The Economic Costs of Financial Crimes: A Global Perspective on Money Laundering and Tax Evasion

Abstract

This study analyses the worldwide economic repercussions of financial crimes, including money laundering and tax evasion, which together siphon $2–$5.2 trillion per year from the global economy, or 2–5% of global GDP. This research employs a qualitative secondary examination of data from international organizations, including the UNODC, FATF, and OECD, to identify direct costs. Specifically, it reveals that these organizations estimate yearly tax revenue losses of $500–$600 billion and $51.7 billion in anti-money laundering (AML) compliance expenses by 2028. Indirect costs encompass market distortions, diminished foreign investment, and inflationary pressures, with developing economies disproportionately impacted, incurring an annual loss of 3.7% of GDP ($88.6 billion) due to illicit cash flows. Advanced economies incur absolute losses of $750 billion due to laundered funds, whereas poor nations experience inhibited growth, forfeiting 1.5–2.5% of their annual GDP potential. The report identifies structural vulnerabilities, such as trade misinvoicing (83.4% of illicit flows in low-income countries) and inadequate institutional capacity, with only 27 of 34 OECD states fulfilling transparency norms. Notwithstanding international frameworks such as the FATF recommendations and the OECD's BEPS Project, enforcement remains inconsistent and is further complicated by technology deficiencies and jurisdictional arbitrage. The research highlights the capacity of AI and blockchain technologies to generate yearly savings of $3.13 trillion via improved detection; nevertheless, low-income countries invest less than 0.1% of their GDP in financial regulation. The global economic impact of financial crimes, such as money laundering and tax evasion, highlights the urgent need for improved international regulatory cooperation, increased transparency, and better data-sharing mechanisms among financial institutions. Policymakers should prioritize stricter enforcement, strong anti-money laundering frameworks, and inclusive tax policies to safeguard public revenue and uphold financial integrity worldwide.

Keywords: Money laundering, tax evasion, illicit financial flows, anti-money laundering compliance, global economic stability.

DOI: 10.7176/RJFA/16-6-03

Publication date: July 30^th 2025