Crypto-assets, corruption, and capital controls: Cross-country correlations

Alnasaa, Marwa; Gueorguiev, Nikolay; Honda, Jiro; Imamoglu, Eslem; Mauro, Paolo; Primus, Keyra; Rozhkov, Dmitriy

doi:10.1016/j.econlet.2022.110492

Cited by 19 publications

(17 citation statements)

References 4 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…where « i is the error term and i refers to country. Following Alnasaa et al (2022), variables were removed from the general model sequentially if they had little explanatory power based on the standard F-tests or the included variables showed a high degree of multicollinearity based on the variance inflation factor (VIF) analysis with a metric above 4. VIF metrics are not reported to preserve space.…”

Section: Methodology and Empirical Resultsmentioning

confidence: 99%

Cross-jurisdictional financial crime risks: what can we learn from the UK regulatory data?

Feridun

2023

JFC

View full text Add to dashboard Cite

Purpose Financial crime presents a serious threat to the stability and integrity of the global financial system. To combat illicit financial activities, regulatory bodies worldwide have implemented various measures, including the requirement for financial institutions to assess the financial crime risks they are exposed to in the jurisdictions they operate in. These risks include inadequate anti-money laundering and countering the financing of terrorism frameworks and other financial crime risks that have significant strategic implications for firms’ geographical footprints and customer risk classifications. This paper aims to make a contribution to the literature by undertaking a cross-country analysis of 158 countries to shed light on what drives perceived jurisdiction risk of the UK financial services firms. Design/methodology/approach Capturing firms’ perceptions of financial crime risk requires significant data collection efforts, including surveys and interviews with key personnel. This can be highly resource-intensive and may require access to sensitive information that firms may be reluctant to share. Furthermore, the dynamic nature of financial crime risks means that perceptions can change rapidly in response to changes in the regulatory and geopolitical landscape. As a result, capturing and monitoring firms’ perceptions of financial crime risks requires ongoing monitoring and analysis. Capturing firms’ perceptions of financial crime risks at a cross-jurisdictional level is a particularly complex and challenging task that requires careful consideration of a range of factors. As a result of data limitations, empirical investigation of the factors underlying the firms’ perceptions of jurisdiction risk is in its infancy. This paper uses regulatory financial crime data from the UK in a multivariate regression analysis, following a general-to-specific approach where any redundant variables were removed from the general model sequentially. Findings Results suggest that perceived jurisdiction risk is significantly and positively associated with evasion of tax and regulations, while it is significantly and negatively associated with political stability and regulatory stringency. These have important implications for home and host supervisors with respect to the factors that drive perceived jurisdiction risks and the evaluation of the nature of inherent financial crime risks within regulated firms. The findings confirm the critical role of the shadow economy, political stability and regulatory rigor in shaping jurisdiction risk perceptions. From a policy standpoint, the findings support the case for taking prompt policy action to identify, prioritize and implement specific and targeted measures with respect to the shadow economy, political stability and rigor of regulations to improve international firms’ perceptions of jurisdiction risk. Originality/value While there exists different measures of financial crime risk, it is notoriously challenging to capture firms’ perceptions of it, particularly at a cross-jurisdiction level. This is because financial crime risks can vary significantly across different jurisdictions due to differences in legal and regulatory frameworks, cultural norms and levels of economic development. This makes it difficult for firms to compare and evaluate the financial crime risks they face in different jurisdictions. Besides, firms’ perceptions of financial crime risks can be influenced by a range of subjective factors, including personal experiences, media coverage and hearsay. These perceptions may not always align with objective risk assessments, which are based on more systematic and empirical methods of risk measurement. This paper contributes to the existing literature by undertaking a cross-country analysis drawing on a unique set of UK regulatory financial crime data, which is based on a total of 1,900 annual financial crime data regulatory return (REP-CRIM) submissions to the UK’s Financial Conduct Authority.

show abstract

Section: Methodology and Empirical Resultsmentioning

confidence: 99%

Cross-jurisdictional financial crime risks: what can we learn from the UK regulatory data?

Feridun

2023

JFC

View full text Add to dashboard Cite

show abstract

“…Turning to Table 3, results from cross-sectional regression analysis show that about 70%, 60% and 60% of the variation in perceptions of jurisdiction risk is explained by explanatory The results of Model 1 suggests that AML/CFT framework, corporate tax avoidance, price stability policy, institutional and legal risk and tax burden on business are significant with positive coefficients with the exception of price stability policy. Despite the small sample, significant results are worth paying attention to given that size measurement error generally tend to reduce the likelihood of finding a significant empirical association (Alnasaa et al, 2022).…”

Section: Resultsmentioning

confidence: 99%

“…The general model includes all variables which have a theoretical association with the outcome variable. Redundant variables are sequentially removed from the general model following Alnasaa et al (2022) resulting in Models 2 and 3 as follows: where ε i and i are as defined as in Model 1.…”

