The effects of public governance and national culture on money laundering: A structured equation modeling approach

• Published date: 01 December 2022
• Author: Anas AlQudah,Ahmed Bani‐Mustafa,Khalil Nimer,Abdullah D. Alqudah,Mostafa E. AboElsoud
• Date: 01 December 2022
• DOI: http://doi.org/10.1002/pa.2796

RESEARCH ARTICLE

The effects of public governance and national culture on

money laundering: A structured equation modeling approach

Anas AlQudah

1

| Ahmed Bani-Mustafa

2

| Khalil Nimer

3

|

Abdullah D. Alqudah

4

| Mostafa E. AboElsoud

5,6

1

Department of Banking and Finance,

Yarmouk University, Irbid, Jordan

2

College of Engineering, Australian College of

Kuwait (ACK), Kuwait City, Kuwait

3

Collage of Business Administration, Gulf

University for Science and Technology (GUST),

Mubarak Al-Abdullah, Kuwait

4

Internal Audit Department, Jordan Securities

Commission (JSC), Amman, Jordan

5

Faculty of Commerce, Suez Canal University,

Ismailia, Egypt

6

Faculty of Business Administration,

Economics & Political Science, The British

University in Egypt, Cairo, Egypt

Correspondence

Anas AlQudah, Department of Banking and

Finance, Yarmouk University, Irbid, Jordan.

Email: anas.qudah@yu.edu.jo

In this study, we investigate the role of public governance in mediating the impact of

a country's culture on money laundering. We assess whether interference in the form

of public governance can reduce or offset cultural effects with respect to the risks

associated with money laundering across 92 countries over a 6-year period

(2012–2017).

Design/methodology/approach: This research uses structural modeling to examine

the direct path between culture and money laundering, and the indirect path

between culture and money laundering that passes through public governance as a

mediator. We use Hofstede's cultural variables as a proxy for measuring culture, and

Worldwide Governance Indicators (WGIs) to measure public governance in different

countries. The Basel anti-money laundering index is also used as a proxy for measur-

ing money laundering risk.

Findings: Our results show that public governance fully mediates the relationship

between culture and money laundering. The direct path shows a significant relation-

ship between culture and money laundering, but this relationship becomes insignifi-

cant when public governance is introduced as a mediator.

Originality/value: This study indicates that governments can reduce money-

laundering risk by paying more attention to the quality of public governance and its

potential as a tool in reducing money laundering.

KEYWORDS

culture dimensions, Hofstede's cultural variables, money laundering, public governance, SEM,

structural equation model

1|INTRODUCTION

Preventing funds that support illegal activities from entering the legal

financial system and becoming part of the legitimate economy is a sig-

nificantchallenge for governments, lawmakers, financialinstitutions, and

other authorities worldwide. The phenomenonof money laundering has

recentlycaptured a great deal of attention globallybecause of the enor-

mous amount ofmoney involved, and to the damage the activities that

rely on this money can cause to an economy. Originating in the 1930s

and 1940s, money laundering had been classified as a white-collar

crime, as this definition included it as a crime committed by persons of

respectability and high social status (Sutherland, 1938). However, as

money laundering activities now involvemoney that results froma wide

range of illegal activities including terrorism, tax evasion, prostitution,

bribery, corruption, and others, researchers and scholars have

reclassified it as a financialcrime (Gottschalk, 2010).Moreover, Rusanov

and Pudovochkin (2021) argue that money laundering has taken a lead-

ing role in thestructure of modern crime. As a result, combating money

launderingis the most effectivemeasure to combat othertypes of crimi-

nal activity,systematicallyrelated to money laundering.

The factors and determinants that influence the level of financial

crimes and white-collar crimes in a society have been investigated

Received: 18 May 2021 Revised: 25 October 2021 Accepted: 8 November 2021

DOI: 10.1002/pa.2796

J Public Affairs. 2022;22(Suppl. 1):e2796. wileyonlinelibrary.com/journal/pa © 2021 John Wiley & Sons Ltd. 1of11

https://doi.org/10.1002/pa.2796