An Economic Analysis of Money Laundering

In 1984 the world was running a current account deficit with itself of US$100bn. The World Bank, the International Monetary Fund (IMF), the Organisation for Economic Co‐operation and Development (OECD), and the US Federal Reserve have all confirmed this observation. Given that world trade forms a closed system, the question arises of what caused the indicators that measure this trade to become so inaccurate. The observation that in the early 1980s the narcotics trade surpassed the petroleum industry to become the world's largest business activity by gross turnover provides a partial answer. Noting that the growth in the narcotics trade is merely one aspect of the unprecedented growth in organised crime and the illegal economy over the last two decades leads to a more complete answer. The implication is that criminal economic activity, which by its nature seeks to evade capture in statistics, accounts for a significant portion of global economic activity missed by standard accounting practices.