Mitigating Financial Crimes: How Anti-Money Laundering Mechanisms Shape Bank Outcomes

Anas AlQudah; Natli Mazhar  Al Zoubi; Lara Al Haddad

doi:10.47654/v28y2024i3p79-105

Authors

Anas AlQudah Department of Banking and Finance, Yarmouk University, Jordan Corresponding Author
Natli Mazhar Al Zoubi Department of Banking and Finance, Yarmouk University, Jordan Author
Lara Al Haddad Department of Banking and Finance, Yarmouk University, Jordan Author

DOI:

https://doi.org/10.47654/v28y2024i3p79-105

Keywords:

Anti-Money Laundering, Bank Performance, Financial Crime, Jordan

Abstract

Purpose: This study examines the influence of anti-money laundering (AML) mechanisms on the financial performance of Jordanian banks, alongside assessing how macroeconomic and financial factors—such as inflation, GDP, bank size, quick ratio, and financial leverage—affect performance dynamics.

Design/methodology/approach: Using a descriptive-analytical approach, the research analyzes data from 12 Jordanian banks listed on the Amman Stock Exchange (ASE) from 2007 to 2021. Given the unbalanced nature of the panel data, fixed-effect models were employed to evaluate the relationship between AML indices, key bank performance metrics, and broader economic variables.

Findings: The results demonstrate a significant negative relationship between AML intensity and bank performance, indicating that stringent AML enforcement can impose short-term financial burdens. In contrast, liquidity (as measured by the quick ratio) and bank size positively and significantly impact profitability. Inflation was also found to significantly increase bank performance. Meanwhile, financial leverage displayed a negative but statistically insignificant influence on performance. These findings collectively illustrate the complex interplay between compliance obligations, operational characteristics, and macroeconomic conditions in shaping bank outcomes.

Research limitations/implications: The study focuses exclusively on Jordanian banks, and caution is advised when generalizing the findings to banks operating under different regulatory frameworks or economic systems.

Practical implications: The findings suggest that banks must carefully balance regulatory compliance costs with operational resilience strategies. Policymakers should consider frameworks that support banking sector stability without imposing excessive burdens on institutions, particularly smaller banks.

Social implications: Effective AML measures not only protect financial institutions but also foster public trust and contribute to the overall health of the financial system.

Originality/value: This paper provides comprehensive empirical insights into the intertwined effects of AML compliance and macro-financial factors on banking sector performance within an emerging market context.

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