The effects of auditing and reporting standards and country‐level governance on money laundering: A cross‐country analysis

• Published date: 01 August 2024
• Author: Mouna Baccouri,Dorra Talbi,Asma Hakimi
• Date: 01 August 2024
• DOI: http://doi.org/10.1002/pa.2935

RESEARCH ARTICLE

The effects of auditing and reporting standards and

country-level governance on money laundering:

A cross-country analysis

Mouna Baccouri

1,2

| Dorra Talbi

1,3

| Asma Hakimi

4

1

Department of Accounting and Finance,

Higher School of Economic and Commercial

Sciences in Tunis, University of Tunis, Tunis,

Tunisia

2

MOCFINE Laboratory, Manouba University,

Tunis, Tunisia

3

FCF Laboratory, University of Tunis EI Manar,

Tunis, Tunisia

4

Department of Accounting, Higher Business

Studies Institute at Carthage, University of

Carthage, Carthage, Tunisia

Correspondence

Dorra Talbi, Department of Accounting and

Finance, Higher School of Economic and

Commercial Sciences in Tunis, University of

Tunis, Tunis, Tunisia.

Email: dorra.talbi@essect.u-tunis.tn

This study explores how strength auditing and reporting standards (SARS) and

country-level governance interplay to reduce money laundering. The empirical study

is based on a panel dataset of 109 countries, over the period 2012–2019. To test our

hypotheses, relevant statistical techniques are used to enhance the robustness of the

models. The empirical results reveal that the interaction between SARS and country-

level governance affect significantly and negatively money laundering. Additionally,

through dynamic analysis we found that SARS and country-level governance affect

jointly Money laundering level, which confirm the complementarity between the two

mechanisms. Money laundering is a worldwide phenomenon that threatens the sta-

bility of economies. Consequently, the regulatory bodies and international organiza-

tion should improve auditing and reporting standards as well as governance practices

at different levels (macro, micro, and mezzo).

KEYWORDS

corruption, country-level governance, financial sector performance, illicit activities, money

laundering, strength of auditing and reporting standards

1|INTRODUCTION

Governments, legislators, financial institutions, and other authorities

around the world face a major problem in preventing money that sup-

ports illicit activities from entering through legitime financial system

and to be mixed with legal economy (AlQudah et al., 2022). The

phenomenon is not recent, in earlier years it was categorized as a

white-collar crime since it was committed by respectable and affluent

persons. However, academics have categorized money laundering as a

financial crime since it now involves funds obtained from a variety of

illicit activities, such as terrorism, tax evasion, prostitution, bribery,

corruption, and others. Subsequently, the best way to counter the

financing of criminal activities is to take appropriate and precautionary

actions to stop money laundering (AlQudah et al., 2022). Money laun-

dering is a sophisticated financial crime that threatens the stability of

economies worldwide (AlQudah et al., 2022; Ofoeda, 2022).

According to Tiwari et al. (2020) money laundering literature can

be classified on six research streams: (1) Anti-money laundering (AML)

framework and effectiveness (Norton, 2018; Pol, 2018), (2) The effect

of money laundering on other fields and the economy (Ravenda

et al., 2018), (3) The role of actors and their relative importance

(Benson, 2016), (4) The magnitude of money laundering

(Unger, 2013), (5) New opportunities available for money

laundering (Martin, 2014), and (6) Detection of money laundering

(Zhang et al., 2003). The present paper belongs to the first broad area.

In fact, little research has been conducted to detect measures that

countries should focus on to reduce financial crimes and then money

laundering. Despite the harmful effects of this practice, the number of

empirical studies on the subject is scare.

Previous research has examined the effectiveness of sanctions or

law enforcement in preventing financial crimes and money laundering.

However, there is no evidence testing the impact of country-level

governance (GOV) factors on money laundering. In order to maintain

economic growth and sustainability, it is important to have an effec-

tive GOV. Therefore, a strong framework for national governance

should be able to effectively moderate the economic interactions

Received: 4 October 2023 Revised: 18 May 2024 Accepted: 13 June 2024

DOI: 10.1002/pa.2935

J Public Affairs. 2024;24:e2935. wileyonlinelibrary.com/journal/pa © 2024 John Wiley & Sons Ltd. 1of10

https://doi.org/10.1002/pa.2935