Working Paper: NBER ID: w19019
Authors: Svetlana Ledyaeva; Pivi Karhunen; John Whalley
Abstract: In this paper we analyze the link between corruption money laundering and round-trip investment via offshore jurisdictions utilizing Russian firm-level data. In particular we empirically explore location strategies of round-trip investors (namely, from Cyprus and British Virgin Islands) across Russia and compare them with the benchmark group of genuine foreign investors in Russia. We further study the determinants of the fraction of round-trip investment in total foreign investment in Russian regions. We find that round-trip investors tend to locate in more corrupt Russian regions than their genuine foreign counterparts and the fraction of round-trip investment is also significantly higher in corrupt regions. Taking into account that a large fraction of round-trip investment in Russia is concentrated in real estate and financial sectors, our results point to the conclusion that there is a strong link between round-trip investment and corruption money laundering.
Keywords: corruption; money laundering; roundtrip investment; offshore jurisdictions; Russia
JEL Codes: F21; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corruption levels in a region (D73) | likelihood of roundtrip investment (G11) |
| corruption (D73) | fraction of roundtrip investment (G11) |
| roundtrip investors (G11) | establishment of firms in regions with higher resource potential (R30) |
| better connections and knowledge of local authorities (R50) | exploitation of local resources by roundtrip investors (F21) |