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dc.titleDo Warnings Change Behavior? Money-laundering, Grey-listing by the FATF, and Cross-border Financial Flows
dc.contributor.authorLagarda, Guillermo
dc.contributor.authorVerastegui Lira, Paulina
dc.contributor.orgunitInstitutions for Development Sector
dc.contributor.orgunitInstitutional Capacity of the State Division
dc.date.available2026-04-30T00:04:00
dc.date.issue2026-04-30T00:04:00
dc.description.abstractDoes Financial Action Task Force (FATF) grey-listing disrupt cross-border financial flows? The answer is not obvious. Grey-listing imposes no formal transaction restrictions, yet it can trigger compliance responses by financial institutions facing heightened regulatory risk and the prospect of future blacklisting. Identification is further complicated by anticipation, as firms may adjust during the evaluation process, attenuating observed changes at the time of designation. We combine banking transactions, balance-of-payments capital flows, and foreign-exchange data with complementary identification strategies to isolate the incremental impact of formal grey-listing. To address high-dimensional confounding and separate medium-run adjustments from announcement-driven dynamics, we pair Double Debiased Machine Learning estimates in a fixed-effects panel with a Regression Discontinuity in Time design that exploits the sharp publication timing of FATF decisions. Across approaches, grey-listing produces economically meaningful contractions in inflows: banking and capital inflows fall by 1.3--2.6 percent of quarterly GDP, while outflow responses are smaller and less robust. Regression discontinuity estimates corroborate these results, showing a 1.2--1.4 percentage point drop in inflows at the listing cutoff. Delisting triggers only partial recovery (40--70 percent), consistent with persistent frictions in correspondent banking relationships.
dc.format.extent81
dc.identifier.doihttp://dx.doi.org/10.18235/0014029
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Do-Warnings-Change-Behavior-Money-laundering-Grey-listing-by-the-FATF-and-Cross-border-Financial-Flows.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectCapital Inflow
dc.subjectCapital Flow
dc.subjectRating
dc.subjectGross Domestic Product
dc.subjectExchange Rate
dc.subjectMachine Learning
dc.subjectRegulation
dc.subjectCorrespondent Bank
dc.subject.jelcodeC14 - Semiparametric and Nonparametric Methods: General
dc.subject.jelcodeF21 - International Investment • Long-Term Capital Movements
dc.subject.jelcodeF36 - Financial Aspects of Economic Integration
dc.subject.jelcodeF38 - International Financial Policy: Financial Transactions Tax; Capital Controls
dc.subject.jelcodeG15 - International Financial Markets
dc.subject.keywordsFATF grey-listing;International Financial Regulation;Compliance;Correspondent banking
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01823
idb.operationRG-E2036
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