Impact of the introduction of the euro notes and coins on counterfeiting and money laundering activity.
On 1 January 2002 euro notes and coins will come into circulation in all EU member states except for the UK, Sweden and Denmark. On 28 February 2002, national currencies will cease to be legal tender. The physical introduction of the new currency, particularly the early dual circulation period of two months, will be open to exploitation by counterfeiters and money launderers, raising many issues which business communities across Europe will need to consider to avoid falling foul of the ‘euro crook'.
Counterfeiting has been seen by many as one of the largest risks associated with the introduction of euro notes and coins. Criminals will take advantage of people's lack of familiarity with the new currency and the possible lack of availability of the currency in the first few days due to logistical issues.
There have been cases reported in Italy where organised crime gangs have been printing fake euro bank notes and then convincing vulnerable people into exchanging their ‘no longer valid' lire for the new currency.
The EU has taken a number of measures in order to mitigate the counterfeiting risk:
The risk of counterfeiting should not, however, be seen in terms of the euro only. Criminals will wish to release remaining stocks of counterfeit national currency into the system before the end of the dual circulation period, after which only banks will exchange the old currency.
One of the main anti-money laundering measures used by banks is that of investigating unusual account activity. However, during the dual circulation period, banks will inevitably see unusual activity as high volumes of currencies are changed over and existing reserves of national notes and coins are reintroduced into the banking system. This provides the police and criminal authorities with an opportunity to identify illegally obtained funds. The question is whether they will have the resources to deal with the additional workload. Organised crime may exploit the potential overload.
In the longer term, the introduction of the euro will change the way criminals operate their money laundering schemes across Europe. The highest value note will be for 500 euros and will allow money launderers to move physical cash more quickly and more easily than previously.
In anticipation of the introduction of euro notes and coins, criminals and those with cash piles are using various devices to launder their remaining national currency stock by:
In Spain and certain other countries, the sale of gold coins and bars has increased substantially compared to last year, and transactions in both cars and houses have likewise increased.
It is also likely that during the dual circulation period a secondary or unofficial market in national currencies will develop for those afraid to use the banking system. This could be exploited by criminal elements.
After the introduction of euro notes there is a risk that in the absence of transaction costs – commission on the exchange of one currency to another – it will be easier for money launderers and other criminals to introduce euro notes to exploit the weakest link in the EU banking system. It is accepted that some countries have more effective money laundering reporting and disclosure measures than others. Once the funds are introduced it is relatively easy to transfer them to bank accounts in other jurisdictions.
During the dual circulation period customers can pay with the old national currency but must receive their change in euros. It is estimated that 15 billion banknotes and around 50 billion new coins will need to be issued during the changeover period. This will bring with it the following issues:
Effect on the UK
Many of the above risks will only be applicable to the member states introducing the euro. However, UK businesses should not be complacent. Banks, foreign exchanges and other businesses that accept foreign currency notes should ensure their staff are familiar with the new notes and exchange rates, otherwise criminals may see the UK as a soft touch.
Businesses that have subsidiary companies or branches in euro member states should ensure that they have considered the above risks and have properly planned how they will be minimised.
In addition, UK banks may be faced with an influx of local currency from those EU countries which are converting into the euro. In this way, money launderers and those who have evaded taxes will be able to secure their funds in sterling, putting off the day when they have to convert to the euro.
In summary, the introduction of the euro provides certain risks for consumers and banks, but also opportunities for law enforcement agencies. Of greater long-term concern is the ability of money launderers to target countries and financial institutions with the weakest anti-money laundering controls.