Money laundering, Tax havens, Transparency and Board of Directors of Banks

Godspower-Akpomiemie, Euphemia and Ojah, Kalu (2018): Money laundering, Tax havens, Transparency and Board of Directors of Banks. Forthcoming in: Board effectiveness of Corporate Governance in Emerging & Developing Economies

Abstract

Among other characteristics, money laundering notably occurs across national borders and primarily through banks, and mainly because banks, which are both legitimate and ‘ubiquitous’ financial services institutions, engage primarily in financial intermediation. We ask, are the levers of control over banks’ involvement in money laundering and other financial crimes, more effective when pulled from the outside by government agencies or is there a less arm’s-length role for banks’ board of directors, by way of appropriately nuanced corporate governance? To answer this question, we first attempt to understand money laundering, its antecedents, its support mechanisms, and then how it may be tamed; with emphasis on the potential productive role of banks’ boards. At a general and/or high level, we recommend that the intervention of banks’ boards must focus (i.e., insist) on: (i) the primacy of transparency and upholding of both real and perceived reputational capital of the bank, and (ii) ascertaining that their banks’ relations with corresponding banks distributed across several national borders or association with banks domiciled in notorious tax havens, are demonstrably above board.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money laundering, Tax haven, Banks, Board of director, Emerging economies
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior

References

Alesina, A, and Ferrara, E. 2000. Participation in heterogenous communities. Quaterly Journal of Economics no. 115 847-904.

Alesina, A., Devleeschauwer, A., Easterly, W., Kurlat, S., and Wacziarg, R. 2003. Fractionalization. Journal of Economic Growth no. 8 155-194.

Alesina, A, and Ferrara, E. 2004. Ethnic diversity and economic performance. National Bureau of Economic Research, No. w10313.

Alesina, A., Michalopoulos, S. and Papaioannou, E. 2016. Ethnic inequality. Journal of Political Economy no. 124:2 428-488.

Aluko, Ayodeji, and Mahmood Bagheri. 2012. "The impact of money laundering on economic and financial stability and on political development in developing countries: the case of Nigeria." Journal of Money Laundering Control no. 15 (4): 442-457.

ARC. 2015. Africa Capacity Report: Capacity Imperatives for Domestic Resource Mobilization in Africa. Africa Capacity Building Foundation: Harare, Zimbabwe.

Barry-Johnston, R, and John Abbott. 2005. "Placing bankers in the front line." Journal of Money Laundering Control no. 8 (3): 215-219.

Bartlett, Brent L. 2002. "The negative effects of money laundering on economic development." Asian Development Bank Regional Technical Assistance Project no. 5967.

Bergström, Maria, Karin Svedberg Helgesson, and Ulrika Mörth. 2011. "A new role for for‐profit actors? The case of anti‐money laundering and risk management." JCMS: Journal of Common Market Studies no. 49 (5): 1043-1064.

Burgess, R., Jedwab, R., Miguel, E., Morjaria, A., Miquel, G. 2011. Ethnic favoritism. Working Paper, National Bureau of Economic Research.

Camdessus, Michel. 1998. Money laundering: the importance of international countermeasures. In Address delivered at the Plenary Meeting of the Financial Action Task Force on Money Laundering.

Chaikin, David. 1991. Money laundering: an investigatory perspective. In Criminal Law Forum. Netherlands: Springer.

Chaikin, David. 2006. "The impact of Swiss principles of mutual assistance on financial and fiscal crimes". Revenue Law Journal no. 16 (1):9.

Chaikin, David. 2011. "Adapting the qualifications to the banker's common law duty of confidentiality to fight transnational crime." Sydney Law Review no. 33:265-849.

Chaikin, David. 2017. "Money laundering and tax evasion – the assisting of the banking sector." In The Handbook of Business and Corruption: Cross-Sectoral Experiences, 237-254. Emerald Publishing Limited.

Cobham, Alex. 2012. Tax havens and illicit flows, in draining development? Controlling flows of illicit funds from developing countries. Edited by Peter Reuter. Washington, DC: World Bank.

Delavallade, C. 2012. What drives corruption? Evidence from North African firms. Journal of African Economies no. 21 499-547.

Desai, Mihir A, C Fritz Foley, and James R Hines. 2006. "Do tax havens divert economic activity?" Economics Letters no. 90 (2):219-224.

Dev, P., Mberu, B., and Pongou, R. 2016. Ethnic inequality: theory and evidence from formal education in Nigeria. Economic Development and Cultural Change no 64:4 606-660.

Dharmapala, Dhammika. 2008. "What problems and opportunities are created by tax havens?" Oxford Review of Economic Policy no. 24 (4):661-679.

Dharmapala, Dhammika, and James R Hines. 2009. "Which countries become tax havens?" Journal of Public Economics no. 93 (9):1058-1068.

Dharmapala, Dhammika, and James R Hines Jr. 2006. Which countries become tax havens? : National Bureau of Economic Research.

Djankov, S., La Porta, R. Lopez-de-Silanes, F. and Shleifer, A. 2003. "Courts". Quarterly Journal of Economics, 118: 453-517.

El-Qorchi, Mohammed. 2002. Hawala; How does this informal funds transfer system work, and should it be regulated? Finance and Development (A quaterly magazine of the IMF).

Esteban, J., Mayoral, L. and Ray, D. 2012. Ethnicity and conflict: an empirical study. American Economic Review 102:4 1310-1342.

Fenske, James, and Zurimendi, Igor. 2017. Oil and ethnic inequality in Nigeria. Journal of Economic Growth 22, 397-420.

