Money laundering and terrorist financing risks and democratic governance: a global correlational analysis
| Date | 31 May 2024 |
| Pages | 825-844 |
| DOI | https://doi.org/10.1108/JMLC-09-2023-0151 |
| Published date | 31 May 2024 |
| Author | Amidu Kalokoh |
Money laundering and terrorist
financing risks and democratic
governance: a global
correlational analysis
Amidu Kalokoh
L. Douglas Wilder School of Government and Public Affairs,
Virginia Commonwealth University, Richmond, Virginia, USA
Abstract
Purpose –This paper aims to examine theassociation between money laundering (ML)/terrorist financing
(TF) risks (hereafter,money laundering risks) and democratic governanceacross 117 countries.
Design/methodology/approach –A cross-sectional design was used to examine the association
between ML risks and democraticgovernance by a quantitative approach. The findings are based on annual
ratings of 117 countrieson ML/TF risks and democracy while controllingfor criminality and peace. The data
was compiled from the Basel Anti-Money Laundering/Countering Financing Terrorism Risks Index, the
Economic IntelligenceUnit (Democracy Index), the Global Initiativeagainst Transnational Organized Crimes
(CriminalityIndex) and the Institute for Economics and Peace Index for 2020.
Findings –A multiple linearregression model found a statistically significantnegative association between
democratic governance and ML risks (B¼0.354, t¼7.454, p¼<0.001) and a significant positive
associationbetween criminality and ML risks (B¼0.242, t¼2.692, p¼0.008).
Research limitations/implications –A cross-sectionaldesign cannot determine causal inferences and
generalization (Levin,2006). The study only used a year to examine the hypothesis of a negative correlation
between ML risks and democraticgovernance, thus making generalization difficult.
Originality/value –Extant literature examined ML,terrorism and AML diversely. There was a need to
estimate the association between ML risks and democratic governance, especially globally,during a global
crisis likeCOVID-19, when democratic principles,such as the rule of law, transparency and accountability,are
challenged. Many personnel were laid off, thus limiting supervisionfor ML and TF. This study presents
evidenceof this association.
Keywords Democracy, Money laundering, Anti-money laundering, Financing terrorism
Paper type Research paper
Money laundering(ML) and terrorism undermine sustainable economic development, peace
and security (Aluko, 2012;Baldwin, 2002;Gallant, 2014;Jayasuriya, 2002). Before the
emergence of human security, which places human and societal welfare at the center of
national andinternational security policyand practice, security studiesand practices focused
mainly on state protection (Fukuda-Parr and Messineo, 2012;McDonald, 2002;Newman,
2001). Modernsecurity is the security of thepeople and territory, individuals and nationsand
people everywhere (Fukuda-Parr andMessineo, 2012). It prioritizes economic well-being and
public safety, highlighting the need to combat ML and terrorist financing (TF). The
estimated value of global ML is between $800bn and $2tn, about two to five percent of the
global gross domesticproduct (Sarigul, 2013). Islamic State of Iraq and Syria-related deaths
in West Africa alone were nearly 5,000 in 2020 (United States Department of State, 2021).
Money
laundering
825
Journalof Money Laundering
Control
Vol.27 No. 5, 2024
pp. 825-844
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-09-2023-0151
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
Between 2007 and 2021, theGlobal Terrorism Index (GTI) documentedover 60,500 terrorist
incidents. The death toll was 7,142 in 2021, declining by 1.2%, and by a third of its peakin
2015, with44 countries experiencingat least one incident (IEP,2022).
Global anti-moneylaundering (AML) and counter terrorist financing (CTF) commitments
have seen national and international institutions established. The Financial Action Task
Force (FATF) and its regional affiliate bodies offer strategic alliances and national and
international policy guidance to promote the war against ML and TF globally (Kern,2001).
ML legitimizes profits from illicitactivities while sustaining the worth of the attained assets
(Chong and Lopez-De-Silanes,2015). It provides a foundation for predicate offenses, such as
drug and human trafficking, piracy and corruption, to thrive (Al-Suwaidi and Nobanee,
2021;Cotoc et al.,2021;Markovskaand Adams, 2015). ML creates a corresponding economy
to the formal economy, consequently permitting illicit financial flows and undermines the
legal economic system by evading tax and supporting criminal activities (Hendriyetty and
Grewal, 2017;Soldatov,2018).
Democratic governanceenhances positive peace and security. Positive peace is about the
absence of violence, stresses structural integration, optimism, prevention and ensuring
peace by peaceful means (Grewal, 2003). While democracies are vulnerable to insecurities,
they confront the issues that generate insecurity, such as transnational organized crimes
(TOCs). They do so through institutional and international cooperation, creating
international checks and balances to promote broader peace and security (Mello, 2016). A
thriving ML and TF condition explains a high degree of vulnerability to insecurity at the
state and international levels, requiringadequate remedial efforts. Democracy, as a catalyst
for good governance, upholds transparency and accountability, the rule of law, public
participation and responsiveness (Arowolo and Aluko, 2012). These embody effective
means to tackle illicitactivities, such as ML and terrorism.
This study examines the question:
Q1. What is the association between money laundering/terrorist financing risks
(hereafter money launderingrisks) and democratic governance?
It understands risk as a country’s vulnerability and capacity to tackle ML andTF (Basel
Institute on Governance, 2020). Countering ML/TF requires a practical AML/CFT
framework. It is the extent of the financial system and economy’s capacityto mitigate risks
and threats of ML and financing terrorism and proliferation. This includes ML and TF-
related policy, law, supervision, enforcement or program outcomes (Financial Action Task
Force, 2023).
Literature review
Money laundering
The literature on ML suggests it is a complex process. ML is the process of “cleaning dirty
money”or legitimizing illegal proceeds without losing the value of the acquired assets
(Chong and Lopez-De-Silanes,2015). In other words, it is a criminal way to ensure that, in the
end, crime pays (McDowell and Novis, 2001). ML includesplacing, layering and integrating
(Schneider and Windischbauer, 2008). Placing is the physical penetration of crime money
into the legal financial system and converted into accounts by primary and secondary
deposits. Layering/stackingis creating complicated transactions or accounts across different
jurisdictions to establish various layers of dealings to conceal the origin of the money.
Reintegrating is converting these funds into assets, investing them into the legal economy
and delinking themfrom organized crime (Schneider and Windischbauer, 2008).
JMLC
27,5
826
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting