Compliance Costs Research Articles

Article: The De Minimis Exclusions in the ATAD’s CFC Rules: A Normative Analysis

This study undertakes a normative analysis of the four de minimis exclusions in the controlled foreign company (CFC) rules of Article 7 of the European Union’s (EU’s) Anti-Tax Avoidance Directive (ATAD). In the EU, CFC legislation inherently restricts either the freedom of establishment or the free movement of capital. Case law from the Court of Justice of the European Union (CJEU) confirms that, for this restriction to be permissible, the scope of application of CFC legislation must be limited to only capture income from wholly artificial arrangements. First, this study evaluates the design of the four different de minimis exclusions in Article 7 against their stated objective to limit the administrative burden and compliance costs in order to ascertain their (relative) effectiveness. Second, the normative coherence of these provisions is evaluated in the context of the limited application – only to cases of abuse – of the CFC rules in the EU. The study finds that the de minimis exclusions pertaining to Model A (in Article 7(3)) are only effective to a limited extent in achieving their objective and could be redesigned to improve their effectiveness. Further, those pertaining to Model B (in Article 7(4)) are not normatively coherent in an EU context. Therefore, their inclusion cannot be justified, and it is recommended that they be deleted.

Does mobile government become an administrative burden for older adults?

PurposeThe study explores how mobile governance affects the administrative burden on older adults, focusing on learning, psychological and compliance costs.Design/methodology/approachUsing attribution theory, the research employs a quantitative research design, utilizing surveys to gather data from 516 older adults across three cities in China: Quzhou, Wuhan and Shanghai. The study examines how intrinsic factors and extrinsic factors of m-government interfaces impact older adults’ administrative burden.FindingsPerceived complexity increases learning, psychological and compliance costs for older adults. Personalization and high-quality information decrease these costs, enhancing user satisfaction. Visual appeal decreases anxiety and psychological costs.Originality/valueThis research links attribution theory with m-government’s administrative burden on older adults, offering new insights into optimizing m-government to serve older adults better.

Leveraging artificial intelligence in Regulatory Technology (RegTech) for financial compliance

Abstract. The rapid development of Regulatory Technology (RegTech) has introduced new methods to handle and simplify the compliance and regulatory issues surrounding financial services and products. Combining artificial intelligence (AI) with this trend is an effective way of strengthening financial services, making them safer and more convenient. The current AI technologies incorporated within RegTech applications improve the efficiency of compliance with rules and regulations, and contribute to the development and implementation of smart technology, including automated regulatory reporting, proven and trustworthy KYC processes, and reduced compliance costs. This paper presents the application of intelligent technology, such as machine learning, deep learning, natural language processing, and smart regulatory frameworks, to build modern, intelligent workflows, dynamically control policies, and instantaneously monitor transactions. We employ empirical economic data, evidenced by realistic case studies, to demonstrate the benefits brought on by intelligent technology to financial institutions, including quicker compliance with regulatory regimes, decreased operational risk, and increased transparency and accountability. Through analysing figures offered in various cases, we show the transformed compliance landscape created by RegTech, how it becomes a solution for the diverse challenges affecting financial sectors on a global scale, and how is it going to impact the whole field of financial services in the future..

Pollution Permits and Financing Costs

AbstractEffective environmental policy should consider how the financiers of polluting firms behave. We study phase III of the EU Emission Trading System. Loan spreads for cap‐and‐trade participants are a function of compliance costs, permit market features, and firms’ strategic actions. In contrast with the program intentions, we find that loan spreads fall by approximately 25%. We show that this decrease is almost entirely driven by low permit prices, the firms’ proactiveness to store permits, and imperfect foresight of market conditions in phase III. The drop in spreads cannot be explained by the decline in energy prices and/or other confounding factors.

Does Government Environmental Concern Affect Enterprise Sustainable Development? Evidence from China

As the executor and agent of China’s environmental policy, local governments’ environmental concern reflects local governments’ determination in environmental governance. To figure out how the strengthening environmental concerns affect enterprises’ long-term activities, this study focuses on pharmaceutical manufacturing enterprises due to the enormous and complex composition of emissions. We apply bag of words to summarize relevant environmental words from the annual work reports in local governments to measure environmental concern. The empirical results of the OLS method reveal that the increasing environmental concerns of local governments did decrease the growth rate of chemical oxygen demand (COD) emission authentically. At the same time, it will inhibit the research and experimental development (R&D) activity intensity, but promote production efficiency of pharmaceutical manufacturing enterprises. After that, we discuss the heterogeneity of enterprise ownership, corporate social responsibility and regional regulatory strength of enterprises. Overall, we conclude that environmental concern did reduce COD emission and promote production efficiency, but it also has negative spillover effects. The novel contribution of this paper is that it enriches the trade-off between strengthening environmental compliance costs and long-term production and innovation activities. These results indicate that pharmaceutical manufacturing enterprises prioritize optimizing existing production processes instead of adopting efficient technology when complying with stricter environmental regulation. The reduction of R&D activities may pose risks to the long-term sustainable development of enterprises.

