EU finance ministers have called for an investigation into the €500 note, amid growing concern it is making life easier for terrorists, money launderers and drug barons.
The French finance minister, Michel Sapin, said it was right to ask questions about the use of the euro’s largest-denomination note. “The €500 note is more used to conceal then to purchase, more used for easing dishonest transactions than to allow you and I to buy something to feed ourselves,” he said.
At a meeting in Brussels on Friday, the 28 finance ministers of the EU called on the European commission “to explore the need for appropriate restrictions on cash payments exceeding certain thresholds”. They also asked the EU’s executive arm, to engage with the European Central Bank to “consider appropriate measures on high denomination notes, in particular the €500 note”.
France has stepped up restrictions on the use of cash, following the “low-cost” terrorist attacks that struck Paris last year. The January 2015 attacks on the satirical magazine Charlie Hebdo and a Jewish supermarket that killed 17 people were funded with cash, earned partly from the sale of counterfeit goods.
In response, the French government tightened restrictions on cash payments and stepped up monitoring of high-value withdrawals. Since September, French citizens can only make cash payments of €1,000, down from €3,000, while cash withdrawals or deposits exceeding €10,000 in a month are automatically checked by money-laundering authorities.
Since the 13 November attacks in Paris, France has been pushing for a common EU approach against terrorist financing. An EU action plan published earlier this month stated that €500 notes “are in high demand among criminal elements … due to their high value and low volume”.
The €500 note, worth around £389 at current rates, is one of the highest-value banknotes in the world, along with the Swiss 1,000 franc note (£707). But in an age of electronic payments and concern about the anonymity cash provides, many experts would like to see the notes scrapped. This week Peter Sands, the former chief executive of Standard Chartered, called for the abolition of the €500, $100, SFr1,000 and £50 notes, which “play little role in the functioning of the legitimate economy [and] a crucial role in the underground economy”.
According to Europol, the European police agency, the €500 note accounts for a third of all the euro notes in circulation, despite their low public profile. About a fifth of all euro banknotes, in denominations from €50 to €500, are not held in Europe, raising suspicions that some of the notes are used by foreign criminals.
Valdis Dombrovskis, the European commissioner in charge of the euro, who will lead the European commission inquiry following the call by the 28 EU finance ministers, pointed out that the ECB was ultimately in charge of issuing notes and coins. “We must respect the independence of the ECB,” he added.
In the past, law enforcement officials have found the Frankfurt-based bank unwilling to scrap the note, a stance described as “shameless” by former Bank of England policymaker Charles Goodhart. But the ECB president, Mario Draghi, told the European parliament this month that the bank is reviewing its policy on the notes. “We are determined not to make seigniorage [profits earned from printing the notes] a comfort for criminals,” he said.
Benoît Cœuré, a French economist who sits on the ECB’s executive board, told Le Parisien on Thursday he found the arguments for retaining the note “less and less convincing”.
The EU investigation into cash limits and high-value notes is part of a wider strategy targeted at terrorist financing and money launderers. In June the commission will publish a blacklist of countries that have weak controls on money laundering and terrorist financing.
Also on the table are proposals to harmonise the EU’s money-laundering laws. Differences in legal definitions and sentencing “create obstacles in cross border and police co-operation to tackle this crime”, said Dombrovskis, who has promised to publish proposals later in 2016.