Despite preventative measures against bankruptcy fraud and money laundering, criminals are finding ways to exploit differing regulations in the United States and Europe. In a recent study, two UT Dallas alumnae examine the frequency and implications of bankruptcy fraud and money laundering. They also assess the degree of cultural and ethical differences between these acts in the United States and Europe, where the crimes are more prevalent.
“The lack of uniformity between the financial systems and their regulations makes a lot of room for criminals to participate in these illegal activities. If somehow the nations of the world were able to create uniformity within their financial systems and the way regulations work, it would eliminate a lot of the crime that is happening right now,” said co-author Brenda Limon.
The study found that while auditors and financial analysts are in the process of reducing bankruptcy fraud and money laundering, completely nullifying these issues may never be possible without a uniform structure of financial regulations.
The researchers analysed Hofstede’s cultural model and how it pertains to financial regulations between the U.S. and Europe.
“It was interesting to see the cultural differences across different nations and how they manifest in the policies and financial regulations,” said co-author Pamela Wong.
She added, “Specifically for the U.S., one of the dimensions is low power distance, which means Americans prefer an equal distribution of power amongst individuals. This is exactly why the U.S. has strong whistleblower protection against retaliation for people who speak out against corporations that commit these types of fraud.”
“We found this tendency to look for short-term results sometimes pushes people in influential positions to commit crimes, either money laundering, bankruptcy fraud or the manipulation of financial statements,” Limon said.
“Because they find themselves under pressure to show stockholders that the company is growing, or has closed a deal, that pressure instigates them to make the mistake of doing whatever it takes to get quick results.
“On the other side of the coin, the United States has been one of the most active in trying to create uniformity in the rules. They’re one of the countries trying to come up with regulations that fit not only their standards, but standards of other countries that are strongly tied to them financially.”
The study is published online in the International Journal of Arts and Sciences.