Compliance with anti-money laundering laws and their impact on banking operations in Pakistan: banking expert’s opinion

Purpose Despite sound anti-money laundering (AML) regulations and membership in the financial action task force, money laundering remains a severe concern faced by Pakistan because of its weak AML regime. This led to an investigation of the perceptions of banking expert’s regarding the AML law’s costs and complexity, mapping of compliance cost and measures taken by Pakistani banks in compliance with AML laws. Design/methodology/approach A socio-legal study approach was adopted based on library-based, and interviews using social media platforms to treasure the experts’ opinions regarding the impact of AML laws on baking operations in Pakistan. A semistructured interview-based questionnaire was handed out to Pakistani banking officers. Findings The findings revealed that, for banks to meet the AML obligation, they must overcome challenges including cost and complexity. Nevertheless, these costs are less expensive than the penalties assessed for noncompliance. Practical implications Following AML regulations can help the banking industry grow, which, in turn, attracts more foreign investment by boosting consumer confidence. However, it is difficult and expensive to comply with these requirements. The current research hopes that the financial regulatory authorities of Pakistan will adopt more effective measures for efficient compliance with AML laws. Originality/value The impact of compliance with AML laws on banking operations in Pakistan was examined in this study for the first time using banking officers’ opinions from various banks best of author’s knowledge.

Analysis of changes in HSBC’s income statement between 2022-2023

The banking industry is a cornerstone of the world wide economy, primarily due to the unique nature of its primary product—money. This sector has long held a central role within society and continues to attract considerable interest from potential investors. However, investing in the banking industry is not without its challenges. Market volatility, regulatory compliance costs, and geopolitical uncertainties can profoundly impact the industry’s profitability and stability. Being among the biggest banks in the world, HSBC provides financial services such as personal banking, wealth management, and corporate finance in over 60 countries. This is an excellent example of an analysis of the banking sector. The essay lists changes in HSBC’s income statement between 2022 and 2023 and analyses them using vertical and horizontal analysis, ratio analysis, segment reporting analysis, and benchmarking. Through these analyses, the essay aims to see HSBC’s capacity to face banking crises and provide a few suggestions for investors.

Normative Study of Law No. 27 of 2022 on the Protection of Personal Data and its Impact on the Fintech Industry in Indonesia

The enactment of Law No. 27 of 2022 on Personal Data Protection marks a pivotal moment in Indonesia’s regulatory framework, particularly for industries that handle significant amounts of personal data, such as the financial technology (fintech) sector. This study provides a normative juridical analysis of the PDP Law and examines its impact on the fintech industry. The research focuses on the law’s key provisions, including consent requirements, data breach notification, and data security obligations. Additionally, the study explores the operational challenges fintech companies face in complying with the law, such as the costs of compliance, technical requirements, and the need for employee training. While the PDP Law enhances consumer trust by offering greater protection and transparency, it also presents hurdles that fintech firms must overcome to ensure compliance. The analysis concludes with recommendations for fintech companies to balance legal obligations with innovation to maintain competitiveness in Indonesia’s evolving digital economy.

Blockchain evolution, artificial intelligence and ferrous metal trade

This study examines the impact of blockchain technology and artificial intelligence (AI) on the trade volume of iron and steel in 20 major producing countries from 2005 to 2022. Using the FMOLS method, the results show that blockchain regulations reduce trade volumes by increasing transparency and compliance costs, deterring market participation. A 1% increase in AI robotics imports leads to a 0.296% decline in trade due to improved production efficiency. Economic growth and population growth, however, boost trade. A 1% rise in internet access reduces trade by 0.336% as digitalization enhances supply chain efficiency. Overall, blockchain and AI reduce extraction and trade volumes, supporting environmental sustainability. Policy recommendations include developing blockchain regulations, promoting green cryptocurrencies, and leveraging big data for sustainable practices in the ferrous metal industry.

