Developing a laundered funds destination theory: applying the Walker–Unger gravity model to US-based money launderer country preference from 2000 to 2020

Abstract

Purpose

Although economists and academics have studied money laundering for several decades, there continues to be gaps in the research due to a lack of reliable data on money laundering activity, and a lack of detailed sources and methods of collection in government-based reporting. The purpose of this study is to apply the Walker-Unger gravity model and examine US-based money launderer preference for the 2000-2020 time frame. This paper then compares those results with previous applications of the model and identifies trends, which may serve as the foundations of a money launderer preference theory. The results of the investigation ranked countries by preference of US-based money launderers and determined that there was consistency in country destination preference even during recessionary periods.

Design/methodology/approach

The Walker–Unger gravity model as applied by Roman et al. (2021) is used to conduct the investigation, to maintain consistency in the application of the Walker–Unger model and further the objective of validating the attractiveness simulation. The model tests the predictive capability of the independent variables to establish the degree of attractiveness each country represents for the funds of US-based money launderers. A score is generated by the model, which is then used to analyze and interpret its significance in relation to all sampled countries.

Findings

Model results reveal the countries with the highest attractiveness for US-based money launderers during 2000–2020 were Australia, the Bahamas, Bermuda, Canada, Cayman Islands, Norway, Monaco, Puerto Rico, Switzerland and the USA. Model results show that over the two decades the proportion of money flow scores changed but not to a degree that would alter the country preference of US-based money launderers. US-based money launderers tended to use the same countries for their illicit financial activities, regardless of the state of the legitimate economy.

Research limitations/implications

One of the limitations of the model is that it does not show the effect of money laundering on legitimate economic activity.

Practical implications

The model results will give insight into the preferred destination of US-based money launderers and therefore frame one component of money laundering activities in the USA for the examined time period.

Social implications

A secondary objective of this study is to evaluate if any changes to US-based money launderer preferences occurred during the three most recent periods of economic downturn in the USA.

Originality/value

The model results will give insight into the preferred destination of US-based money launderers and therefore frame one component of money laundering activities in the USA for the examined time period. A secondary objective of this study is to evaluate if any changes to US-based money launderer preferences occurred during the three most recent periods of economic downturn in the USA. The periods chosen are the 2001 9/11 terrorist attacks, the 2007/08 global financial crisis and the COVID-19 pandemic.

Citation

Roman, J. and Schaefer, T. (2023), "Developing a laundered funds destination theory: applying the Walker–Unger gravity model to US-based money launderer country preference from 2000 to 2020", Journal of Money Laundering Control, Vol. 26 No. 3, pp. 640-664. https://doi.org/10.1108/JMLC-01-2022-0002