THE DIGITAL PARADOX: UNRAVELING THE NEXUS BETWEEN DIGITAL EFFICIENCY AND FINANCIAL CRIME IN THE GLOBAL CONTEXT

Abstract

With the rise of digital transactions, opportunities for illicit financial activity have expanded, underscoring the need for innovative strategies to combat financial crime. This study highlights the influential role of digitalization in financial crime. Financial crime is treated as a dependent variable, measured using three proxies (Corruption Perceptions Index, Shadow Economy, Money Laundering), while digitalization is treated as an independent variable measured through the E-Government Development Index. The study uses a fixed-effects model and generalized method of moments for panel data from 134 countries from 2012 to 2023. The study finds that digitalization enhancement significantly reduces financial crime in the sample region. Digitalization reduces opportunities for illicit activities, thereby discouraging corruption, the shadow economy, and money laundering worldwide. 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 digital mechanisms and harmonize international standards to curb financial crime.