The Economic Toll of Financial Crimes: Analyzing the $3.1 Trillion Impact on Global Markets

Abstract

The main aim of the study was to analyze the economic impact of financial crimes on global markets, with a particular focus on the estimated $3.1 trillion annual loss attributed to illicit activities such as money laundering, terrorist financing, and fraud. The study specifically assessed the financial and economic consequences of financial crimes on global market. The study adopted ex-post facto research design. Secondary data for the study were collected from macrotrends.com, Nasdaq Verafin 2024 Global Financial Crime Report, statista.com, the U.S. Treasury and other financial institutions reports over a ten year period from 2014 to 2023. The data were first descriptively analysed, after which Jarque-bera test was conducted to ascertain normality of the residuals. Ramsey RESET test was done to assess the linearity of the model. Breusch-Godfrey LM Test was used to assess Serial Correlation while Breusch-Pagan-Godfrey test was used to check whether the model suffered from heteroskedasticity. The hypotheses were tested using estimates from Ordinary Least Square regression since all the assumptions of the OLS model were met. Hence, the decision rule for the test of hypotheses was to accept the alternate hypothesis if the p-value is less than 0.05, otherwise, accept the null hypothesis. It was found that losses from financial and economic crimes negatively and significantly affected the global GDP (b = -6.146909; p-value = 0.0434). Thus, the financial and economic consequences of financial crimes are significantly detrimental to the performance of the global market. The study recommends that governments and international financial institutions should strengthen global financial regulations and improve cross-border collaboration to track and combat illicit financial flows by implementing stricter controls on money laundering, terrorist financing, and fraud that can reduce the economic distortions caused by financial crimes.