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EU: The Euro -- Special Problems For Money Launderers (Part 3)

  • Breffni O'Rourke

With the upcoming introduction of notes and coins for the euro common currency on 1 January, problems and opportunities arise for criminal groups holding money from illegal activities. The equivalent of billions of dollars is believed to be involved in both Eastern and Western Europe. Authorities in the European Union have been devising ways to prevent money launderers from using the euro launch to their own advantage. In the third and final story in our special series on the introduction of the euro, RFE/RL correspondent Breffni O'Rourke looks at "black" money issues.

Prague, 13 September 2001 (RFE/RL) -- If you had a suitcase full of money -- or indeed several suitcases full of money -- say, in a hard currency like the German mark, you might think that most of your troubles were over. In fact, they might be just beginning.

That's because the German mark, along with 11 other Western European currencies, is about to disappear. From 1 January, the notes and coins for the new common currency, the euro, will be put into circulation, and the German mark's notes and coins, after a two-month changeover period, will be withdrawn forever.

Now, if your taxes are paid up, and you've earned your suitcases of money through honest hard work, you can simply go to the bank and change your old money for crisp new euro notes. But what if the situation is not quite so clear? What if the money is "black," or undeclared income? Worse, what if the cash is from outright criminal activity, such as drugs, prostitution or trafficking in illegal immigrants?

The German Bundesbank, or central bank, has estimated that billions of German marks are being held by criminals in both Eastern and Western Europe. Experts believe that to avoid complications with the arrival of the euro, a lot of so-called "black" cash has been turned into assets -- such as luxury cars, jewelry and property -- so that it does not have to enter the banking system.

Much other money has been turned into dollars for the same reason. In fact, some economists believe that currency movements by criminals have even influenced the value of the euro. The common currency has been chronically weak against the dollar, and the theory goes that vast quantities of German marks have been changed into dollars in the last two years, contributing to the weakness of the new currency.

However, this theory is controversial and not all experts support it. The co-head of Deutsche Bank's Global Market Research Division, Ulrich Beckmann, is one of them. He told RFE/RL: "We think that this amount is not big enough to have influenced in any way the [euro] exchange rate movements we have seen recently, probably people have been starting to trade in that [crime-related] money, but the amount related to the total foreign exchange market volume is, I think, a rather limited one."

Be that as it may, banking rules inside the EU make it impossible to place large sums of money unnoticed into bank accounts. Where it does go into banks, EU rules specify that any deposit over a certain amount -- for instance, the equivalent of $10,000 -- must be reported to banking authorities. Christian Jacqier, the head of the financial crime unit at the Europol police organization, told RFE/RL:

"It is going to be up to the member states to decide what will be the threshold to report suspicious transactions, but most of the [EU] member states will have the same standard, and from a police point of view, on the police side, we are going to organize a kind of database to gather all information relating to money laundering, so it will be a big tool to help the [EU] member states to better combat money laundering during this period."

Jacqier says that closer general cooperation between the 15 EU states that are members of Europol is also important:

"In Europol, we are setting up a project to co-ordinate activity of the member states in this field, and we will be ready before the end of this year to have something operational on this subject."

Apart from its unofficial importance in a number of Eastern European countries, the German mark is the official currency in both the Yugoslav republic of Montenegro and the UN-administered Serbian province of Kosova. Monetary authorities in both areas have told RFE/RL that plans are in hand for a smooth changeover to the euro.

In Kosova, the head of the Banking and Payments Authority, Muhamed Bouaouaja, said that consideration is being given to setting up special exchange and banking facilities in remote areas to help populations there. He said:

"We expect that large amounts of cash are going to be brought into the banking system, and we are making ourselves ready to handle this."

Bouaouaja expressed particular worry about money laundering by Kosova's powerful mafia:

"Yes, we are very much worried about that, that is why there will be some limitation. We will not exchange more than 10,000 German marks. Beyond that, the money will have to be deposited in accounts in banks, and the [reporting] rule on money laundering will apply."

In Montenegro, the central bank says similar reporting provisions will apply. The bank's chief economist, Dragana Ostojich, says, however, that she does not expect attempts at money laundering to figure largely in the currency conversion. The bank's preoccupation is to be of service to Montenegrins and to keep money inside the republic. She said:

"The central bank is the monetary authority. We are not the Ministry of Internal Affairs. We do not have an intention to check on the origins of money. The ideas is that we should do the [currency] conversions for our citizens."

If the conversion to the euro has complicated the lives of criminals, it is also no doubt causing worries for those old-fashioned people who prefer stuffing their savings under mattresses, rather than to trust banks. They will soon have to begin the process of un-stuffing and transporting their cash to the banks.

If it is any consolation to such people, however, the euro might at least be easier to sleep on, in that it has been a notably "softer" currency than the German mark.