The volume of money laundering in Iran's economy

Chapter One

Overview

1 - 1 Introduction

Program­ Economic planning requires knowledge of the general performance of the country's economy. But in most countries, a part of economic activities is not exposed to economic policy makers. Therefore, one of the main concerns of the economic policy makers of different countries is to face activities that remain out of the sight of official observers for various reasons and disturb the performance of the economy, and one of these activities is money laundering [1] (Arab Mazar Yazdi and Automahi, 2016).

From criminal activities with the aim of concealing the origin of cash or its amount, origin and ownership in order to avoid detection and prosecution of criminal activities or evidence of illegal activities. Money laundering is a three-stage process: the first stage requires severing any direct connection between the crime and the proceeds from it, the second stage is to hide the traces of the money to escape prosecution, and the third stage is to return the proceeds of the crime to the criminal in such a way that its origin, method of acquisition and geographical location cannot be traced. Many channels can have a bad effect on the structure of society and destabilize the economic system. This phenomenon can weaken the rule of law, reduce security, domestic and foreign investments, and by increasing the costs of the society and the government to deal with it, it causes a decrease in the government's investment in various fields of education and health, thereby depriving the society of the benefits of these types of investments. This phenomenon can affect the level of society's consumption through the transfer of purchasing power from victims to criminals. When the financial resources are transferred from the victims to the criminals, the way of spending the money will be different from the way it used to be. Money laundering involves the purchase of real estate assets, jewelry, art and luxury items so that the money does not attract the attention of financial supervisors (Bartlett [2], 2002). While the victims spend this money to buy their consumables and save for their days of need (Walker [3], 1995). As a result, the industries that produce the essentials of society face a decrease in demand due to money laundering, and the industries that produce expensive and luxury goods face an increase in demand. The effect of this decrease and increase in the demand for luxury and essential goods leads to consumption distortion and causes inefficient allocation of resources and reduces the overall well-being. Because identifying the different dimensions of this phenomenon and carefully examining its effects can help to deal with this phenomenon more effectively. In this regard, the current thesis seeks to investigate the effect of money laundering on consumption in the Iranian economy during the years 1358-89.

1-2 The necessity of conducting research

During the process of money laundering, proceeds from criminal activities are placed in legal channels and apparently purified and cleansed; A process that leaves irreparable effects on the political, economic, social and cultural structure of society. Estimates of the scope and amount of money laundering in the world show that the volume of money laundering is greater than the GDP of many countries in the world (5% of the world's GDP per year) (Forwarda [4], 2012), so it can be easily accepted that if funds from criminal activities can enter a financial system through conscious or unconscious actions, that system will cooperate with the activities of organizations. A criminal is killed, which at the same time calls into question the reputation and credibility of that country. Money laundering brings significant economic, social and political harmful effects to societies, among which we can mention the instability of financial markets, people's distrust of the financial system, forced and unwanted changes in the demand for money, drastic changes in exchange rates and interest rates, weakening of the legal private sector and reduction of government income, which has made conducting research and developing comprehensive laws to combat money laundering an undeniable necessity..

1-3 study period

The study period is from 1358 to 1389.

1-4 research questions

This dissertation seeks to find answers to the following questions:

1. What is the volume of money laundering in Iran's economy?

2. Is consumption in Iran's economy affected by money laundering? 1-5 research limitations Money laundering is a hidden variable with multiple causes and effects, the transient nature of this phenomenon makes its study difficult. Among these problems is the lack of scientific resources used, as well as the lack of information needed to estimate the volume of this phenomenon. 1-6 Research Methods In this research, the unit root test is used to check the stationarity of the time series in the model. After checking the stationarity of the variables, the maximum number of breaks is determined by the researcher based on the number of observations. In the next step, using the statistical package Amos Graphic [5] and the method of multiple indicators - multiple causes, the amount of money laundering and its effect on consumption in Iran's economy has been estimated. In the model of multiple indicators - multiple causes, which is a special form of structural equation modeling[6], it makes it possible to use multiple causes and multiple indicators for modeling at the same time to estimate the hidden variable with time series data.

In this method, the factors that create the volume of money laundering and the indicators that can be used to measure this type of economy are determined by an econometric model. They are connected to each other. These types of models imply the structure of the empirical covariance matrix (based on the data), which is compared with the covariance matrix that the selected model gives after estimating the parameters, and provides information about the relationships between the observed variables and the hidden variable by minimizing the difference between the sample covariance matrix [7] and the predicted matrix [8] by the model. If these two matrices are stable relative to each other, then the structural equation model can be considered as a possible description for the relationships between the tested variables. 1-7 How to collect data and information In the present study, statistical data was collected from the economic reports of the Central Bank and the statistical yearbooks of the country. 1-8 Summary

Money laundering is an attempt to change the shape of proceeds from criminal activities with the aim of concealing the origin of cash or its amount, origin and ownership in order to avoid detection and prosecution of criminal activities or evidence of illegal activities. On the one hand, this harmful economic activity strongly affects the economic and political situation of the countries, and on the other hand, it threatens international peace and security. In the 21st century, the expansion of globalization and the connection of financial and capital markets has increased the scope and expansion of this complex phenomenon. Money laundering has negative effects on various elements of a society's economy, therefore, identifying the various aspects of this phenomenon in order to deal effectively with it is absolutely essential, but despite the importance of this issue, not only in Iran, but also in other countries, the literature in this field is very limited and the discussions are general and theoretical. Therefore, in this thesis, this issue, that is, the estimation of the volume of money laundering and its effect on consumption in Iran's economy, has been investigated.

Chapter Two

Theoretical foundations and previous studies

2-1 Introduction

Economic management in the complex world of modern technologies and in the midst of the emergence and growth of the phenomenon Globalization has a special importance in the economic dimension; A stable and stable management with established laws, whose main task is the wise governance of the economic structure and exchange systems and the protection of the boundaries and limits of the economic borders. In the meantime, what validates and emphasizes the health and strength of economic management are the ways and methods that, on the one hand, guarantee the health and dynamism of the economy, and on the other hand, prevent the occurrence of unhealthy behaviors and ultimately the formation and governance of the underground economy[1].