Governance of money laundering: An application of the principal-agent model

Abstract

In this model we evaluate the strategy of the principal (international financial regime) by making laws and procedure and effectiveness of the network of money transaction to minimise transactions of money through the mechanism of money laundering. With the application of present value method of cost and returns to agents and clients, a payoff matrix is developed. The present strategy of the principal seems sub-optimal to involve informal agents and clients in anti-money laundering measures. Thus, there is a need to review the strategy for the involvement of informal agents and clients through further incentives.