Estimates of Trade Based Money Laundering within the European Union

Abstract

This paper applies a Multiple Indicators Multiple Causes Model to benchmark trade-based money laundering (TBML) activity for 26 European Union member countries between 2005 and 2015. Results indicate substantial TBML levels in the region averaging between $0.9 to $1.8 trillion USD annually. Surprisingly, we also find that TBML is a complement to traditional money laundering activities. Policies focusing on deterring traditional money laundering and tax evasion are associated with reduced TBML activity in the region. Aggressive government attitude towards traditional money laundering and illicit drug trade, without effectively reducing the illicit proceeds, can deter the detection of money laundering and increase TBML.