Portuguese Anti-money Laundering Policy: a Game Theory Approach

Abstract

The fight against money laundering has taken centre stage in the global arena. The European Union (EU), in line with various international organizations, plays an active role in the fight against this crime and promotes anti money laundering directions to its member states. The statistics regarding Portugal (a member of the EU since 1986) indicate that it lags behind most of the EU members in terms of reporting of suspicions of money laundering. This paper adopts a game theory approach to study the efficiency of the combat against money laundering in Portugal, both with regards to the financial and the non financial sector of the economy. Additionally, the paper studies the impact of the increase of sanctions, as recommended by the 4 th Directive 2015/849 of the European Parliament and of the Council of 20 th May of 2015, on that combat. The results show that the low probability of the institutions being caught (and fined) for not complying with their reporting duties, coupled with the low conviction rates for money laundering crimes, justifies the reduced number of suspicious transactions reported. The findings highlight that an increase of sanctions, on both financial and non financial institutions, would tend to augment the efficiency of the combat against money laundering in Portugal.

A professional money laundering scandal; a narrative-based exploration of undocumented foreign workers in a large construction project

“…It is critical that these professionals be identified and prosecuted to eliminate the strategies used to disperse and conceal illicit funds (Jayantilal et al , 2017). The criminal network linked to the same money launderers may be shattered as a result of this, assisting in the reduction of money laundering (McCarthy et al , 2015).…”

Efficiency of Money Laundering Countermeasures: Case Studies from European Union Member States

“…16-17): placement, layering, and integration. The first stage of money laundering is the most risky, because of the proximity of the true identity of income, with the possibility of being detected by the authorities (Jayantilal et al 2017) because it involves the introduction of illicit profits in the financial system (The World Bank and Schoot and Allan 2003;Jaara and Kadomi 2017). Stratification indicates laundering and disguising the illegal source through several transactions (Demetriades and Vassileva 2020), and in the last stage, integration, funds or revenues are reintroduced into the legal economy (Teichmann et al 2020).…”

“…The first step in this direction was initiated in 1988 at the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substance, Vienna Drug Convention (Tiwari et al 2020), through which a definition of the crime of money laundering was issued. Subsequently, in 1989, the Financial Task Force on Money Laundering was formed, which initially had responsibilities consisting of the analysis and development of methods to combat money laundering, and now is developing its mandate to include counter-terrorism actions and is issuing recommendations for combating these crimes (Jayantilal et al 2017).…”

Sigma ratings: adapting the credit rating agency model for the anti-money laundering world

“…A game theory approach suggests that people and organisations involved in the instance of money laundering can be represented within a "game" like scenario, where avoidance of detection and the rewards for doing so are counterbalanced by the penalties that have been developed. Not only does this apply to the criminal entities who must launder their money before they spend it, but to the banks who have to weigh up the costs of non-compliance, or at least a reduced level of compliance, against the financial recompense of being involved in the $1tnplus marketplace (Jayantilal et al, 2017). This is not to say that banks wilfully partake in money laundering of course, because for one they have the potential reputational impact on top of any regulatory impact to consider, but the costs of compliance may be too high against the lack of any recompense for diligent compliance.…”