All change on cash? Tackling money laundering through cash transaction limits in France

Written by Mary Munford on Friday May 6, 2016

A good way to get an eye-catching headline these days is to carry out some research predicting the death of cash, now that we are all abandoning notes and coins in favour of smartphone apps, contactless cards and mobile payments.

A quick Google search brings up a couple of recent predictions of when the death of cash might occur – 2025 (the UK’s Lloyds Bank) or 2030 (technology organisation IEEE), for example.

Meanwhile, according to the director of retail banking at DNB, Norway’s largest bank, with only 6% of its customers using cash daily – and much of the cash that is in circulation thought to be in the underground economy or involved in money laundering – it’s time to start the debate about phasing it out.

But look at issue another way. According to the European Central Bank’s (ECB) latest statistics, the number and value of euro notes and coins in circulation has been growing steadily over the last five years.

And according to the ATM Industry Association (ATMIA), which has members in 65 countries, including in Europe, the demand for cash is growing three times faster than economic growth. Last year, it analysed the amount of money in circulation in 30 countries – both advanced and developing – between 2009 and 2013 and found the average growth rate year-on-year rate was 8.9%, compared with just 3% for economic growth.

So it seems that reports of the death of cash have been at least slightly exaggerated. But if cash remains popular with consumers, it is even more so with criminals, money launderers and terrorist financers, who love its anonymity and flexibility.

The ‘raw material’ of crime

In its October 2015 report Money Laundering Through the Physical Transportation of Cash, the Financial Action Task Force estimated the amount of money involved as hundreds of billions of dollars globally.

It described cash as ‘the raw material of most criminal activity’ and warned that as anti money laundering measures around the world become even more stringent, money laundering through physically moving cash would become increasingly attractive to criminals.

Working on the assumption that cash is still with us for the foreseeable future, how can the authorities put hurdles in the way of those using money for illicit purposes?

Well, the ECB has just taken a fairly significant step, by announcing this week that it is to stop producing and issuing the €500 note, a popular choice for moving illegal proceeds around and in money laundering. The measure will be implemented towards the end of 2018; the €500 note will remain legal tender.

European action: Money Laundering Directives

The European Union’s Third Anti-Money Laundering Directive covers dealers in high-value goods, such as works of art, precious stones or auctioneers, so that they must carry out steps such as checking the identity of customers and keeping records of transactions when receiving cash payments of €15,000 or more.

The Fourth Anti-Money Laundering Directive, which the European Commission is urging member states to commit to implementing by the end of 2016, notes the vulnerability of large cash payments to money laundering and terrorist financing and with this in mind, has extended its coverage to cash payments of €10,000 or more.

Given the money laundering and terrorist financing risks inherent in cash, €10,000 might seem quite a high threshold and some EU member states, including France, have taken advantage of freedoms to adopt lower thresholds.

The picture in France

France has taken a very robust stance on cash controls, with a particular focus on combating terrorist financing. From 1 September last year, the ceiling on cash payments was cut significantly from €3,000 to €1,000.However,the limit for foreign visitors differs and is capped at €10,000.

From 1 January 2016, cash deposits and withdrawals totalling more than €10,000 – either in a single transaction or several smaller ones – must be automatically reported to the French financial intelligence unit Tracfin by the account holder’s bank.

From the same date, customers carrying out a foreign exchange transaction of more than €1,000, eight times lower than the previous threshold, have needed to provide ID.

‘Nickel’ accounts, opened with tobacconists – where customers can deposit and take out cash, and send and receive transfers –, are now included in FICOBA, the National Centralised Bank Accounts Register, a.

And plans have also been announced to more strictly limit the amount that can be credited to prepaid cards. and for retailers to verify the identity of non-French residents for transactions of €10,000 or more.

With France implementing such far-reaching steps to reduce the usefulness of cash to criminals, it is unsurprising that the country has also taken an active role been prominent in pushing for speedier action on the financing of terrorism at a European level.

France and Germany took leading roles at a February 2016 meeting of the EU’s Economic and Financial Affairs Council, which, among other measures, urged the European Commission to explore the need for EU-wide restrictions on cash payments above certain thresholds and to discuss with the European Central Bank the future of the €500 note, following concerns over its use in the financing of terrorism and crime more generally.

What does the future hold for cash?

The ways we pay are rapidly changing and the pace of innovation in technology means that what seems new and exciting now could well be regarded as old fashioned in just a few years.

The global focus on combating money laundering, the financing of terrorism, tax evasion and other financial crime is also likely to increase pressure to phase out cash as a key ‘raw material’ of crime.

At the same time, the efficiency, accessibility, anonymity and familiarity of cash suggest that it will be with us for some time to come, with convenience and flexibility balanced against stricter due diligence around larger transactions and the disappearance of high denomination notes.

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