Money Laundering Regulation and Bank Compliance Costs: What Do Your Customers Know? Economics and the Italian Experience

Abstract

The objective of this paper is to illustrate the link between the effectiveness of the anti‐money laundering regulations and the characteristics of the compliance costs involved for banks. The work is set out as follows. The next section describes the economic framework, which starts with the assumption that intermediaries have an advantage in terms of information and then demonstrates, by means of a principal‐agent model, how this advantage can produce collective gains in the war against money laundering only if the regulations take the problem of compliance costs into due consideration.