Terrorism and Organised Crime, Financial Regulation and Non-Cooperative Countries : Inside the Black (List) Box

The risks of terrorism and of organised crime depend on the actual and potential diffusion of the Lax Financial Regulation (LFR) countries. The LFR country is a jurisdiction in which the features of the financial regulation increase the probability to offer money laundering services, utilised by the terrorist and criminal organisation. The paper tackles the issue theoretically and empirically. Lax financial regulation is modelled as an endogenous variable, determined by the policy maker cost-benefits analysis, depending on economic and institutional country variables, as the growth level, the role of the financial industry, the sensitivity to the international reputation effect, the absence of terrorism and/or of organised crime, the institutional attractiveness, the international degree of technical and political enforcement of sanction mechanisms. The empirical analysis, based on 130 countries data base, confirm the theoretical assumption that jurisdictions, characterised by scant resources, low GDP, foreign dependence in the offering of financial services and absence of terrorism and/or organised crime risks have greater probability to be or to become LFR countries. Furthermore, that probability increases if the country is a Commonwealth member and the level of democracy decreases. Finally, the same set of variables have no links with the probability to be an Offshore centre (OFC). Indications for designing international policies of prevention and combat terrorism and organised crime finance are consequently derived