Volume of exchanges could provide cover for money laundering

Date: 11/01/01

IT WOULD be a supreme irony if Europe's crisp, virginal new banknotes were used to launder billions of euro of dirty money.

Yet, as E-Day approaches a year from now, that is what the Organisation for Economic Cooperation and Development's untouchables fear. The OECD's financial action task force (FATF) on money laundering is worried that the dual-circulation window will allow criminals to "introduce illegally derived funds by hiding them among the expected higher volume of operations involving exchanges of national currency for the euro".

This will not just be internal euro zone cash. The deutschemark is one of the world's great stores of value; of the 130-billion euro worth of marks in circulation, as much as 40% is held in other countries - especially in Central and East European countries and the Middle East. For two months next year, it will be possible to go to the bank and swap these marks for euro.

Law enforcement officers in one unnamed Nordic state warned the FATF that it might see an overall increase in the volume of cash in circulation prior to 1 January 2002 with an influx of Russian-held US dollars exchanged for euro.

National groups fighting organised crime have been on the alert since 1998, when the euro timetable was finally settled, leading to a tightening-up of a nine-year-old directive against laundering and stronger law-enforcement cooperation within the Council of Europe.

The 1991 law introduced an obligation for banks to report transactions they considered suspicious and set criteria for identifying customers. But reporting was limited to laundering of proceeds from drug trafficking.

The revised directive covers the proceeds of all organised crime and widens the reporting obligations to investment firms, bureaux de change and money transmission services.

Professions required to look out for laundering include lawyers, accountants, and investment specialists in high-value goods such as precious metals or stones. Identification is required for any transaction involving €15,000 or more - including money in linked transactions.

FATF members generally thought this would be enough to deal with straightforward cash-swapping laundering since "there was greater risk of detection for the launderer involved in such cash transactions" although "the increased volume of all activity during the changeover period might overwhelm financial institutions personnel and might make them therefore more likely to miss or disregard potential indicators of money laundering".

Indeed, French banks are already up in arms against a national law introduced four years ago which, they say, imposes strict liability on them for accepting dirty money even when they could have no idea it was unclean.

The greatest concern of the US authorities was the introduction of the high-value €500 note - approved because it was roughly in line with the highest-denomination mark note but an invitation to money launderers.

The US Treasury and Federal Bureau of Investigation were already uncomfortable with the high-value notes in Austria, Belgium, Germany and the Netherlands and hoped the euro transition could be used to scale down values.

In FATF hearings, even the German police admitted that kidnappers routinely demand that ransom money be provided in 1,000-mark notes.