Franck, R. and Rainer, I. 2012. Does the leader's ethnicity matter? Ethnic favoritism, education and health in Sub-Saharan Africa. American Political Science Review 106:2 294-325.

Gilmore, William C. 2004. Dirty money: the evolution of international measures to counter money laundering and the financing of terrorism. Vol. 599: Council of Europe.

Gordon, Richard, Andrew P Morriss, Lotta Moberg, and Clifford C Henson. 2013. "Moving money: international financial flows, taxes, money laundering & transparency." ExpressO.

Greif, A. 1993. Contract enforceability and economic institutions in early trade: the Maghribi traders' coalition. American Economic Review no. 83: 525-548.

Gyimah-Brempong, K. 2002. Corruption, economic growth, and income inequality in Africa. Economics and Governance, 3: 183-209.

Kochan, Nick. 2011. The washing machine: Gerald Duckworth & Co.

Kudrle, Robert T, and Lorraine Eden. 2003. "The Campaign against Tax Havens: Will It Last-Will It Work." Stan. JL Bus. & Fin. no. 9:37.

Kudrle, Robert Thomas. 2009. "Did blacklisting hurt the tax havens?" Journal of Money Laundering Control no. 12 (1):33-49.

Levi, Michael, and Peter Reuter. 2006. "Money laundering." Crime and Justice no. 34 (1):289-375.

Mauro, P. 2004. The persistence of corruption and slow economic growth. IMF Staff Papers, 51: 1-18.

McCarthy, Frankie. 2010. Alastair N Brown, Money laundering. Edinburgh: W Green (www. wgreen. thomson. com), Green's Practice Library, 2009. xxvi+ 256 pp. ISBN 9780414014459.£ 80. Edinburgh University Press 22 George Square, Edinburgh EH8 9LF UK.

Morris-Cotterill, Nigel. 2001. "Money laundering." Foreign Policy, 16-22.

Mthanti, Thanti and Ojah, Kalu. 2017. Institutions and corporate governance in South Africa. Corporate Governance in Developing and Emerging Markets. In Ngwu, F. N., Osuji, O. K. and Stephen, F. H. Routledge, Oxon OX14 4RN, UK.

Mustapha, A. 2006. Ethinic structure, inequality and governance of the public sector in Nigeria. Governance and Human Rights Programme Paper: United Nations Research Institute for Socaial Development Democracy.

Ojah, Kalu. 2014. Corporate social responsibility: connecting responsibility, ethics, conduct and strategy. The Risk Universe,32: 14-17.

Reuter, Peter, and N Truman Edwin. 2004. Chasing dirty money: The fight against money laundering: Peterson Institute.

Roth, John, Douglas Greenburg, Serena Wille, and Alice Falk. 2004. Monograph on terrorist financing: Staff report to the commission: National Commission on Terrorist Attacks Upon the United States.

Schneider, Friedrich. 2008. "Money laundering and financial means of organised crime: some preliminary empirical findings." Global Business and Economics Review no. 10 (3):309-330.

Schneider, Friedrich, and Ursula Windischbauer. 2008. "Money laundering: some facts." European Journal of Law and Economics no. 26 (3):387-404.

Stewart, Jim. 2013. "Is Ireland a tax haven." Institute for International Integration Studies, Trinity College Dublin.

Thurm, Scott, and Kate Linebaugh. 2013. "More US profits parked abroad, saving on taxes." Wall Street Journal no. 10.

Treisman, D. 2000. The causes of corruption: a cross-sectional study. Journal of Public Economics no. 76 399-457.

Tsingou, Eleni. 2010. "Global financial governance and the developing anti-money laundering regime: What lessons for international political economy?" International Politics no. 47 (6):617-637.

Unger, Brigitte. 2013. "Money laundering regulation: from Al Capone to Al Qaeda " In Research Handbook on Money Laundering, edited by B. Unger & D. van der Linde (red.), 14. UK: Edward Elgar Publishing.

Unger, Brigitte, and Elena Madalina Busuioc. 2007. The scale and impacts of money laundering: Edward Elgar Publishing.

Van den Broek, Melissa, and Henk Addink. 2013. "Prevention of money laundering and terrorist financing from a good governance perspective." In Research Handbook on Money Laundering, edited by B. Unger & D. van der Lind, 368.

Van Duyne, Petrus C. 2003. "Organizing cigarette smuggling and policy making, ending up in smoke." Crime, Law and Social Change no. 39 (3):285-317.

Van Duyne, Petrus C, Marc S Groenhuijsen, and AAP Schudelaro. 2005. "Balancing financial threats and legal interests in money-laundering policy." Crime, Law and Social Change no. 43 (2-3):117-147.

Van Fossen, Anthony B. 2003. "Money laundering, global financial instability, and tax havens in the Pacific Islands." The Contemporary Pacific no. 15 (2):237-275.

Van Rijckeghem, C, and Weder, B. 1997. Corruption and the rate of temptation -- do low wages in the civil service cause corruption? IMF Working Paper, Washington: DC.

Walker, John, and Brigitte Unger. 2009. "Measuring global money laundering: the Walker Gravity model". Review of Law & Economics no. 5 (2):821-853.

Zucman, Gabriel. 2014. "Taxing across borders: Tracking personal wealth and corporate profits." The Journal of Economic Perspectives no. 28 (4):121-148.

Zucman, Gabriel. 2015. The hidden wealth of nations: The scourge of tax havens: University of Chicago Press.