Political Stability and Money Laundering Risk

The influence of political stability on financial crime remains a subject of ongoing debate. While stability is often associated with policy continuity, regulatory credibility, and more effective enforcement, an alternative view suggests that unstable democracies may outperform stable autocracies in curbing financial crime. Using panel data from 158 countries over the period 2012–2023, this study finds that political stability is associated with lower money laundering (ML) risk, even after controlling for the extent of democratic governance. With respect to moderating factors, democracy independently lowers ML risk, but its interaction with political stability is limited, suggesting that stability constrains illicit financial activity largely irrespective of regime type. Economic development emerges as a more decisive moderator: in high-income countries, political stability translates into more credible AML enforcement, whereas in low-income settings, its impact is constrained by weaker institutional capacity. Legal origin exhibits weaker moderating effects, with political stability reducing ML risk across both common law and civil law systems. Overall, the findings highlight political stability as a key institutional determinant of structural Anti-Money Laundering (AML) vulnerability, underscoring the importance of strengthening governmental capacity to enhance the effectiveness of anti-money laundering frameworks.