Drivers of Suspicious Transaction Reporting Levels: Evidence from a Legal and Economic Perspective

Suspicious transaction reporting (STR) is a cornerstone of the international Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) framework. The evaluation of AML/CFT regimes is challenging, however, as the quality of STRs varies substantially between countries and little is known about the factors that drive STR. In combining legal and economic analyses, this article evaluates various factors that potentially explain STR levels. The analysis of the AML/CFT legislation in nine jurisdictions reveals that well-established legal and institutional structures promote the effectiveness of STR systems. In particular, the legal analysis shows that the scope of predicate offenses in national criminal law, as well as a penalty regime for non-compliance with the obligations under national AML/CFT legislation, seem to increase the quantity of STRs. Overly strict penalty regimes and insufficient training of entities with reporting obligations, on the other hand, likely stimulate over-reporting. Based on these findings, we econometrically investigate potential determinants of STR levels for 54 countries from 2006 to 2012. We find that high STR numbers indicate high levels of illegal activities such as terrorism and organized crime. Moreover, mutual evaluations of countries’ AML/CFT frameworks entail a short-term increase in the number of STRs.

Braun, Julia, Matthias Kasper, Alicja Majdanska and Maryte Somare (2016), Drivers of Suspicious Transaction Reporting Levels: Evidence from a Legal and Economic Perspective, Journal of Tax Administration 2(1) , 95-125