AML in Italy - Detecting banks under- and over-reporting suspicious transactions (November 27th, 2015)

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Source: Italian FIU web site (testo disponibile anche in italiano)

  • By Mario Gara and Claudio Pauselli

Issue no.4 - Looking at "Crying wolf" from a different perspective:an attempt at detecting banks under- and over-reporting suspicious transactions.
November 2015

Classificazione JEL: C25, G21, G28, K23
By estimating an econometric model, this study aims to assess, from a quantitative point of view, the flow of suspicious transaction reports (STRs) filed by Italian banks from each of the provincial districts they operate in. Regressors include (i) indicators of banks’ operational activities; (ii) measures of money laundering risk and (iii) proxies of economic activity, all of which at local level.
The analysis presents some technical challenges which are addressed by adopting a Negative Binomial setting, commonly used to model count data variables. In addition, observations are split into two sub-samples, according to each bank’s local scale of operation. Results show that the STR-filing strategies adopted by banks may be different from the ‘crying wolf’ approach, which is traditionally considered to be the most pressing threat to the effectiveness of anti-money laundering systems.
Furthermore, at a more operational level, the model provides a useful tool that supervisory authorities can deploy when checking the compliance of individual intermediaries with anti-money laundering reporting regulations.

Publication's text

  • Looking at ‘Crying wolf’ from a different perspective: An attempt at detecting banks under- and over-reporting suspicious transactions (pdf, 1.5 M, 28 pp.)

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