I can’t remember
the last time I used cash. My bank statements show that I haven’t made a
withdrawal from a cashpoint in the last twelve months. That’s just as
well, since it’s significantly more of an effort to get hold of cash
than it used to be. Before the pandemic, there were seven cashpoints
within a five-minute walk from my house. All of them have now gone: the
four attached to banks disappeared when the branches closed, the two in
supermarkets were removed, the random one outside a building that used
to be a bank but is now a bar has also vanished. Nerds like to say that
the plural of anecdote is not data, but in this case, it kind of is,
since the general decline in the use of cash is a marked phenomenon
across the developed world, and especially in the UK. According to UK
Finance, the sector’s trade association, in 2009 cash was used in 58
per cent of all transactions. The figure today is 9 per cent.
Since fewer and fewer people are using banknotes, it follows logically
that fewer banknotes are needed, and therefore that fewer banknotes are
being printed and put into circulation. Right? Wrong. In the UK,
there is £1300 cash in circulation for every single one of us, but the
amount of cash we actually hold is one seventh of that figure. The value
of banknotes in circulation has been rising sharply for decades, and
not just in the UK. In 2005, the total value
of all the dollar bills in circulation was $759 billion. By 2015, it was
$1.38 trillion. Last year, it hit $2.395 trillion. As Kenneth Rogoff
put it in The Curse of Cash (2016), the
dumbfounding thing is that ‘no one quite knows where exactly most of it
lives or what it is used for.’ According to Oliver Bullough, in his
alarming and unsettling book Everybody Loves Our Dollars,
in 2022 the average American held $418 in cash, but there was $7357 of
cash in circulation for every American man, woman and child. That means
that a typical household of four represents $27,756 of missing cash, 80
per cent of which is in the form of the highest denomination US
banknote, the $100 bill. That is a hell of a lot of $100 notes
unaccounted for, especially when you bear in mind how seldom most people
use, or even see, a $100 bill. There are 1.552 trillion euros in
circulation, half of it again in the highest denomination banknotes,
€100, €200 and €500. (The €500 bill ceased printing in 2019, but is
still legal tender. Its nickname gives a clue to its main use: it’s
called the ‘bin Laden’.) In Switzerland, 90 per cent of the value of
outstanding cash resides in ludicrously valuable CHF 1000 banknotes – a single note is worth £943, or $1285.
So where is all that cash, who’s using it, and for what? The answer
proposed by Bullough is bizarre: nobody knows. ‘The number of banknotes
is increasing, and the question of why the value of banknotes has
increased so markedly remains unanswered.’ Central bankers don’t have
much interest in the question. It is immensely valuable for any country
to be able to produce currency that’s in worldwide demand: for the cost
of printing a few bits of paper, a developed economy receives billions
of dollars of value in pounds, dollars or euros. This is called
seigniorage, and central bankers are as keen as anyone else on what is
in effect free money. But the incuriosity they’ve developed around the
question is remarkable. Especially when you home in on what all that
cash is actually being used for. According to the Financial Action Task
Force, which was set up in 1989 to fight financial crime at a global
level, ‘it does not seem unreasonable to suggest that the total amount
of cash physically transported for money laundering purposes globally is
in the order of hundreds of billions of dollars.’ This seems to be the
amazing answer to the question of the missing cash: it’s being used in
criminal transactions.
This theme –
something not fully understood is going on at a massive scale right
under the noses of governments – is dominant in Everybody Loves Our Dollars and in How to Launder Money
by George Cottrell and Lawrence Burke Files. Bullough is a star
investigative journalist with a long track record in writing about
illicit financial flows. Cottrell and Files are also expert witnesses,
though they’re an unlikely pairing. Files is an American financial
investigator and specialist in due diligence, a veteran in the field –
his name comes up in Bullough’s book. Cottrell is a young British man,
born in 1993, with an aromatic CV. He was
brought up on the toff-infested Caribbean hellhole of Mustique, sent to
and then expelled from boarding school in England, supposedly worked in
banking for a while, became deputy treasurer of Nigel Farage’s Ukip in
2015, was arrested by IRS agents at Chicago
O’Hare in 2016 and charged with 21 counts of money laundering, pleaded
guilty to one of them, did eight months’ federal time, went to work for
the Brexit Party and currently lives in Montenegro, though he’s still
often seen with Farage. He owns a company called Geostrategy, whose
website has the unimprovable tagline ‘Reputation is built brick by
brick.’ How to Launder Money is no masterpiece, but it is full of good stories and juicy details, and together with the vastly superior Everybody Loves Our Dollars
helps us, if not to understand what’s going on (nobody does, apart from
the money launderers themselves), at least to begin to understand the
known unknowns.
The first of these is
how much money laundering takes place. Bullough quotes Jason Sharman, a
professor at Cambridge, whose estimate is ‘squillions’. That is an
accurate summary of the current state of knowledge. An informed guess,
from Michel Camdessus, the longest-serving head of the International
Monetary Fund, is that it is somewhere between 2 and 5 per cent of
global GDP. The lower figure puts criminal
activity at $2 trillion, or the same size as the Russian economy. The
higher puts it at $5 trillion, or the same size as the German economy,
the third largest in the world. (Cottrell and Files use the higher
number.) If it were an industry, money laundering would be the third
biggest business in the world, behind commercial property and ahead of
pensions.
How did we end up knowing so
little about something so big? The answer can be found in the history of
the Financial Action Task Force, founded at the G7 summit in 1989. The FATF is the proverbial 800-pound gorilla of anti-money laundering – or AML – activities. You may think that’s already too many acronyms, but brace yourself, because the AML focus of the FATF has led to the regulatory measures KYC (know your customer), SAR (suspicious activity reports), CTR (currency transaction reports), PEP
(politically exposed person) and many more. If this sounds bureaucratic
and process-based to the point of tragicomedy, that’s because it is.
The sheer extent of the legal apparatus, juxtaposed with the sheer
extent of the world’s third biggest business, represents failure on a
colossal scale. Rich countries, trying to cut down on illicit flows of
finance, have focused their energies on the one thing they can see and
control: transfers and transactions inside the official financial
system. Bullough comes up with an excellent metaphor for this: the FATF
is like a drunk looking for his lost keys under a streetlight, not
because that’s where he lost them, but because it’s the only place where
he can see.
The problem is that most
money laundering doesn’t take place under the streetlight. It doesn’t
take the form of visible transfers within the official system. A caveat
about what we know: money laundering is a little like drug cheating in
sport, where the current state of legal enforcement always lags behind
the current state of malfeasance. We don’t know what successful money
launderers are doing in the present moment. All we do know is what
unsuccessful ones have been caught doing in the past. We are drunks
looking for our keys in a big empty space with a single torch, and all
we can find is evidence of the rare occasions when other people lost
their keys.
