TRANSPARENCY THROUGH EFFICIENCY: DOES FINANCIAL SYSTEM EFFICIENCY CURB FINANCIAL CRIME? A GLOBAL PERSPECTIVE

Abstract

Financial Crime has evolved into a global phenomenon, transcending borders and exploiting regulatory loopholes in an increasingly interconnected financial system. Financial crime, including money laundering, tax evasion, and other illicit activities, not only undermines national financial stability but also erodes public trust in institutions and hinders sustainable economic development. Sustainability has become a cornerstone of the modern era, ensuring that economic growth, social well-being, and environmental protection progress together without depleting resources for future generations. The current study uses panel data from 134 countries, including developed and developing nations, covering 2012 to 2023. Financial crime is treated as a dependent variable measured through the Corruption Perceptions Index (CPI), the shadow economy, and money laundering. The study also uses pooled ordinary least squares, fixed-effects, and generalized method of moments estimators to ensure robust results and address potential endogeneity. The results show that FSE is positively related to CPI, meaning that more efficient financial systems are associated with lower corruption. FSE is negatively related to both the shadow economy and money laundering risk, indicating that efficiency reduces informal activity and illicit financial flows. Among the controls, inflation is weakly associated with higher corruption, while population and economic growth show little influence. The findings suggest that efficient financial systems improve transparency, traceability, and accountability, which makes financial crime harder to conceal. The study contributes to the corporate governance and financial crime literature by providing global evidence across three complementary measures of financial crime. Policymakers are advised to combine financial sector efficiency reforms with strong regulation, supervision, and digital governance to curb corruption, informality, and money laundering. This study contributes to the growing literature on financial crime by offering a comprehensive cross-country analysis and providing policy-relevant insight. It underscores the need for policymakers to strengthen financial mechanisms, harmonize international standards, and leverage technological advancement to curb financial crime.