Cash and money laundering

Although privacy advocates often favour continuing a cash economy, it’s becoming clear that cash is heavily the place where bad things happen.

There are two ways in which cash is used in the black (and often criminal) economy. The first is as the basis of a barter economy — those involved buy and sell almost exclusively in cash, and their activities never get onto the radar of banks, taxation departments, or financial intelligence units. There’s not much that can be done about this, except that those who live in the cash economy usually have a lifestyle that’s much higher than their official income, so tax authorities might take an interest.

Cash is much more usable if it can be converted into electronic currency in banks. The number of ways this can be done is steadily diminishing. In Canada, banks and other financial institutions are required to report cash deposits above $10,000 unless they can show that they come from routine business activities (and there are quite specific rules about what this means). There are some loopholes, but not many and not big.

Australia has just taken steps towards banning cash deposits above $10,000 altogether. The uproar has been revealing.

One operator of an armoured car business complained to the media that he was moving ~$5 million a month in cash, about half from car dealers, and that this would ruin his business. The treasurer’s response was, roughly speaking, “Good”. (Businesses that sell transport already have quite strong restrictions about their cash activities in many countries.)

http://www.news.com.au/finance/economy/federal-budget/im-being-kicked-in-the-teeth-security-company-owner-says-10000-cash-limit-will-demolish-him/news-story/05c71552b8f5c63c6846b13335763063

Also in Australia, the proportion of cash transactions dropped to 37% by 2016, with a corresponding drop in the total value they represent. However, the ratio of physical currency to GDP is at an all time high; there is $3000 in circulation for every Australian.

https://www.smh.com.au/business/the-economy/we-re-turning-from-cash-but-demand-for-notes-has-never-been-higher-20180510-p4zegm.html

There are either some people with vast sums stashed under their mattresses, or this money is being used mostly by criminals. (Hint: it’s the latter.)

It’s no wonder that many countries are trying to be more aggressive about reducing the cash in circulation, mostly by removing high-denomination notes (because more value can be packed into a tighter space).

But it also seems clear that banks can’t resist to lure of large cash deposits, no matter how much they should. And as long as banks don’t tell them, country’s financial intelligence units can’t do a lot about it.

 

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