In a report to the European Parliament and Council on the viability of EU-wide cash payment restrictions, the Commission made three crucial observations.
1. Cash restrictions would have little effect on terrorist financing
Cash plays a major role in many terrorist activities, “offering anonymity and facilitating the ability to conceal not only illegal activities, but also ancillary legal transactions that could otherwise be tracked by law enforcement agencies,” the report points out. But according to the findings of a detailed analysis of recent terrorist attacks, restrictions on payments in cash would have had little impact on the capacity to prepare these attacks, especially given the “observed trend of the decreasing costs of terrorist attacks.”
The amounts of individual transactions are often even lower, and would therefore not have been impacted by restrictions. What’s more, many common transactions made in the preparation of recent terrorist attacks were done using traceable means (credit and debit cards, bank transfers, etc.) without raising any red flags.
2. Cash restrictions could be useful in combating money laundering but are of limited help against tax fraud.
The report notes that cash limits could be a useful tool in the fight against money laundering, of which cash transactions are normally the starting point. Despite the steady growth in non-cash payment methods and the changing face of criminality (i.e., the rise in cybercrime, online fraud and illicit online market places), criminal activities continue to generate profits in the form of large amounts of cash.
The fact that EU Member States have vastly different rules on cash limitations makes it easier for criminals to launder the proceeds of their operations as it allows them “to circumvent controls in their country of origin by investing in cash intensive businesses in another EU Member State with no or a lower control of cash expenditures.”
The differences in national cash restrictions also hamper the proper functioning of the internal market, leading to a displacement of turnover from countries with strict cash restrictions to those without, the study concludes.
On the flip side, there’s little evidence that EU-wide cash restrictions would help authorities in combating tax fraud:
While there is some correlation between the use of cash in an economy and the level of tax fraud, it seems that other factors also play an important role, which would explain the existence of outliers (such as Austria which has a low level of tax fraud but a high usage of cash).
Most forms of tax fraud deploy the non-cash system, helped along by multinational banks, accountancy and law firms firms, and the offshore shell corporations they help companies and individuals set up:
A significant form of tax fraud is conducted through non-cash transactions, with the fraud relying on complex legal structures and operations which are often of a multinational nature and which do not involve any use of cash. In these cases, a prohibition on payments in cash would be totally ineffective.
3. There is no appetite among the European public for EU-wide cash limits.
A public consultation by the Commission last year revealed that most Europeans do not want EU-wide limitations on cash payments. As the study points out, the main take away from the survey was that “a substantial majority (95%) answered negatively to the question, ‘Would you agree to the introduction of restrictions on payments in cash at EU level?’ This was a shared view between respondents, regardless of whether restrictions were in place or not in their own country of residence.”
Even more emphatic was the answer to the following question in the survey: “How would the introduction of restrictions on payments in cash at EU level benefit you, or your business or your organisation (multiple replies are possible)?”
In the curious absence of an explicit “not at all” option, 99% chose to respond with “no answer.” In other words, less than 1% of the more than 30,000 people consulted could think of a single benefit of the EU unleashing cross-regional cash limits.
In light of the survey’s results, the Commission acknowledges that “restrictions on cash payments is a sensitive issue for European citizens”, many of whom “view the possibility to pay in cash as a fundamental freedom, which should not be disproportionately restricted.”
“No Legislative Initiative Needed (At This Stage)”
In its final conclusions the Commission states it is not considering “any legislative initiative” on EU-wide cash restrictions “at this stage”, which should be cause for relief for EU-based cash lovers. Nonetheless, the Commission’s report is peppered with caveats, including this ominous statement at the end: “Considering the internal market aspects and the significance and sensitivity of such a potential measure, this matter requires further assessment.”
But its war on cash is not over. In May, EU Member States and the EU parliament ratified the Commission’s proposals to tighten cash controls on people entering or leaving the EU. These measures will enable authorities to impound “cash” below the traditional €10,000 threshold, “if criminal activity is suspected.” It also broadens the definition of cash to include precious stones, precious metals, and prepaid credit cards. As such, while the European Commission may have pressed the pause button on its war against cash within the EU, it appears to have expanded it at its borders. By Don Quijones.
The electronic-payments industry, which gets a cut from every electronic transaction, wants to kill cash. But wait… Backlash Against “War on Cash” Reaches Washington & China
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