I’m not commenting on whether money laundering is good or bad. That’s not the issue. But what I am wondering is do we in the e-payment world accept the inevitable costs of tracking, tracing and monitoring when we should be arguing instead to be treated on par with cash? That is, no need track, trace and monitor below a certain level: let’s say 500 euros.
E-payment mechanisms naturally attract the attention of both criminals and regulators. The Drug Enforcement Administration, Immigration and Customs Enforcement and the Internal Revenue Services Criminal Investigation unit all say they have found pre-paid cards used for large-scale money laundering. And, of course, prepaid cards are also used to fund terrorism. You can see why the panic: drug dealers, to pick an obvious example, load cash onto prepaid cards and then send the cards across borders. But why? Why would they send a card rather than cash?
Suppose a bank caps the maximum balance on a pre-paid card at 500 euros in return for no tracking, tracing or monitoring. What’s the problem? The card product is now much cheaper to its legitimate users (eg, unbanked migrant workers, children, me) and the bank makes more money. The drug dealers are now worse off, because sending the card by airmail costs more than sending a 500 euro note (which has more acceptance points anyway).
Imposing stringent tracking and monitoring requirements on low-value e-payment schemes when no such strictures apply to banknotes is, in effect, another hidden subsidy to cash.
[Dave Birch] An article in last month’s Financial World (not available online) set me thinking. One of the key issues in designing new electronic payment systems is balancing the privacy of transaction counterparties (which may be a social good, even if neither of the counterparties cares one way or the other) with the legitimate requirements of law enforcement. But the article on Money Laundering says that the biggest recent boost to global money laundering is not hawala or pre-paid mobiles, but the euro. The fact that launderers can stuff 500 euro notes in their underpants, and zoom around Europe spending and depositing, helps them enormously.