The Entrepreneurial Impact of the European Directive on Corporate Sustainability Due Diligence

The European Commission’s Directive on Corporate Sustainability Due Diligence, adopted in 2022 and approved in 2024, mandates that companies identify, prevent, and mitigate hostile human rights and environmental impacts across their operations and supply chains, integrating sustainability into corporate governance. This article examines the directive’s influence on European entrepreneurial activity, ecosystems, and innovation using a qualitative descriptive literature analysis, comparative frameworks, impact assessments, policy recommendations, and case studies. Findings suggest that while the directive imposes compliance challenges and costs, particularly for startups and small and medium-sized enterprises, it offers significant long-term benefits, such as improved risk management, enhanced reputation, and market differentiation. The directive promotes accountability and ethical practices, harmonizing due diligence across the EU and fostering a culture of sustainability. It concludes that companies addressing these impacts can gain a competitive edge and attract sustainability-focused investors, necessitating support mechanisms for startups and small and medium-sized enterprises to mitigate burdens and encourage compliance.

What makes citizens participate in government data governance? A study based on Behavioral Reasoning Theory

This study seeks to examine the underlying mechanisms that shape citizens’ intentions to participate in government data governance. By uncovering the multifaceted determinants that facilitate or inhibit such participation, this study provides a theoretical foundation and methodological approach for future related research. Based on the findings, practical strategies to bolster citizen engagement in government data governance are proposed. An integrated higher-order reflective-formative model was constructed using the Behavioral Reasoning theory as a foundational framework. This model amalgamates the Civic Voluntarism Model, the Administrative Burden Theory, and the Ladder of Citizen Participation Theory. We employed PLS-SEM to analyze the influence of value orientation, attitude, participation, and non-participation reasoning on civic participation intention. Simultaneously, we explored the effects of six lower-order factors—motivation, resource, mobilization, psychological cost, compliance cost, and learning cost—on participation and non-participation reasoning. The study found that value orientation significantly and positively influences both participation reasoning and attitudes. Conversely, value orientation has a significant negative effect on non-participation reasoning. Participation reasoning positively impacts attitudes and the willingness to participate. Non-participation reasoning negatively affects attitudes and the willingness to participate. Motivation plays a crucial role in shaping a citizen’s participation reasoning. Compliance cost is also a key factor influencing citizens’ non-participation reasoning.

Sub-Optimal Compliance to Long-Term Inhalation Strategies and Poorer Health Care Outcomes Associated with Extended Tattoos in Adolescents with Mild-to-Moderate Bronchial Asthma.

Patients' compliance to inhalation therapy is usually sub-optimal in young asthmatics. Adolescents poorly compliant to regular anti-asthma treatments and those with tattoos (and the associated attitude) can share some personality traits and maladaptive behaviors. This relationship has not been investigated. To assess if "extended" tattoos can predict long-term compliance to regular therapy of adolescents with mild-to-moderate asthma. A 12-month retrospective observational investigation was conducted on non-smoker asthmatic adolescents of both genders. Patients assuming <70% of prescribed vilanterol/fluticasone furoate o.d. were defined as "non-compliant". Tattoo surfaces were defined as "mild" or "extended" if they were < or ≥400 cm2, respectively. The relationship between tattoos and compliance on the evolution of resources consumption at 6 and 12 months was assessed by generalized estimating equation (GEE) models at the first and second semester of the treatment period. It was found that 13.2% of compliant adolescents had mild tattoos, while 47.2% of non-compliant adolescents had mild-to-extended tattoos (odds ratio (OR) 6.91, 95% CI 2.49 to 19.17, p < 0.001). The mean annual adherence to treatment was 57.8% ± 10.1 SD expected doses in non-compliant subjects with "mild tattoos" (54.8 cm2 ± 36.9 SD), but 38.6% ± 11.4 SD expected doses in those with "extended tattoos" (568.4 cm2 ± 111.6 SD, p < 0.001). Total cost proved to be a linear trend from the lowest values of compliant patients with no/mild tattoos (EUR 65.22 at 6 months and EUR 33.63 at 12 months) to the highest values of non-compliant adolescents with extended tattoos (EUR 330.75 at 6 months and EUR 297.34 at 12 months). Tattoo extension might be used as a reliable predictor of poor compliance and higher health care costs in adolescents with mild-to-moderate asthma. Patients characterized by poor compliance to a long-term therapeutic strategy and tattooing attitude likely share some aspects of their personality profile.

Socio- Psychological Determinants, Compliance Cost and Value Added Tax Compliance

Socio- Psychological Determinants, Compliance Cost and Value Added Tax Compliance

Corporate Tax Enforcement and Business Activity

ABSTRACT We examine the consequences of corporate tax enforcement for business activity. Using two different empirical approaches—a regional design and a firm-level design—we document that corporate tax enforcement is negatively associated with business activity, as measured by establishments and employment. This association is economically significant and is robust to tests that mitigate concerns regarding endogeneity and measurement. Furthermore, we find that the negative association between tax enforcement and business activity varies substantially in the cross-section. Specifically, we find that it is weaker for regions and firms with greater access to external financing sources and is stronger for regions and firms where compliance costs are likely higher and for which the ex ante costs of tax enforcement are greater. Our findings suggest that the effects of tax enforcement on business activity are economically important and heterogeneous, which should be of interest to academics and policymakers. JEL Classifications: H25; H26; R11; R12.

