Is money laundering a hurdle to achieving Sustainable Development Goals?
| Date | 12 June 2023 |
| Pages | 242-261 |
| DOI | https://doi.org/10.1108/JMLC-04-2023-0071 |
| Published date | 12 June 2023 |
| Author | Arij Gueddari,Sami Saafi,Ridha Nouira |
Is money laundering a hurdle
to achieving Sustainable
Development Goals?
Arij Gueddari
LAMIDED, Sousse University, Mahdia, Tunisia
Sami Saafi
LAMIDED, Sousse University, Sousse, Tunisia and FSEG Mahdia,
Monastir University, Monastir, Tunisia, and
Ridha Nouira
LAMIDED and ISFF Sousse, Sousse University, Sousse, Tunisia
Abstract
Purpose –The purpose of this studyprovide answers to the following research questions:Whether and to
what extent money laundering affects the achievability and the trend of Sustainable Development Goals
(SDGs)?; Does the influence of money laundering on the SDGs’achievement differ from developing to
developedcountries?; How does the influence of money launderingvary among the 17 SDGs?
Design/methodology/approach –The paper’s analysis involves two key parts. In the first part, the
authors perform a multivariateanalysis to examine the influence of money launderingon the achievement of
SDGs, and then in the second part, the authorsmake use of an ordered probit regression model to investigate
the impact of money launderingon the trend of attaining each SDG.
Findings –Using a sample of 98 developed and developing countries, the regression results from multivariate
analysis estimates show that moneylaundering has a strong inhibiting effect on the achievement of almost all the
SDGs in the whole sample of countries and the sub-sample of developing countries, whereas no significant effect
is observed for developed countries. However, for the SDG trends, the ordered probit estimates reveal that the
harmful effect of money laundering occurs for all countries regardless their development level. In addition,
perhaps surprisingly, the resultsfrom both the approaches yield also evidence advocating that money laundering
activities might be associated with positive externalities on production and consumption. In fact, money
laundering is found to have a significant positive influence on the achievement and the trend of SDG12
(Sustainable Consumption and Production). Overall, this study’sfindingsdo have interesting policy implications,
especially for developing countries. In these countries, prioritising the formulation and implementation of sound
anti-money laundering policiesis a necessary requirement for their progress towards achieving the SDGs.
Originality/value –The long-standing tradition of previous empirical studies examining the nexus
between money launderingand sustainable development concentrates mainly on the economicdimension of
sustainability (i.e. economicgrowth). However, little is known about the consequences of money laundering
activitiesonthe environmentand the societies. Consequently, this study seeks to fill this gapby assessing the
influence of money laundering on the achievement of the economic, environmental and social goals of
sustainable development.Tothe best of the authors’knowledge, this is the first integrated study to analyse
the potentialrepercussions of money laundering on the SDGs’achievement.
Keywords Money laundering, Sustainable Development Goals, Multivariate analysis,
Ordered probit regression model, Developed countries, Developing countries
Paper type Research paper
1. Introduction
Money laundering is commonly conceived as the process of hiding the real source of
funds that were initially acquired through illicit and/or illegal activities [1] (see e.g.
JMLC
27,2
242
Journalof Money Laundering
Control
Vol.27 No. 2, 2024
pp. 242-261
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-04-2023-0071
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
Deng et al., 2009;Zdanowicz,2009;Salehi et al., 2017). It is also more generally referred to as
afinancial crime (Buchanan, 2004;AlQudah et al.,2022) that can put the financial sector
stability and solvency at danger, especially in less developed nations with less advanced
financial systems (Aluko and Bagheri, 2012;Ofoeda et al., 2022a;Durguti et al., 2023). It is
perceived, moreover, as a potentialhindrance to countries’overall well-being (Dobrowolski
and Sułkowski, 2019;Janjua and Khan, 2020;Ofoeda et al., 2022a). National and
international organizations,including the Financial Action Task Force, the Basel Committee
on Banking Supervision, the United Nations Office on Drugs and Crime, the International
Monetary Fund, the World Bank and the Organization of Economic Cooperation and
Development (OECD), recommend strongly fighting money laundering (see for instance
Schott, 2006;OECD,2009;Jakobi, 2015;Chatain et al.,2022). The devastating effect of money
laundering is, however,not unanimously acknowledged, and there is currentlyno consensus
amongst academic researches on whether money laundering would have a positive or an
adverse impact on the economic activity(Ferwerda, 2018;Loayza et al.,2019).
Theoretically, as emphasized by Unger (2007) and Loayza et al. (2019), the related
economic literature provides two competing and controversial standpoints regarding how
money laundering and illicit activities can affect a nation’s economy. The first viewpoint
argues that money laundering can hurt thegrowth prospects of economies by undermining
legitimate private sector, creating economic inefficiencies, thereby raising substantially
the cost of conducting business and lowering the productivity of legitimate factors in the
economy, as well as well by generating unfair competition between front and legitimate
companies (McDowell and Novis, 2001;Aluko and Bagheri, 2012;Loayza et al.,2019).
Moreover, money laundering may lead to a distortion of interest rates, exchange rates,
inflation rates and money supply, and thus lower economic growth rates (Tanzi, 1997;
Kumar, 2012). The presence of large-scale money laundering activities can also depress the
formal economy and raise the informal economy since money launderers rely more on the
unofficial sectors of the economy to conceal their illicit activities and clean up their dirty
money (Hendriyetty and Grewal, 2017;Javaidand Arshed, 2022;Ghulam and Szalay, 2023).
An increased shadow economy would undoubtedly result in a significant reduction in tax
revenues and, accordingly, to a lower quantity and quality of public goods and services,
which in turns can hamper economic growth (Schneider and Enste, 2000). Further, money
laundering can hurt the growth of an economy by exacerbating capital flight from such
economy targeted for development, distorting its international commerce, promoting
corruption and rendering its financialsystem more vulnerable (Bartlett, 2002;Kumar, 2012).
The second point of view postulates that money laundering activities –despite their illicit
nature –would generate new and additional financial resources that can be then used to
fund productive investments and consumption in the official economy, which in turn
increase considerably employment, output and income (Unger, 2007;Loayza et al., 2019;
Alnasser Mohammed,2021).
Empirically, the existing studies that have looked at the repercussions of money
laundering on the economies’sustainable development are still remain not sufficient and
provide also inconclusive results (Hendriyetty and Grewal, 2017;Javaid and Arshed, 2022).
While studies such as those by Quirk (1996),Argentiero et al. (2008),Hetemi et al. (2018),
Janjua and Khan (2020),Slany et al. (2020),Slamaand Gueddari (2022) and Padil et al. (2022)
establish a negative association between money laundering and sustainable development,
other studies such as those by Stancu and Rece (2009),Henryand Moses (2020),Achim et al.
(2021) and Alnasser Mohammed (2021) provide evidence that money laundering may have
positive sustainabilityeffects.
Money
laundering
243
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