In addition, the ability to identify statistically the country and currency of issuance and the residency of deposit holders is key in understanding monetary behavior. The income distribution effects of money laundering must also be considered. To the extent that the underlying criminal activity redirects income from high savers to low savers, or from sound investments to risky, low-quality investments, economic growth will suffer. For example, there is evidence that funds from tax evasion in the United States tend to be channeled into riskier but higher-yielding investments in the small business sector, and also that tax evasion is particularly prevalent in this sector. Money laundering also has indirect macroeconomic effects.
Illegal transactions can deter legal ones by contamination.
For example, some transactions involving foreign participants, although perfectly legal, are reported to have become less desirable because of an association with money laundering. More generally, confidence in markets and in the efficiency-signaling role of profits is eroded by widespread insider trading, fraud, and embezzlement. And, money that is laundered for reasons other than tax evasion also tends to evade taxes, compounding economic distortions. Accumulated balances of laundered assets are likely to be larger than annual flows, increasing the potential for destabilizing, economically inefficient movements, either across borders or domestically. Policy implications Because money laundering has such extensive adverse macroeconomic effects, macro policies must play a role in antilaundering efforts.