The economic consequences of money laundering: a review of empirical literature
| Date | 28 November 2023 |
| Pages | 901-916 |
| DOI | https://doi.org/10.1108/JMLC-09-2023-0143 |
| Published date | 28 November 2023 |
| Author | Imen Khelil,Hichem Khlif,Imen Achek |
The economic consequences of
money laundering: a review of
empirical literature
Imen Khelil
Department of Accounting, Prince Sultan University-Riyadh-KSA,
Riyadh, Saudi Arabia
Hichem Khlif
Department of Accounting, Faculty of Economics and Management of Sfax,
University of Sfax, Sfax, Tunisia, and
Imen Achek
Faculty of Economics and Management of Mahdia, University of Monastir,
Monastir, Tunisia
Abstract
Purpose –The purpose of this study is to providea timely synthesis of the empirical literature focusingon
the economic consequences of money laundering, as this topic has been gaining momentum among
policymakersand academic researchers due to its adverse effects.
Design/methodology/approach –Empirical studiesare collected by consulting accountingand finance
journals in diverse digital sources(e.g. Science Direct, Blackwell, Taylor and Francis, Springer, Sage and
Emerald). Key words used to identifyrelevant papers include “money laundering”and “anti-money
laundering regulations,”withspecific focus on the economic consequences. Our search strategyincludes 24
publishedpapers over the period of 2018–2023.
Findings –Findings show that most studies represent cross-country investigations; the main topics
investigated focus on accounting field (e.g. audit fees, real and accrual earningsmanagement), tax evasion,
financial stability, sustainability, economic indicators (inflation,economic growth, foreign direct investment)
and financial inclusion;and the economic consequences of money laundering have been alsoexamined within
banking industry(e.g. banking profitability, banking stability).Reported findings of reviewed studies suggest
that money laundering has diverse adverse impacts at the country level (e.g. increased tax evasion, higher
inflation rate,less sustainability and foreign direct investments), at the firm level (e.g. increasedaudit risk and
aggressive real and accrualearnings management) and within banking industry through negativeimpact of
money launderingon bank’s loan portfolio quality, stability and profitability.
Practical implications –With respect to policymakers,strengthening anti-money launderingregulations
may play a critical role in reducing money laundering activities. Furthermore, financial institutionsshould
implement specific rulesdealing with anti-money regulations to ensure adequate complianceand disclosure.
Finally, policymakers should be aware about the importance of digital transformation to combat money
launderingactivities since it facilitates the detection of financialcrimes due to their traceability.
Originality/value –The summary of the empirical literature focusing on the economic consequence of
money laundering represents a historical record and an introduction for accounting researchers. It also urges
them to further explore the economicimplications of anti-money laundering disclosure within banking industry.
Keywords The economic consequences of money laundering, Anti-money laundering regulations,
Literature review
Paper type Literature review
The authors would like to thank Prince Sultan University for their support.
A review of
empirical
literature
901
Journalof Money Laundering
Control
Vol.27 No. 5, 2024
pp. 901-916
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-09-2023-0143
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
1. Introduction
Recently, money laundering has gained a great deal of attention among policymakers and
academic researchers due to its adverse impacts on all economies, regardless of size and
income status (Amara et al.,2023;Nazar et al., 2023). Money laundering can be defined as
“procedure to obscure the source of illegitimate funds and convert them into legitimate
funds”(Nazar et al.,2023,p.1).Quirk (1997) suggests that money laundering represents a
parasite affectingeconomies and financial infrastructure worldwide.
Accordingly, topics dealing with theeconomic consequences of moneylaundering have
been gaining momentum in the economic literature duringthe last few years (Amara et al.,
2023;Gueddari et al., 2023;Jayasekara, 2021;Nazar et al., 2023;Ofoeda, 2022;Ofoeda et al.,
2023;Shah and Aish, 2022;Zaman et al.,2021). Therefore, it becomes interesting to
recapitulate this emerging streamof research and identify the main consequences of money
laundering. Previous reviews (e.g. Hendriyetty and Grewal, 2017) have focused on the
magnitude of money laundering and their effects on a country’s economy for studies
(qualitative and quantitative) conducted before 2010 and the way used to quantify money
laundering. This review summarizes studies having normative aspect (e.g. regulatory
framework) and concludes that money laundering affects a country’s economy by
increasing shadow economy and impeding tax collection. Thus, the current review tries to
complement the previous one by covering empirical enquiries examining the economic
effects of money laundering at firm or country level since data become available about
money laundering[e.g. Basel anti-money laundering (AML) reports].
Gathered empirical enquiriesare collected by consulting specialized journals (e.g. Journal
of Money Laundering Control) and other accounting and finance journals in diverse digital
sources (e.g. Science Direct, Blackwell, Taylor and Francis, Springer, Sage, Emerald). Key
words used to identify relevant papers include “money laundering”and “anti-money
laundering regulations,”withspecific focus on the economic consequences. Papers citing the
collected studies are also consulted to collect the maximum number of published papers
dealing with the economic consequences of money laundering. The searching process leads
to the collection of 24 publishedpapers over the period of 2018–2023.
The summary of reviewed papers suggests that these studies are mainly cross-country
investigations. The economic consequences of money laundering deal with different topics
linked to accounting field (e.g. audit fees, real and accrual earnings management), tax
evasion, financial stability, sustainability, economic indicators (inflation, economic growth,
foreign direct investment) and financial inclusion. The economic consequences of money
laundering have been also examined within banking industry (e.g. banking profitability,
banking stability).
At country level, empirical evidences from synthesized studies show that money
laundering has adverse economic impacts on government revenues (more tax evasion),
sustainability, foreign direct investments and inflation rate. This implies that the
effectiveness of anti-money laundering regulation may mitigate these adverse effects.
Furthermore, some studies have shown that these adverse effects may be mitigated for
countries characterized by high strength of auditing and reporting standards or low
corruption level. At firm level, money laundering is associated with increased level of audit
risk, which translates into higher audit fees, and firms accused of committing financial
crimes exhibit higher levels of earnings management. Within banking industry, empirical
evidences show that money laundering negatively affects bank’s loan portfolio quality,
stability and profitability.
The rest of this review is structured as follows. Section 2 presents the procedureused to
collect data and their main characteristics.Section 3 synthesizes the stream of the economic
JMLC
27,5
902
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