Compliance Moral Hazard and the Backfiring Mandate

ArXi:2604.21789v1 Announce Type: cross Competing firms that serve shared customer populations face a fundamental information aggregation problem: each firm holds fragmented signals about risky customers, but individual incentives impede efficient collective detection. We develop a mechanism design framework for decentralized risk analytics, grounded in anti-money laundering in banking networks. Three strategic frictions distinguish our setting: compliance moral hazard, adversarial adaptation, and information destruction through intervention.