Following the Dirty Money: Does Bank Reporting of Suspicious Activity Pose a Threat to Drug Dealers?

Abstract

This article examines implementation of newregulations designed to suppress, detect, and prosecute money laundering. The new regulations require banks to report suspicions of client money laundering to the federal government. Previously, banks were simply required to report all cash transactions greater than $10,000. This article explores the new regime’s likely efficacy using ordinary least squares regression to test the significance of narcotics trafficking on state-level variation in bank suspicious activity reports, controlling for the general level of crime, economic indicators, population variables, and proximity to drug-smuggling routes. Narcotics trafficking activity and proximity to smuggling routes each predict significant increases in suspicious activity reports, which suggests an identifiable spatial link between narcotics trafficking and dirty money bank accounts. This suggests that following the dirty money trail may present authorities with a means to prosecute money laundering cases against drug dealers who are the beneficial owners of such accounts.