Sometime ago when the euro was soaring, gangsta rap artist Jay-Z replaced greenbacks with euros in his music videos (see here for footage). They say life imitates art; and so it is now. An argument that previously struck me as an urban legend was that gangsters (criminals who can spell?) were ditching dollar for euro notes since €500 notes existed whereas only $100 ones did, making it easier to traffic in the former than the latter. Well, the Wall Street Journal has a new article that aims to put my apprehensions to rest. Yes, Virginia, it appears that criminal interest is, er, a legitimate explanation for the single currency's buoyancy:
Gangsters, drug dealers and money launderers appear to be playing their part in helping shore up the financial stability of the euro zone. That's thanks to their demand, according to European authorities, for high-denomination euro bank notes, in particular the €200 and €500 bills. The European Central Bank issues these notes for a hefty profit that is welcome at a time when its response to the financial crisis has called its financial strength into question.So word up, homies. Like me, the gangstas are down with Jean-Claude T--a "badass mofo" if there ever was one.
The high-value bills are increasingly "making the euro the currency of choice for underground and black economies, and for all those who value anonymity in their financial transactions and investments," wrote Willem Buiter, chief economist at Citigroup, in a recent research report. The business of issuing euro notes, produced at almost zero cost, is "wildly profitable" for the ECB, Mr. Buiter wrote...
By value, 35% of euro notes in circulation are in the highest denomination, the €500 bill that few people ever see. In 1998, then-U.S. Treasury official Gary Gensler worried publicly about the competition to the $100 bill, the biggest U.S. bank note, posed by the big euro notes and their likely use by criminals. He pointed out that $1 million in $100 bills weighs 22 pounds; in hypothetical $500 bills, it would weigh just 4.4 pounds.
Police forces have found the big euro notes in cereal boxes, tires and in hidden compartments in trucks, says Soren Pedersen, spokesman for Europol, the European police agency based in The Hague. "Needless to say, this cash is often linked to the illegal drugs trade, which explains the similarity in methods of concealment that are used."
UPDATE: LSE alum William Vlcek who is now lecturing at the University of St. Andrews dropped a note telling us to look at two BBC articles which he finds more informative than the WSJ one. First, the widespread use of this denomination for illegal purposes has resulted in UK authorities curtailing their availability here:
Exchange offices in the UK have stopped selling 500 euro banknotes because of their use by money launderers. The Serious Organised Crime Agency says 90% of the notes sold in the UK are in the hands of organised crime. Soca deputy director Ian Cruxton said 500 euros had become the currency of choice for gangs hiding their profits.Second, another article details a sting operation that prompted the ban:
The move means nobody will be able to buy the note in the UK - but travellers will be able to sell them if they enter the UK carrying them from abroad. There has been mounting international concern over the note, which is worth more than £400, and its use by criminals or tax evaders.
In some countries they're known as "Bin Ladens" - the banknote everybody knows exists but few, other than criminals, ever see. Now the 500 euro note is being withdrawn from sale in the UK.Money laundering centering on €500 notes is a game that's increasingly up in the UK. With the pound appreciating somewhat, hey, maybe it isn't too bad ;-) Gangsta, gangsta, it's not about a salary it's all about reality.
Like almost all organised crime, the breakfast cereal box plan was done with the minimum of fuss. Eftychia Symeonidoy stood outside a London apartment, casually holding the box under her arm. But instead of it containing the recommended daily amount of vitamins and minerals, it had been stuffed with 300,000 euros.
As the undercover team from HM Revenue and Customs secretly filmed her, an ordinary estate car pulled up and the box was handed to the driver. It was another consignment of laundered drugs cash safely delivered - or so the gang thought. Symeonidoy and the rest of the 13-strong laundering gang were all later convicted and jailed. The group smashed by HMRC investigators had taken £24m of dirty money from their clients in the criminal underworld - and returned "clean" euros.
Every month, they'd take in between £1m and £4m in cash - massive bags of sterling notes. They had so much of it, they had to stack it on sofas and in cabinets, and stuff it in bags in cupboards. The jailing of that gang was a major breakthrough for investigators - but it's only the tip of the money laundering iceberg which revolves around fake bureau de change and the 500 Euro banknote.