Eliminate high denomination, high value currency notes, such as the 500 euro note, the $100 bill, the CHF1,000 note and the £50 note. Such notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved. So says the former head of Standard Charatered Bank Peter Sands in a 64-page paper online. The paper, titled Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes, with Ben Weisman, Maja Sostaric, Alex Smith, Joel Smoot, Ofir Zigelman and Joel Mathur argues:
High denomination notes already play a very limited role in the legitimate economy. They account for a tiny share
of transactions and are used and held by a small, wealthier sub-segment of the population.
In the underground economy, the reverse is true. High denomination notes are the payment instrument of choice for those evading taxes, committing crimes, financing terrorism or giving or receiving bribes. Cash offers anonymity, leaves no transaction record and is universally accepted. High denomination notes are the form of cash which enable large sums to be paid, moved and stored with minimum cost and detection risk. From the criminals’ perspective, high denomination notes are far more attractive than bank transactions, Bitcoin, gold or diamonds.
Tax evasion undercuts the financing of public services and distorts the economy. Financial crime fuels and facilitates criminal activities from drug trafficking and human smuggling to theft and fraud. Corruption corrodes public institutions and warps decision-making. Terrorist finance sustains organisations that spread death and fear. The scale of such illicit money flows is staggering. Depending on the country, tax evasion robs the public sector of anywhere between 6% and 70% of what tax authorities estimate they should be collecting. Global financial crime flows are estimated to amount to over US$2tr per year. Corruption amounts to another US$1tr. Most of the effort to combat such illicit financial flows focuses on the perpetrators, the underlying criminal activities or on detecting illicit transactions through the banking system. Yet despite huge investments in transaction surveillance systems, intelligence and interdiction, less than 1pc of illicit financial flows are seized. In this paper we suggest a different approach, one that would complement existing policies and make them more effective.
By eliminating high denomination, high value notes we would make life harder for those pursuing tax evasion, financial crime, terrorist finance and corruption. Without being able to use high denomination notes, those engaged in illicit activities – the “bad guys” of our title – would face higher costs and greater risks of detection.
Visit http://www.hks.harvard.edu/centers/mrcbg/publications/awp.
