How to Identify Norms, Laws and Regulations That Facilitate Illicit Financial Flows and Related Financial Crimes

Journal of Money Laundering Control (forthcoming)
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Abstract

Purpose: Illicit financial flows are targeted by the United Nations’ (UN) Sustainable Development Goals (SDGs). However, these illicit flows are not entirely understood. Furthermore, they can benefit from economic norms, laws, and regulations that lack mechanisms to detect and penalize them. This paper investigates whether a recent test, the embezzler test, can be used to identify regulatory architectures that facilitate illicit financial flows and related financial crimes. Design/methodology/approach: To develop a more advanced version of the embezzler test in terms of definitions and practical implementation methodology. Findings: In this test, the definition of embezzlement can be understood to be the occurrence of illicit financial flows crossing the boundaries of organizations and/or countries. This is a multi-stage test, which intentionally simulates illicit financial flows to observe how well equipped is the regulatory architecture to deal with other financial offences that are related with these flows, such as theft, money laundering, fraud, corruption, market manipulation, and tax evasion. Originality: This is the first explicit test that has been presented to identify norms, laws, and regulations that facilitate illicit financial flows and related financial crimes. Research implications: Future research can employ the version of this test to stress test a large range of economic norms, laws, and regulations. Practical/Social implications: This test’s new version can assist achieve the UN SDGs’ illicit financial flow reduction target. Furthermore, it can be used to study both existing and proposed norms, laws, and regulation.

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Tiago Cardao-Pito
Universidade de Lisboa

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