Design, development and optimization of blockchain-based secure data management for nanotechnology in healthcare

The integration of nanotechnology in healthcare has brought about revolutionary advancements, particularly in diagnostics and therapeutics. However, managing the vast and sensitive data generated by these applications poses significant challenges, particularly concerning security, privacy, and regulatory compliance. This study explores the design, development, and optimization of a blockchain-based secure data management system tailored for nanotechnology applications in the United States healthcare sector. The proposed system leverages blockchain's decentralized and immutable ledger technology to enhance data security and privacy, ensure regulatory compliance, and improve overall system performance. Our implementation showed substantial improvements in data security, with an 86.67% reduction in data breaches and an 85% decrease in unauthorized access cases. Additionally, compliance with major data privacy standards like HIPAA, GDPR, and CCPA increased by over 20%. Performance metrics demonstrated robust scalability, maintaining high transaction speeds and manageable latency across various load conditions. Cost analysis revealed significant reductions in data storage, security, and compliance costs, highlighting the economic benefits of adopting blockchain technology in healthcare. Moreover, the system exhibited lower energy consumption compared to traditional data management systems, addressing environmental concerns. Correlation and scatter plot analyses provided insights into the scalability and performance dynamics of the blockchain system. These findings underscore the transformative potential of blockchain technology in addressing the data management challenges of nanotechnology in healthcare. The study concludes with recommendations for adopting blockchain to enhance data security, regulatory compliance, and economic efficiency in the U.S. healthcare sector.

한국의 대외 수출에 미치는 TBT와 미통보 기술 규제의 영향분석: 중력모형과 PPML 방법론을 통한 접근

This study investigates the impact of Technical Barriers to Trade (TBT) and unnotified technologies on South Korea’s foreign exports, analyzing the background and objectives. With the expansion of regional economic blocks such as FTAs, the EU, and NAFTA, the scope of non-tariff barriers, including TBT and Sanitary and Phytosanitary (SPS) measures, has broadened. These non-tariff barriers, often implemented for safety purposes like environmental protection, can increase shipping and compliance costs, imposing a burden on domestic industries. The main objective of this study is to quantitatively evaluate the effects of TBT and unnotified technologies on South Korea's exports across various industries from 1995 to 2022. To achieve this, we employ the gravity model, one of the most widely used models in explaining trade conflicts, alongside the Poisson Pseudo Maximum Likelihood (PPML) method, which is suitable for handling the complexities of trade data with zero trade flows. This approach enables a detailed analysis of the impact of TBT and unnotified technologies on export performance, disaggregated by objective and industry. The results reveal that while TBT has a positive effect in promoting exports, unnotified technologies have a negative impact. These findings highlight the importance of distinguishing between the two in international trade negotiations.

Evaluating the impact of AI and blockchain on credit risk mitigation: A predictive analytic approach using machine learning

In recent years, the integration of artificial intelligence (AI), blockchain technology, and machine learning has transformed credit risk mitigation strategies in the financial industry. This paper explores the practical applications of these technologies in identifying, assessing, and managing credit risk, with a specific focus on predictive analytics and decentralized frameworks. Through a comprehensive literature review and case studies, the research demonstrates how AI-driven algorithms, blockchain's transparent and immutable ledger systems, and machine learning models have enhanced the precision and efficiency of credit risk evaluations. Additionally, the study investigates how these innovations are being adopted by financial institutions to create more accurate credit scoring systems, reduce fraud, and optimize operational risk management. While these technologies hold great promise, challenges such as data privacy, regulatory compliance, and implementation costs remain significant barriers. The paper concludes with recommendations for overcoming these challenges and maximizing the potential of AI, blockchain, and machine learning in credit risk mitigation.

