and networks of criminals,
etc. The negative effects of this ominous phenomenonhave led the sovereignty of countries,
together with internationalauthorities, to seek to fight it and prevent the occurrence of such
offenses in banks and other financialinstitutions or identify violators and report them to the
judicial authorities by enacting binding laws and regulations. Given the geopolitical
situation of Iran, itis not in a good position in terms of administrative corruption.According
to the Transparency International (TI) report, Iran ranked from 127 to 131 among 180
countries surveyed in 2014-2017 (Transparency International (TI), 2017). According to
2016 report on money laundering in various countries by Basel Institute located in
Switzerland, Iran is among the countries with the highest risk of money laundering in
the world. The high risk of money laundering in one country means there is a high
likelihood that money laundering occurs in that country. The Financial Action Task
Force on Money Laundering (FATF) also blacklisted Iran along with North Korea and
identified them as non-cooperating countries and the only two for which there is a call
for action (Basel AML Index Report, 2016). In recent decades, global economy has faced
the phenomenon of money laundering and its devastating effects on the economies of
countries. With the economic globalization, the liberalization of international capital
flows, the development of e-banking, the invention and deployment of new electronic
funds transfer tools internationally, money laundering has also been facilitated.
According to IMF and World Bank’s estimates, the amount of money laundering
globally in one year is about 2 to 5 per cent of the world’s gross domestic product (GDP)
(Myers, 1998). Money laundering can affect audit fees in two ways: first, by deteriorating
the quality of financial reporting and, second, by amplifying audit risk other than
financial reporting quality. Money laundering can increase the risks of financial
distortions and, therefore, demand additional audit efforts and thereby higher audit fees.
If auditors feel that the management is more susceptible to illegal activities including
money laundering, then they are more likely to act with professional skepticism and,
therefore, demand additional audit efforts and higher audit fees (Call et al., 2017). The
novelty and ambiguity of anti-money laundering policieson the one hand and the lack of
coordination among the institutions responsible for combating money laundering on the
other hand have exacerbated the irregularities and confusion and required the banking
system to have an effective mechanism by which anti-money laundering strategies are
coordinated and adopted. Many scholars believe that a new kind of war is taking place
today in which economic sanctions and banking restrictions are used rather than bullets,
bombs or explosives. This is a modern financial war. In such a war, financial and
banking institutions are targeted and almost all communities are at risk (Lin, 2016).
After cleaning up the dirty money, money launderers use the earnings in the country’s
economy, act as a barrier to the country’s competitive environment, create huge
resources for political (black and hidden) activities and are considered the main source of
(political and economic) darkrooms. Thus, they prevent healthy private sector activities
and increase the risk of entering into real sector activities leading to damaged real sector
of the economy. The flow of these resources into the money and financial markets would
destroy the financial sector of the economy, and using them in foreign sector can cause
an imbalance in the foreign sector of the economy. The negative effect of this
phenomenon on consumption is because when financial resources are transferred from
victims to criminals, the way the money is spent differs from its former state (without
money laundering) (Meloen et al., 2003). Diekman (1999) stated that the fight against
corruption and money laundering is a global phenomenon, having negative effects on
the economy and on economic prosperity in the long run. Money laundering feeds
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