The Money Laundering Market

• In Event: The markets of money laundering and of anti-money laundering

Abstract

Money laundering gives criminal proceeds an apparent legal source, or at least makes it difficult for an outsider to understand the link between the criminal, the crime, and the money. Once money is successfully laundered, money can be spent more freely. This makes money laundering a valuable service for a criminal with significant amounts of crime money. This paper makes an economic analysis of the illegal market for money laundering and argues that it is fragmented with many different forms of money laundering, each requiring different money laundering steps. High search costs, specialized money launderers, and trust issues lead to local monopolies. Criminals at some point really need money laundering services to spend their ill-gotten gains leading to inelastic demand. Local monopolies, inelastic demands, and poor information flows lead to relatively high prices for money laundering (see Nazzari & Favarin, 2024 for the best empirical overview of money laundering prices). Due to trust issues and two-sided asymmetric information, we can expect money laundering relationships to be less ephemeral than generally expected in illegal markets (Reuter, 1983). A good understanding of money laundering markets can improve policy and enforcement decisions and contribute to a more effective and efficient fight against crime.

Author

• Joras Ferwerda, Utrecht University School of Economics