A Theory of 'Crying Wolf': The Economics of Money Laundering Enforcement

By E. Takáts. Social Science Research Network, 2007

168 citations recorded by the source corpus.

The article shows how excessive reporting, called "crying wolf", can dilute the information value of reports and how more reports can mean less information. Excessive reporting is investigated by undertaking the first formal analysis of money laundering enforcement. Banks monitor transactions and report suspicious activity to government agencies, which use these reports to identify investigation targets. Banks face fines should they fail to report money laundering. However, excessive fines force banks to report transactions which are less suspicious. The empirical evidence is shown to be consistent with the model's predictions. The model is used to suggest implementable corrective policy measures, such as decreasing fines and introducing reporting fees. The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Subfields: Economics and Econometrics, Management Science and Operations Research, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/479bc89aab4fcdf34ad65b6aa4d0b605ad90b537