The Determinant of Money Laundering: Evidence from Italian Regions
Following the INTERPOL’s definition, money laundering is: “any act or attempted act to conceal or disguise
the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources”. Illegally
obtained funds are laundered and moved around the world using front companies, intermediaries and other money
transmitters. In this way, the illegal funds remain hidden and are integrated into the legal economy. Such type of crime
undermines financial institutions’ and jurisdictions’ reputation, compromises investors’ trust in them, and therefore
weakens the entire financial system. By using annual data for the Italian regions (NUTS-2) over the period 2008 to 2015,
this work aims to investigate the determinants of money laundering in Italy. Given the high heterogeneity in terms of
economic and institutional characteristics, as well as for the activity of organized crime in financial-related activities,
Italy is a compelling case study. Our main findings reveal that in most of the Italian regions enforcement activities do
exert significant deterrence on criminal behaviors: a negative relationship between enforcement and illegal trafficking of
waste can be identified only for very high levels of enforcement efforts. Moreover, we find that the major determinants
influencing the rate of money laundering differ between northern-central and southern regions, confirming the existence
of a regional dualism. In particular, while in the northern-central area the crime rate is positively related to the level of
corruption, the incidence of mafia-type crimes and negatively to the education attainment, in the southern regions money
laundering is positively related to the size of the gaming and gambling sector.