EURO COUNTDOWN: e-day minus 50

Date: 12/11/1998

Americans fear euro will encourage crime

By Tim Jones

AMERICAN lawmakers are worried about the euro.

The prospect of a muscular competitor on the world currency markets is of less concern to them than the euro's perceived attractions to drug traffickers, mafia hoods, extortionists and big-time thieves.

The largest banknote issued by the US treasury is the $100 bill. In January 2002, the European System of Central Banks will begin circulating h100, h200 and even h500 notes; large-denomination paper money which Washington fears will prove irresistible to cash-rich criminals.

“Given the enormous popularity of large-denomination notes in the world underground economy, this constitutes a truly aggressive step towards seizing a larger share of the currency market for the euro,” claimed Princeton University economist Kenneth Rogoff in a recently published study for the Centre for Economic Policy Research.

“In attempting to exploit the global demand for large-denomination euro notes, Europe will be facilitating tax evasion and illegal activities at home,” he added.

Rogoff pointed out that although consumers and legitimate businesses in the 29-nation Organisation for Economic Cooperation and Development tended to stick to small-denomination banknotes, 60&percent; of OECD money supply was held in the form of bills worth more than $100.

Surveys show that an average American family uses low-denomination bills, yet the number of $100 bills in circulation totals 36 per family. Why? Rogoff believes that it is because more than half of OECD paper cash is circulating within the underground economy.

Last month, US treasury official Gary Gensler told Congress that his department was opposed to issuing $500 banknotes given its conviction that this would facilitate the transportation of large amounts of 'black' money.

Representatives of the treasury's Financial Crimes Enforcement Network (Fincen) have promised to raise their concerns with EU officials at the annual convention of money-laundering law-enforcement officers in London next week (17-18 November).

But the European Commission insists that the Americans' fears are unfounded.

“The Rogoff view that the h500 note will be a godsend to criminals is not really borne out by what evidence we have,” said one official. “Research in France and the Netherlands suggests that a lot of large-denomination notes are used either for hoarding purposes, maybe for tax evasion, which suggests that it is 'grey' rather than outright 'black' money.”

Europe already uses big-value notes. Germany issues a 1,000-mark bill and the Netherlands a 1,000-guilder note, the very reason bankers agreed to a h500 banknote in the first place, and the Swiss a 1,000-franc bill.

“Certain trades and businesses use them,” said the Commission official. “For example, the second-hand car trade in the Netherlands and Germany prefer the big bills as they are more secure than cheques, and French livestock sales have traditionally been carried out with 500-franc notes.”

Some politicians have also warned that when national currencies are swapped for euro notes and coins between January and July 2002, criminals are likely to use the opportunity to launder huge amounts of dirty cash while bank tellers are too busy to carry out the normal statutory checks.

Under European law, bankers are obliged to demand proof of identity from new customers when their transaction exceeds 15,000 ecu, especially when they are opening an account, and to report suspected money laundering.

British Socialist MEP Glyn Ford recently called on the European authorities to take what he described as a “unique opportunity” to seize their illicit funds, claiming that organised criminals were already switching into sterling to avoid arousing suspicions in January 2002.

In July, the Commission announced plans to tighten up a 1991 directive on money laundering. This would extend the scope of the law to cover more than just drugs profits and require reports on transactions not just from banks but also from casinos, auditors, real-estate agents and even lawyers.

Commission staff are also keen to cajole national financial intelligence units - the agencies to which banks report suspicious transactions - into cooperating with each other more closely and swapping data.

“These stronger safeguards will be all the more necessary with the single currency,” said Internal Market Commissioner Mario Monti.

Alan Beverly, a banking expert in Monti's Directorate-General for the internal market (DGXV), told a conference last week that the fears of a money-laundering explosion after January 2002 were exaggerated.

“We hope the banks will continue to be as vigilant as they are now,” he said. “The rules of the directive will apply as much in 2002 as they do now and we do not believe that criminals would be so stupid as to wait until then and then send troops of shady-looking people into the bank carrying holdalls full of cash. They have the whole transition period.”