Non-linear impact of globalization on financial crimes: a case of developing economies
| DOI | https://doi.org/10.1108/JMLC-03-2021-0023 |
| Published date | 29 July 2021 |
| Date | 29 July 2021 |
| Pages | 358-375 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Rabia Muhammad Amjad,Abdul Rafay,Noman Arshed,Mubbasher Munir,Maryam Muhammad Amjad |
Non-linear impact of globalization
on financial crimes: a case of
developing economies
Rabia Muhammad Amjad
Kashf Foundation, Lahore, Pakistan
Abdul Rafay
Department of Banking and Finance, University of Management and Technology,
Lahore, Pakistan
Noman Arshed
Department of Economics and Statistics,
University of Management and Technology, Lahore, Pakistan
Mubbasher Munir
Department of Economics and Statistics,
University of Management and Technology, Lahore, Pakistan, and
Maryam Muhammad Amjad
University of Management and Technology, Lahore, Pakistan
Abstract
Purpose –The Financial Action Task Force defines money laundering as “processing of thesecriminal proceeds
to disguise their illegal origin”. This is the major portion of financial crime that has ties across borders and like all
financial crimes which are well planned and camouflaged,this crime is difficult to detect and deter. Over the years,
on one side, globalization has provided development opportunities, it has also become one reason for the
pervasiveness of money laundering. This has led to a disturbance in the global financial system and social u nrest as
proceeds from money laundering are being used in terrorism. The purpose of this study is to explore the non linear
effect of globalization on financial crime in the form of money laundering.
Design/methodology/approach –An investigation based on 119 developing countries from the time
period of 1985 till 2015 is conductedin this study. The panel quantile regression model was used toestimate
antecedentsof money laundering.
Findings –The study confirmed that globalizationfollows an inverted U-shaped relationship with money
laundering. Furthermore, indicators such as investment portfolio and socioeconomic conditions have a
significanteffect on money laundering.
Originality/value –The panel quantile regression model was used to estimate antecedents of money laundering.
Keywords Globalization, Corruption, Money laundering, Financial crimes
Paper type Research paper
1. Introduction
Financial crime extends from simplefraud and theft perpetrated by criminals to huge-scale
public sector projects mastered by criminal organizations with political ties and a foothold
The authors acknowledge the School of Business and Economics, University of Management and
Technology in providing research facilities in conducting this research project.
JMLC
25,2
358
Journalof Money Laundering
Control
Vol.25 No. 2, 2022
pp. 358-375
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-03-2021-0023
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
on the entire globe. These are criminal practices, the severity of which should not be
underestimated because, furtherand above their socioeconomic effects, they are most often
closely connected to violent crimes and even terrorist acts (Interpol, n.d.). As they are well
planned, unlike the crimes of passion (violent crimes), they are generally difficult to trace.
One of the types of financial crimes is money laundering which has received a lot of
attention. Mazumderet al. (2017) mention several types of financial crimes.
Terrorist financing.
Bribery.
Corruption.
Money laundering.
Sanction breaches.
Insider trading.
Money laundering relates to the transformation of cash that is fraudulently obtained to
make it seem like it came from a credible source. Launderers worldwide hide the criminal
intent connected with it, such as trafficking of narcotics and humans, violence, terror and
bribery (Bajrang et al.,2008). When crimes are being committed and if there is a massive
amount of reward generated from that crime, criminals try to hide that money in a way in
which legal authoritiesmay overlook. In short, the best explanation for money launderingis
disguising the proceedsof criminal activity as lawful earnings(Thakkar, 2012).
Money laundering has become an essential wing to whitewash earnings for various types of
organized crime, which entails huge proceeds. While organized crime has declined in scope and
complexity, money laundering is still a local and foreign problem. The business that deals through
cash; particularly, bars, currency exchange houses, stock brokerages, cafes, car dealers,
restaurants, travel agencies and underwriters, are at the potential forefront of money laundering.
Businesses such as car dealers, insurance organizations and construction companies launder their
profits to hide earning of crooks, gambling and narcotics. Globally, much of the money laundered
is being committed by selling illegal narcotics(Thakkar, 2012). If companies launder the profits of
a specific crime being committed, then such businesses, whether they are banks, attorneys,
accountants, tax officers and other individuals, are indirect money launderers. This means that this
new class of individuals, including bankers, lawyers and accountants, provides money laundering
services to various businesses (Thakkar, 2012). Many broad and transnational local laundering
needs are moving to a different level. Criminals are transferring money between multiple banks,
financial tools and in or out of physical assets such as companies or land. In addition to laundering
money, perpetrators are using “shell companies”. The global financial system is greatly affected by
money laundering. Criminals are allowed by the modern financial system to immediately move
millions of dollars via personal mobiles and internet networks (Hoque, 2006).
Banking institutions are mostly used when it comes to money laundering. They p rovide
several services such as depositing, lending money, cashing cheques and money or asset transfer
from one institution to another without considering the geographical limitation. As globali zation
is at full force and the world economy is becoming more integrated than before, transferring
money across foreign borders is becoming easier. Foreign countries have very tough secrecy
laws, allowing sharing of funds without anyone finding out their origin and they also form tax
havens to attract the flows. This makes it easier for criminals to transfer funds into a foreign
institution without anyone finding out where the funds originated (Walker and Unger, 2009).
The new global financial system’s reach is expanding every day with faster
communication and information. It holds possible advantages and incentives for countries.
However, these incentives for countriesoften face some challenges. Financial terrorism and
Globalization
and financial
crimes
359
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