No. 12 - The impact of anti-money laundering oversight on banks' suspicious transaction reporting: evidence from Italy by Mario Gara, Francesco Manaresi, Domenico J. Marchetti and Marco Marinucci

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April 2019

JEL Classificazion: G28, K23, L51, M21.
Keywords: Money laundering; Financial regulation; Economic crime; Banking.

We provide the first thorough investigation of the effect of anti-money laundering inspections on banks' reporting of suspicious transactions. We do so by using highly detailed data from the Bank of Italy and the UIF (the Italian anti-money laundering authority), which include information on i) on-site inspections by authorities and follow-up actions, and ii) the quantity and quality of suspicious transactions reports being filed by banks before and after inspections.

Through a difference-in-differences econometric analysis we find that inspections (notably when followed by some type of intervention by the authority) lead to, other things being equal, an increase in the suspicious transaction reports filed by banks.

Crucially, the effect is not limited to low-quality reports, as feared in the literature ('crying wolf' effect) but has spread to high-quality reports too. Authorities' oversight is thus shown to increase the quantity of information shared by banks without reducing its quality.