Eric Seung Chul Lee

We provide the first comprehensive causal analysis of the economic impact of international anti-money laundering (AML) standards by leveraging the staggered timing of Financial Action Task Force (FATF) evaluations. Stronger AML policies lead to a 4% decline in bilateral trade, primarily in categories susceptible to trade-based money laundering, but this effect is reduced when trading partners' policies become more aligned. FDI increases by 8%. FATF assessments increase detection of money laundering cases by 37% but show no measurable effect on fraud or drug and human trafficking. Our findings highlight the benefits and costs of coordinating global anti-money laundering efforts.

Heterogeneous investor preferences over ESG issues can generate divergent portfolio choices and distort prices from fundamentals, especially in illiquid markets. We study this mechanism in the corporate bond market around the 30-by-30 Initiative, which increased the salience of nature as an issue. Mutual funds with high ESG ratings reduce holdings of bonds issued by nature-dependent firms with high biodiversity exposure, while no other investor does. Credit spreads of these bonds increase but reverse within a year. This reversal, no change in holdings or spreads around the initiative's cancellation, and no abnormal transaction volume, imply prices are distorted by non-financial preferences.