Britain Bans Criminals' Favorite Banknote

LONDON (May 13) -- If you're not a drug smuggler, terrorist or money launderer, you'll probably never handle a 500-euro note. Law enforcers call these elusive high-denomination bills -- each worth about $630 -- "bin Ladens": They know they exist, but normally it's only the bad guys who see them.

And if you live in Britain, your chances of ever seeing one just got even slimmer. The United Kingdom today announced that currency exchanges are now banned from converting money into 500-euro notes, after a study by the government's Serious Organized Crime Agency showed that that more than 90 percent of the bills in the country were being used for criminal purposes.

"You have to ask yourself, why would anyone carry around a note worth over [$600] dollars that they can't use in most shops?" says professor Michael Levi, an expert in money laundering at Cardiff University in Wales. "Apart from people living extremely luxurious lifestyles, it's really only criminals that use these notes."

So what is it about this big purple bill that villains love so much? It has two advantages over almost every other note in the world: its physical size and value. (The only banknote worth more is a Swiss 1,000-franc bill, valued at about $900).

Crime is a cash-based business, and shifting large piles of loot poses serious problems for career criminals. Obviously, a London cocaine dealer can't simply turn up at a bank and pay in thousands of £10 notes. That would instantly arouse the authorities' suspicions.

One way criminals can "clean" that hoard is by shifting it overseas, where it can be used to buy property or other untainted assets. Those can then be sold on, scrubbing the money of its criminal connection.

The difficulty is getting that cash out of the country. If a British drug gang collects £1 million in £20 notes, those bills will weigh more than 110 pounds. But if they convert the haul into 500-euro notes, it'll weigh a meager 5 pounds. Instead of filling a car boot with cash -- which could be uncovered during border checks -- the loot can now be hidden in a secret compartment in a suitcase.

That tactic is frequently used by European cocaine traffickers sending payments back to Colombian drug lords. Couriers regularly load up luggage with purple bills and then hop on a business-class flight across the Atlantic. (Why business class? As well as better legroom, you get a bigger baggage allowance.) More uncomfortable methods of transit are also used: A grown man can easily swallow $190,000 worth of the high-value bills.

Evidence suggests that bank vaults' worth of criminal proceeds are being transported in this way. According to Colombian financial regulators cited in the Daily Mail, some $295,000 worth of euros were legally imported into Colombia in 2006. Yet the same year, nearly $900 million worth of euros were exported -- the vast majority of which was almost certainly laundered drug money.

The new British ban aims to make it harder for criminals to take their profits overseas by cracking down on illicit currency exchanges that turn dirty money into clean euros -- a trade the Serious Organized Crime Agency estimates to be worth some $630 million. The British law enforcement agency says that one money-laundering gang converted about $35 million of underworld takings into 500-euro notes between 2007 and 2009. Thirteen members of the syndicate were caught and sentenced to up to six years in prison.

"Today's announcement means that accessing 500-euro notes will be much more difficult," said a SOCA spokesperson. "There will be a significant increase in the risk to criminals attempting to move and launder money. Left with larger volumes of cash to manage, it will be harder to conceal their movements and harder to take cash through borders undetected."

Britain is the first country to take action against the 500-euro note, but it's not alone in disliking the denomination. Before the banknote was introduced in 2002, police and prosecutors across the world warned that the high-value bill would fuel criminal activity. They cited the fact that the U.S. and Canada killed their $1,000 notes in 1969 and 2000, respectively.

However, the European Central Bank -- which controls monetary policy in the 16-nation eurozone -- dismissed these claims and said it was simply meeting the demands of countries that used high-value notes before switching to the euro: Germany, for example, had a 1,000-Deutschmark note, which today would be worth about $400. But as the euro climbed in value against the dollar (it's up some 40 percent since 2002), criminal interest in the currency has also spiked.

Levi of Cardiff University, and many other financial experts, now believe that the European Central Bank should pull the bills from circulation. In June 2009, the Bank of Italy's financial intelligence unit issued a report saying, "The wide diffusion of the 500-euro bill is a motive of possible concern in terms of fighting both money laundering and terrorism financing." It added that "cash is the ideal tool for illegal payment and movement of funds," and "the high-value banknote simplifies the logistical management of large sums of money."

However, the central bank has no plans to dump the note. Until it does, criminals everywhere will continue to bank on this dirty denomination.