Macroeconomics of money
laundering: effects
and measurements
Nella Hendriyetty and Bhajan S. Grewal
Victoria University, Melbourne, Australia
Abstract
Purpose –
The purpose of this paper is to review studies focusing on the magnitude of money laundering
and their effects on a country’s economy. The relevant concepts are identied on the basis of discussions in the
literature by prominent scholars and policy makers. There are three main objectives in this review: rst, to
discuss the effects of money laundering on a country’s macro-economy; second, to seek measurements from
other scholars; and nally, to seek previous ndings about the magnitude and the ows of money laundering.
Design/methodology/approach –
In the rst part, this paper outlines the effects of money laundering
on macroeconomic conditions of a country, and then the second part reviews the literature that measures the
magnitude of money laundering from an economic perspective.
Findings –
Money laundering affects a country’s economy by increasing shadow economy and criminal
activities, illicit ows and impeding tax collection. To minimise these negative effects, it is necessary to
quantify the magnitude of money laundering relative to economic conditions to identify the most vulnerable
aspects of money laundering in a country. Two approaches are used in this study: the rst is the capital ight
approach, as money laundering will cause ows of money between countries; the second is the economic
approach for measuring money laundering through economic variables (e.g. tax revenue, underground
economy and income generated by criminals) separately from tax evasion.
Originality/value –
The paper offers new insights for the measurement of money laundering, especially
for developing countries. Most methods in quantifying money laundering have focused on developed
countries, which are less applicable to developing countries.
Keywords Tax evasion, Macroeconomics, Money laundering, Underground economy, Capital ows
Paper type Literature review
1. Introduction
Money laundering is a global concern, as it becomes a crucial link in tracing criminal funds,
especially from organised crime. Criminals try to conceal their proceeds of crime by
laundering money in nancial systems, international trade or through other efforts. Actions
to conceal these proceeds, or funds derived from criminal acts, are intended to conceal the
origin of the property, that is, to make it appear legitimate.
Many studies have focused on the criminalisation of money laundering to reduce the level
of crime in a country. However, there is limited literature analysing the economic impact of
money laundering on a country, and this literature mostly does not provide empirical
evidence. Furthermore, most research related to money laundering focuses on developed
countries. There is a lack of evidence-based research that examines the magnitudes of money
laundering in developing countries. Therefore, to redress the gap, this paper will attempt to
elaborate the economic impact of money laundering and seek alternative measurements in
quantifying the level of money laundering, especially for developing countries. The results
can be used to identify money laundering risks and vulnerability in a country.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
Money
laundering
65
Journal of Financial Crime
Vol. 24 No. 1, 2017
pp. 65-81
© Emerald Publishing Limited
1359-0790
DOI
10.1108/JFC-01-2016-0004
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