JEL Classification: F36, G15, K33
Keywords: offshore financial flows; international money laundering; regulation.
We study the Italian cross border bank transfers that took place between 2007 and 2010.
The analysis moves from a gravity type of model to propose an empirical specification that allows us to describe the main determinants of cross border financial flows and to identify those flows that appear to be abnormally above the predicted value.
We examine the economic determinants of the flows in a comparative perspective between destination countries which are considered “risky” by the Italian Financial Intelligence Unit (UIF) and other countries and find, as expected, that the variables that are most related to the real economy — such as the volume of trade, the immigrants’ remittances and the tax rate applied to local businesses — matter less for flows to risky countries. We also find that, all things equal, financial flows to risky destinations are larger compared to other destinations.
A second part of the paper focuses on the analysis of the abnormal flows which we define on the basis of a ranking of the residuals from the main empirical specification. We find positive and statistically significant correlations between our index of anomaly and some proxies of illegal activity in the province of origin and between our index and other measures of riskiness and opacity of legislation of destination countries.