Section: Methodsmentioning

confidence: 99%

Perceptions on jurisdiction risk: a cross-country analysis

Feridun

2023

JMLC

View full text Add to dashboard Cite

Purpose The purpose of this article is to make a contribution to the existing knowledge by using the unique cross-jurisdiction data drawn from the FCA’s REP-CRIM submissions to explore dynamics behind firms’ perceptions on financial crime. Capturing firm’s sentiment is notoriously challenging, and any relevant regulatory data is usually not available in the public domain. A recent exception is the UK Financial Conduct Authority’s (FCA’s) financial crime data return (REP-CRIM) submissions which include the cross-country regulatory data on the UK financial institutions’ perceptions of jurisdiction risk. Despite a broad literature with respect to financial crime, there exists an important gap in the existing knowledge with respect to factors that are associated with the perceptions of firms with respect to jurisdiction risk, which this article aims to close. Design/methodology/approach Using cross-country regulatory data on the UK financial institutions’ perceptions of jurisdiction risk, this study empirically determines that perceptions of jurisdiction risk is significantly and positively associated with anti-money laundering and countering the financing of terrorism (AML/CFT) framework, as well as with tax burden on business and institutional and legal risk in the case of 165 jurisdictions. Findings The findings lend support to the proposition that unsystematic efforts and too much publicity may ascertain the high-risk image of a jurisdiction, deterring cross-border business. Policy implications that emerge from the study also add to the case for strengthening institutional and legal frameworks, as well as relieving the tax burden on doing business. Research limitations/implications Findings of the present study should be interpreted with caution, as the dependent variable used in the present study reflects UK firms’ perceptions of jurisdiction risk, which may depend on various factors such as different risk appetites and the countries in which firms carry out business, and not necessarily the actual level of risks based on financial crime statistics. For example, a jurisdiction which may indeed be considered high risk, would not necessarily be ranking high on the FCA’s list of UK firms’ jurisdiction risk perceptions due to few firms operating in that particular country. As a result, the list could differ from the Financial Action Task Force’s black and grey lists. Findings based on the regulatory data on the UK financial institutions’ perceptions of jurisdiction risk should be considered preliminary in nature, given that they are based on a single year cross sectional data. As global and country-level AML/CFT efforts continue to intensify and as more regulatory data becomes publicly available, it would be imperative to bring further empirical evidence to bear on the question of whether financial crime perceptions are likely to be more pronounced for jurisdictions where AML/CFT efforts are more intensified. Likewise, from a policy standpoint, it would be equally important to explore further the role that institutional and legal risk, as well as tax burden on businesses, play in shaping firms’ perceptions of jurisdiction risk. Practical implications Findings lend support to the proposition that unsystematic efforts and too much publicity may ascertain the high-risk image of a jurisdiction, deterring cross-border business. Therefore, rather than waiting for more data to be made available by other financial regulators, which could lead to a more conclusive evidence in the future, on balance, the findings of this study add to the case for carefully designing and systematically implementing AML/CFT measures in a less publicized manner. Findings lend support to the theoretical postulation that disorderly efforts and undue publicity regarding AML/CFT efforts serve to ascertain the high-risk image of a jurisdiction, which could deter cross-border business and could be detrimental to how firms undertake due diligence. They also suggest that disorderly implementation of AML/CFT measures may hinder access to formal financial service and jeopardize authorities’ ability to trace the movement of funds, which may also add to negative perceptions of jurisdiction risk. Social implications Findings are in line with the theoretical expectations that perceptions of jurisdiction risk would be expected to be higher in countries with inadequate disclosure rules, lax regulation and opacity jurisdiction. Likewise, results are aligned with the expectations that tax burden on business would be expected to be in a positive relationship with jurisdiction risk, as it would increase the likelihood of tax evasion, which incentivizes financial crime. Therefore, policy implications that emerge from the study also add to the case for strengthening institutional and legal frameworks and relieving the tax burden on doing business as part of efforts to improve the international image of jurisdictions with respect to financial crime risks. Originality/value Using the cross-country regulatory data on the UK financial institutions’ perceptions of jurisdiction risk, this study has empirically determined that perceptions of jurisdiction risk is significantly and positively associated with AML/CFT framework, as well as with tax burden on business and institutional and legal risk. These findings have implications from a policy standpoint.

show abstract

“…Therefore, the high level of corruption in the country can be a significant factor for crypto holders to consider while choosing a specific server due to their willingness to mislead the trace of their money. Additional motivation for our research is found in a previously confirmed positive relationship between the perception of corruption and the popularity of crypto-usage in a country (Alnasaa et al , 2022; Wawrosz and Lansky, 2021). Consequently, investors are willing to pay higher prices for Bitcoin in countries with higher corruption (Brown, 2016; Johnson, 2020).…”

Section: Theoretical Backgroundmentioning

confidence: 96%

Crypto-asset market development: the role of country’s institutional quality

Perić

Smiljanić

Jerković

2023

JMLC

View full text Add to dashboard Cite

Purpose Crypto-asset can be traded on many different exchanges worldwide with servers located in countries with different financial characteristics and institutional surroundings. Trading volume on these servers varies considerably regarding the server’s location, even though the prices do not differ greatly. Crypto-asset markets are poorly regulated and, as such, may leave a place for potential fraudulent activities and be linked to corruption. This paper aims to examine the role of country’s institutions in attracting Bitcoin traders. Design/methodology/approach Assuming heterogeneity between countries where crypto-asset exchange servers are located, the Pool Mean Group Estimator is used. Findings Results indicate that, from institutional variables, corruption in the country attracts while internal and external conflicts repel investors. Additionally, the growth of global uncertainty and the decline in the local stock markets motivate investors to trade Bitcoin. Originality/value Previous research has empirically proved the importance of institutions’ quality for financial market development. This paper goes one step further and tries to empirically confirm the theoretical assumptions and investigate in detail the role of institutions in choosing servers in a particular country for Bitcoin trading.

show abstract

Crypto-assets, corruption, and capital controls: Cross-country correlations

Cited by 19 publications

References 4 publications

Cross-jurisdictional financial crime risks: what can we learn from the UK regulatory data?

Cross-jurisdictional financial crime risks: what can we learn from the UK regulatory data?

Perceptions on jurisdiction risk: a cross-country analysis

Crypto-asset market development: the role of country’s institutional quality

Contact Info

Product

Resources

About