When Roberto Scarpinato, the mafia-hunting Italian magistrate, came to speak at the German parliament in October 2012, you could hear a pin drop in the committee rooms. He came to advise parliamentarians on how to reform money-laundering laws.
“Our information shows clearly that, for some years now, Germany has been one of the Mafia’s favorite places to invest its money,” said Mr. Scarpinato.
One theory says the country is a favorite money-laundering destination because Germans are still so fond of using cash. In 2014, just 18.5 percent of payment transactions in Germany were made with cards, less than any other E.U. country and compared to more than 60 percent in Britain, according to the European Central Bank.
But this may change if the Social Democrats have their way – at least for larger sums. The junior partner in Chancellor Angela Merkel’s coalition government is proposing to fight illegal transactions with an upper limit on cash transactions. In a position paper seen by Handelsblatt, the party proposes an upper limit of €5,000 (around $5,400) for cash payments. They also want to abolish the €500 note in the 19-nation euro currency zone.
“Limits on cash transactions would discourage foreign criminals from coming here to launder money,” says the Social Democrats’ paper. If sums over €5,000 have to pass through traceable bank transactions, laundering would be severely hampered, it adds.
Other European states have already imposed such restrictions. In 2011, Bulgaria was the first country to set a limit, restricting cash deals to €2,500. Italy followed suit a year later, with a radical limit of €1,000, although this was later relaxed to €3,000. Portugal is considering similar measures.
Some pundits have gone much, much further, predicting the end of all cash. John Cryan, the co-chief executive of Deutsche Bank, last week predicted that cash would disappear as a method of payment within 10 years.
Our information shows clearly that Germany has been one of the Mafia’s favorite places to invest its money. Roberto Scarpinato, Italian magistrate
Money laundering – transferring the proceeds of illegal operations into the legal economy – is a very widespread phenomenon, with experts estimating that some €50-60 billion is “laundered” every year in Germany. Only about 1 percent of that figure, they think, is picked up by law enforcement.
It isn’t very hard to launder large quantities of cash in Germany, said Sebastian Fiedler, deputy chair of the Federation of German Detectives. He mentioned the used-car market, the art market, horse-trading and the jewelry business as areas with widespread laundering. This was why he supported a general upper limit, added Mr. Fiedler.
Limits could also make terror financing more difficult. Attacks like those in Paris in November can be staged with a relatively low capital investment, according to French Finance Minister Michel Sapin. In the wake of the attacks, Mr. Sapin promised to fight against “any form of anonymity in financial flows.”
The Christian Democrats, or CDU, Ms. Merkel’s party and the senior coalition partner, reacted more coolly to the Social Democrats’ proposal.
“Of course money laundering is a problem,” acknowledged Ralph Brinkhaus, deputy leader of the CDU parliamentary group. “But on the other hand, we already have many laws covering this, and we cannot over-regulate people’s freedom.”
Cash has been favored in Germany partly because of the country's troubled past, which has made its citizens fiercely protective of their data and skeptical of government oversight. Mr. Brinkhaus warned that a restriction on cash transactions might be viewed as a step towards total surveillance. “That could lead to Big Brother,” he said.
The federal finance ministry responded in more moderate terms. “When it comes to upper limits on the use of cash, we are in favor of a common European solution,” said a spokeswoman for the ministry. That would get rid of the patchwork of national regulations currently in place, she added.
The real test will come in the next few months, at talks on implementing the so-called Fourth E.U. Anti-Money-Laundering Guidelines. Cash limits are not the only measure the Social Democrats are proposing.
“We want to abolish the €500 note. It plays almost no role in day-to-day commercial transactions,” Jens Zimmermann, a Social Democratic member of parliament's finance committee, told Handelsblatt.
Even today, retailers generally don’t accept the note: it is only of interest to criminals, money launderers and cash smugglers, Mr. Zimmermann said.
It isn’t hard to launder cash in Germany – take a look at the used-car market, the art market, horse-trading and the jewelry business. Sebastian Fiedler, Deputy Chair, Federation of German Detectives
Mr. Fiedler of the Federation of German Detectives is absolutely in agreement. “If you want to smuggle cash, then you want to reduce the physical volume as much as possible,” he said. In the United States, the $500 bill was abolished back in 1969 for this very reason, he noted.
And yet, it's not up to Berlin. The Social Democrats know very well that the German government cannot abolish the €500 note. Only the European Central Bank can. The party's report therefore pushes for the German government to press on a European level to abolish the large denomination note.
The central bank might consider to abolish one particular note, but some claim that restrictions on cash may not be legal. Member states and the European Union may not have the power to restrict the legal monetary instruments laid down in European Union's founding treaties. Helmut Siekmann, author of a legal commentary on the E.U. currency union, said he sees no legal basis for laws barring transactions over a certain limit.
But it may not be necessary to pass any laws. In many developed countries, banks are already making cash transactions difficult for their customers. In Sweden, most bank branches will no longer accept or pay out large amounts of cash. The largest American bank, J.P. Morgan Chase, has stopped allowing customers to store cash in deposit boxes.
Germany may be going the same way. Although few make explicit restrictions on cash, it is increasingly difficult and time-consuming to withdraw cash.
Perhaps John Cryan, the chief-executive of Deutsche Bank, is onto something. Even in Germany, cash might one day no longer be king.
Frank Drost is a Handelsblatt Editor in Berlin, covering financial supervision and banks. Christopher Cermak of Handelsblatt Global Edition contributed to this story. To contact the author: [email protected]