Combating Anti-money laundering: does implementing the Financial Action Task Force recommendations bite ?

The Financial Action Task Force (FATF) focuses on combating money laundering. In February 2012, it codified its recommendations, “FATF Recommendations 2012”,consisting of a framework of measures and international standards to combat money laundering and terrorist financing. Once a country agrees to follow the recommendations, it has to come up with its anti-money laundering framework that can be assessed by FATF. We attempt in this paper to answer a simple question: is this working ?We look at a group of 8 African countries that in the period 2012-2020 have voluntarily agreed to implement these recommendations. Using a difference in difference methodology, we test whether suspected illicit financial flows measured through the trade gap methods decreases after the decision to implement FATF recommendations. Our results point to a reduction of the trade gap characterizing tax avoidance and/or trade based money laundering through exports over-invoicing.