Law & Econ AML Spring 2013
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Transcript of Law & Econ AML Spring 2013
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International Tax & Financial ServicesGraduate Programs
19 years online - serving international financial service professionals and government regulators
Prof. William H. Byrnes, IVAssoc. Dean, Graduate & Distance Programs
Law & Economics Workshop
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Two Topics
Models
Typologies & Trends
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Part I: Survey of Models
Currency Demand Approach Pricing Approach
Multiple Indicators Multiple Solutions (MIMIC)
Measurement of Crimes Model
Newton’s Law of Gravity applied to ML
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Research Part II: Predictive Model
Neural Networkings
Concept Mapping
Evolutionary Programming (Generic Algorithms)
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Typologies & Trends Part I
Securities
Trade Based
Counterfeit Trade
Sports Clubs (and Equestrian)
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Typologies & Trends Part II
Child Pornography & Human Trafficking
Government Contracting / Bribery / PEPs
Internet Based Market Systems – Amazon, E-Bay, Second-Life & World of Warcraft
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Crime Specific Estimates
PROCEEDS OF CRIME ×PERCENTAGE LAUNDERED
= MONEY LAUNDERED
NUMBER OF CRIMES ×MONEY LAUNDERED PER RECORDED
CRIME= MONEY LAUNDERED
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Measuring a Black Hole
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MIMIC Model to Measure ML
y = aML + e (1)
ML= b’x + c(2)Where y = effects and x = causesML= unobservable variable
CAUSES (X)Crime / Bank
Secrecy
Effects (Y)Demand for $ Growth Rates
UnobservableMoney Laundering
(ML)
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Newton’s Law of Gravitation
Attractive Force Fij = G* Mi*Mj/(Dij) 2
Fij = the attractive force between objects i and j
Mi = mass of object iMj = Mass of object jDij = Distance between object i and object jG = Gravitational constant
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Tinbergen’s Formula
Fij = Rj * Mi*Mj / Dij θ
Rj has replaced the constant G fromNewton’s gravity formula. Rj represents sets of alternatives for importers.M represents economic mass (GDP)
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Walker Model: Subjective Calibrations
per country & bi-lateral
Fij/Mi = Attractiveness j /Distance ij2
BS Bank Secrecy GA Govt Attitude CF Conflict CR Corrupt Fij/Mi = (GNP/capita)j * (3BSj+GAj+SWIFTj-3CFj –CRj +15)/ Distance ij2
Rich Developed Countries
$
Pakistan(drugs)
Netherlands
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Unger’s Calibrating Revisions
Attractiveness = (GDP/capita)*(3BS+GA+SWIFT+FD-3CF-CR-EG+10)
Distance DIST = language+3*colonial background+3*trade+physical distance
BS = Bank SecrecyGA= Govt AttitudeCF = Risk of Conflict CR CorruptionEG – EgmontFD = financial deposits for market size
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Modified Walker (Unger)
P = proportion of money from X to Y
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Walker Model: Results
bi-lateral
E14.5 NL + E4 E18.5 (5% NL GDP)
Antilles, Spain, Turkey,
Colombia
Netherlands
USA, Russia, Italy, Germany, UK, France
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Topic 1: II – Predictive Modeling
• Neural Networks
• Concept Mapping
• Evolutionary Programming = Genetic Algorithms
http://amlsample.googlepages.com/Securities_and_Trade_ML.html
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Topic II: I - Typologies
• Securities
• Trade Based
• Counterfeit Trade
• Sports Clubs (and Equestrian)
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Topic II: I - Securities
If incidence of Opaqueness relative to Transparency; with higher Liquidity is an indicator for Launderer, then Securities
• GEM, AIM, B®IC
• Hedge Funds
• Audit firms, banks, law firms = $100B in tax losses = $T alleged w/o business purpose and w/o risk, IMAGINE what launders can do…
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Topic II: I – Trade Based
Transfer Pricing
L.A. goods hP a USA
Dump (harm market price& higher risk detection)
Smurf purchases to avoid CTRs
Switzerland USA $31B
Russia USA $9B
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Topic II: I – Counterfeit Trade
• 2% - 7% of World Trade $200B - $650B
• CF currency
• CF goods perceived by BRIC as less harmful than drugs
This weakness in perception can allow substantial $ flows from other crimes
(B movie industry)
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Topic II: I - Equestrian
Equestrian > Hollywood Economic Impact = $25B / $100B indirect
# of Americans Involved = 7.1 Million# of Full-Time Jobs = 1.4 Million
# of Horses = 6.9 Million
Total Taxes Paid = $1.9 Billion
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Topic 2: II - Trends
• Child Pornography & Human Trafficking
• Government Contracting / Bribery / PEPs
• Internet Based Market Systems
• Amazon & E-Bay
• Second-Life (Direct) & World of Warcraft (3rd Party)