EU Governments’ Pro-Cash Agenda Increases Money Laundering Risks

People who still prefer to pay in cash are often overlooked in today’s digital world. 

But Europe seems to be bucking that trend and in 2022, several governments have moved to legally protect the rights of businesses and consumers to transact in physical currency.

Perhaps unsurprisingly, those countries furthest in their journey toward a cashless society were the first ones where governments had to intervene to ensure effective cash distribution.

For example, following years of lobbying by rural groups and consumer associations, the Swedish government stepped in to protect people’s access to cash services and stem the tide of bank branch and ATM closures in 2020.

Following Sweden’s example, in April of this year, the Dutch central bank announced that 23 organizations signed a “Cash Covenant” to ensure that cash continues to function properly as a means of payment at the point of sale.

Elsewhere, the U.K. government has embedded similar provisions into the Financial Services And Markets Bill (FSMB). These will give banks a mandate to ensure their customers who prefer cash are sufficiently served while granting regulators new powers to enforce the rules.

In anticipation of its expanded remit to protect access to cash, the Bank of England recently put out a consultation on how it intends to implement its new powers.

For their part, nine of the U.K.’s biggest retail banks incorporated a new nonprofit company called Cash Access UK earlier this month to promote the development of shared banking hubs across the country.

In addition to basic cash deposit and withdrawal services, these shared banking hubs provide more advanced financial services to communities that don’t have easy access to a physical bank branch.

Aside from consumers’ ability to access cash when they need it, there is also the issue of how open merchants are to cash payments.

In Spain, for example, the General Law for the Protection of Consumers and Users, which entered into force in May, makes it illegal for retailers to refuse cash as a means of payment.

Meanwhile, in Italy, the government has moved to give merchants the right to decline digital payments on transactions under 60 euros.

However, following criticism of the policy from the country’s central bank shortly after revealing the plans, the government was forced to make a U-turn on the issue.

The Risks of the Cash Economy

While Italy may have pulled a 180-degree pivot on the question of fines for merchants that decline cards, the second pillar of the government’s pro-cash agenda remains intact. 

As things stand, Italy is set to raise the upper limit on cash transactions from 1,000 euros to 5,000 euros, a move that the central bank has said risks boosting the “shadow economy” and takes the country in the opposite direction to many of its EU peers.

For example, the Netherlands is set to ban cash payments over 3,000 euros in a bid to clamp down on money laundering. 

In fact, the assumption that large cash transactions are connected to money laundering and general criminality is deeply embedded in EU economic orthodoxy.

The European Central Bank has already stopped issuing 500 euro notes, citing concerns that “this banknote could facilitate illicit activities.”

One study by Harvard University researchers writes that high denomination bank 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.”

That report observes that 500 euro notes worth $1 million weigh just 2.2 kg. This means that the $5 million dollars worth of cash can fit into a standard 15-liter briefcase, far more than the equivalent value in $100 bills.

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