Money laundering and its effects on the economy

Abstract

This thesis reviews the literature on money laundering and its macroeconomic effects. Although money laundering existed for many centuries, the rise of terrorism increased the focus of regulatory bodies on implementing anti-money laundering measures worldwide. However, money launderers remain ahead of regulators as they constantly seek and find new methods to disguise their illicit proceeds and their predicate crimes. Literature argues that there are three key effects of money laundering on the macroeconomy: the distortion and magnification of the shadow economy, the distortion of international capital flows and the reduction of tax revenue. The thesis also analyzes the 2019 Basel AML index which is a comprehensive index of the money laundering and terrorism financing risk that each country is exposed to. They main conclusion is that even countries that implement the most thorough counter measures remain significantly vulnerable to money laundering risk.