Money laundering and corrupt officials: a dynamic model
| Pages | 55-61 |
| Published date | 28 December 2012 |
| Date | 28 December 2012 |
| DOI | https://doi.org/10.1108/13685201311286850 |
| Author | Cassandro Mendes,Jailson Oliveira |
| Subject Matter | Accounting & finance |
Money laundering and corrupt
officials: a dynamic model
Cassandro Mendes
Federal University of Rio Grande do Sul, Porto Alegre, Brazil, and
Jailson Oliveira
Federal University of Paraiba, Porto Alegre, Brazli
Abstract
Purpose – The purpose of this paper is to develop a theoretical model to study the impact of
corruption on money laundering.
Design/methodology/approach – The relationship between corruption and money laundering has
been modelled by using differential games.
Findings – The authors’ model suggests that corruption increases the quantity of dirty money
laundered in the formal economy. It was also found that, jointly with the anti-laundry regulations, the
government should create a better salary policy, as a way to control corruption of federal officials.
Originality/value – To best of the authors’ knowledge, this is the first theoretical paper that studies
the link between money laundering and corruption.
Keywords Mathematicalmodelling, Corruption, Money laundering,Public administration,
Differentialgames
Paper type Research paper
1. Introduction
The globalization of the financial sector increases the prospect of money laundering.
This paper aims to study the effects of corruption on money laundering. We aimed to
develop a theoretical model that analyzes how corruption may increase money
laundering in a given country. We present two main contributions to the current
literature, namely:
(1) we show how the effectiveness of the anti-money laundry regulation is closely
correlated with corruption; and
(2) through our model, we describe the dynamics between corruption and the
quantity of illegal money laundered in the legal economy.
The theoretical connection used to perform such a model, and neglected in others
paper, is the salary system used in the public sector. Our model is based on one
representative agent, and we used hierarchical differential games to derive our results.
The main result of this paper shows that the existence of corruption may undermine
all the control policies implemented by the legal institutions. In the model we highlight
how the salary system, settled by the government, may play an important role in the
effectiveness of the anti-money laundering policies. Usually a salaried professional
makes the surveillance and implementation of the anti-money laundry regulation.
Hence the effectiveness of such regulation, announced by the central government,
depends on the level of corruption in the economy. This relationship has been verified in
many developing countries where the salary paid, in the public sector, is relatively low.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
Corrupt
officials
55
Journal of Money Laundering Control
Vol. 16 No. 1, 2013
pp. 55-61
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201311286850
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