Hiding Filthy Lucre in Plain Sight: Theory and Identification of Business-Based Money Laundering

Proceeds from illicit activities percolate into the legal economy through several channels. We exploit international regulations targeting money laundering via financial sector to identify flows of “dirty money” legitimate establishments: business-based (BBML). Our variant monopolistic competition model embeds a drug cartel that channels proceeds an offshore investment and BBML. Tighter in one channel increase flow other. use research design links U.S. county business activity evolution anti-money-laundering Caribbean jurisdictions provide first empirical evidence phenomenon.