The trifecta against financial crime: A collaborative analysis of the roles of banks, consulting firms, and governments

The roles of banks, consulting firms and governments are intertwined in combating financial crime. Banks are on the frontlines as they process financial transactions and engage directly with customers. Banks are extraordinarily strategic because they interface with customers and are heavily involved in handling financial transactions worldwide. They watch accounts for any suspicious activity and report such activities to the legal bodies as expected under AML regulations. Consulting firms help banks, as well as other financial organizations to create various tools for evaluating threats and devising strategies for firms to conform to. They also do training in the area of financial crime prevention. Governments put in place measures in the form of legislation that seeks to prevent and curtail acts such as money laundering, financing of terrorism and tax evasion among others. Materials and Methods: The study’s literature was obtained from electronic databases. Only the articles that investigated the effectiveness and efficiency of anti-money laundering/counter-terrorist financing policies and regulations and/or sources that compared financial institutions’ cooperation with consulting companies and governmental agencies were included. Among the reviewed sources 53 from 1980 till 2023, which included academic books, journal articles, government and international organization reports. Results: The literature shows that relying on the regulation is inadequate for controlling finance related crimes. Banks have a profit-driven culture and it lacks scrupulousness towards integrity risks. For the same purpose, prescriptive regulations increase disproportionate compliance costs for small jurisdictions and financial institutions. Companies seeking risk management services get these from consulting firms that also profit from molding compliance frameworks. Syndication enables the employment of unique features possessed by each party. While the banks have an effective network and reach, the consulting firms can analyze data accurately, and the government has statutory power and control. Discussion: Shifting social norms are another driver: peoples’ behavior in financial markets today is a shift from that of even a decade ago and there is a need to address financial crime in a shared manner and increase cooperation at a global level. To put measures in place, the roles and responsibilities should be well defined based on strengths of each of the entities. Banks are also in good shape for transaction monitoring although they need some regulation to do so. Analyzing the motives for consulting firms, it is possible to state that the provision of technical solutions is possible only if there are factors that guarantee the transparency of actions. Governments provided the blueprint in achieving the proportionate, risk adjusted policies while leaving it to the private sector to drive the processes. This is because we have seen that financial globalization means that nations have to ideally move in synchrony. International agencies such as the UN, FATF, FSB, IMF and others have contributed to the development of international standards, whereas in national situations, the effects vary from one country to another. Conclusion: It can therefore be seen that no single entity can deal with such complicated concepts of transnational financial crimes in isolation. The utilization of the mandated strategies by banks, consulting companies and governments as essential collaborators in tandem with their core competencies is the most useful approach. This triumvirate, therefore, has great potential to add real value to anti-financial crime efficiency when properly aligned and adequately supervised in a manner consistently and holistically operationalized.

Digitalization and Automation and AI: A Theoretical Framework of rethinking the Pollution Haven Hypothesis

This theoretical paper investigates the impact of digitalization, automation, and artificial intelligence (AI) on environmental regulations, specifically through the lens of the Pollution Haven Hypothesis (PHH). It explores how these advancements influence pollution intensity and environmental compliance costs, challenging the traditional understanding of the PHH. Methodology. The study employs a Cobb-Douglas production function to model the relationship between technological innovations and environmental regulations. By integrating digitalization, automation, and AI into the model, the paper examines how these factors affect the economic incentives for firms to relocate to regions with lenient environmental standards. Findings. The analysis reveals that advancements in digitalization and automation reduce pollution intensity and lower the costs of complying with strict environmental standards. As a result, the economic incentive to relocate to pollution havens diminishes. In an open economy, the combination of stringent environmental policies and technological innovations leads to reduced pollution levels and a shift toward cleaner production processes. Practical Implication. The findings suggest that integrating technological innovations into environmental policy can make adherence to stricter regulations more economically viable, thereby weakening the appeal of pollution havens. This has significant implications for global sustainability efforts, as it highlights the potential for technology to support more effective and equitable environmental regulations. Originality. This study introduces a novel perspective by directly linking technological innovations to shifts in capital allocation and the efficacy of environmental policies. It offers a fresh understanding of the PHH in the context of modern advancements, providing new understanding into the relationship between innovation and environmental regulation.

Endowment effects, expectations, and trading behavior in carbon cap and trade

We explain agents' trading behaviors and market outcomes in the presence of endowment effects intensified by expectations-based loss aversion in carbon cap and trade. Building on Kőszegi and Rabin (2006)’s model with forward-looking reference points, we show how firms' concerns about high future compliance costs (through loss aversion and uncertainty) can cause a gap between Willingness-to-Pay and Willingness-to-Accept for allowances. This leads to limited allowance trading and deviation from the socially desirable paths. The problem can be exacerbated under a substantial proportion of free allocation, a fixed (or inflexible) cap as well as uncertain regulatory ambitions, particularly in emerging economies under a variety of uncertainty. Recognizing the regulator's role in dealing with firms' expectations (or concerns) and facilitating innovation investments, we discuss potential alternative systems (e.g., with auction and flexible supply) for decarbonization that incorporate flexibility in terms of innovation timing and realized costs.