Does size really matter? : a study of banking sector size as it relates to money laundering and anti-money laundering enforcement
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- Master Thesis 
Money laundering has been a problem for governments ever since it began 4000 years ago in China. In recent years though, the problem seems to be spiraling out of control. When HSBC was sanctioned for money laundering in 2010, the amount they laundered, roughly $7 billion, seemed like a huge amount. In the years since, however, this sum has been eclipsed by greater sums allegedly laundered by Deutsche Bank and Danske Bank. Despite the best efforts of national and international regulators, money laundering continues to occur, and in doing so feeds a vicious cycle of organized crime and corruption. It is all the more surprising then that there has been no research into which types of economies are most vulnerable to money laundering: those with large banking sectors or those with small ones. Using three different estimates of money laundering, this thesis presents an empirical study of the relationship between the size of a country’s banking sector and the amount of money laundering estimated to be going on in that country. Additionally presented is an analysis of whether Financial Intelligence Units become more effective with higher funding levels. Results found that as the size of a country’s banking sector relative to GDP increases, estimated money laundering will, in turn, increase. However, when compared to absolute size, the link is much more tenuous. This signifies that countries more dependent on banking or financial services can expect more money laundering, and thus that the relevant authorities should place more of an emphasis on money laundering prevention and on enforcement of existing anti-money laundering regulations. The reason for this link could be due to connections between politicians and firms, or due to the systemic importance of financial services in countries whose GDP and employment figures rely on that sector. Regarding Financial Intelligence Units, it was found that no link exists between funding levels and efficiency, apart from efficiency as measured by Suspicious Transaction Reports. This could be due to the high development levels of the countries observed, as there exists a point of funding after which marginal returns will drop off.