European Rush To Launder Black Cash Accelerates

by Ulrika Lomas, Tax-News.com, Brussels

06 June 2001

Most Eurozone countries are seeing an accelerating boom in cash transactions as E-day draws near and citizens' armies of tax-evaders begin to focus on the doomed currency they have stashed away under beds, in piggy banks and in safe deposit boxes. But nowhere is the rush to spend more marked than in Ireland, which has the highest rate of cash usage of any of the 12 eurozone countries. So much so that the central bank is preparing to issue 50% more euros per head of the population than other countries.

The Irish love of cash is matched by an attachment to the use of cheques and a very low level of usage for more modern techniques such as debit cards or paperless bank transfers. Partly this is seen as a cultural phenomenon, but it also reflects the large size of the black economy and Irish unwillingness to pay tax whenever it can be avoided. In this respect, at least, Ireland, which has recently acquired a high-tech image, is lagging behind other European countries. Belgium, for example, has abolished the use of cheques. In Finland, a country of comparable size to Ireland, there were around 1.4m cheque transactions in 2000, compared with 157m in Ireland. The number of transactions using debit cards was 34m, compared with 217m in Finland.

In an article today the Financial Times reports on efforts being made by the Bank of Ireland to wean its customers off the use of cash and cheques. The bank's branches are full of customers at lunch time, and bank representatives politely explain the benefits of using automatic transfers and debit cards, rather than cash or cheques, to pay regular bills.

In 1999, when the government commissioned Boston Consulting Group to look into the problem, it found that only 55 per cent of individuals had accounts at a bank or building society. Less than half of all government employees had their payroll cheques paid direct to their accounts. Cash and paper accounted for three quarters of all bill payments to utilities, and 80 per cent of social security and other benefit payments.

Part of the problem, says the FT, is the government itself, which has made slow progress moving towards the cashless economy. The department of agriculture now has the facility to make direct payments to farmers electronically. The Revenue Commissioners - the country's tax authorities - will accept e-payment. But the majority of those in state employment are still paid by weekly or monthly cheque.

Although Irish banks would love to modernise the country's payment systems, they are held back by fear of losing market share if they move unilaterally to change ingrained habits. The Bank of Ireland was brave therefore when it announced this year it would only cash cheques that are presented at banks where they are drawn - and attracted considerable union criticism. Last month under a separate initiative between Bank of Ireland, AIB and An Post, the post office, the banks said they would no longer accept payments for utility bills, such as water or electricity, at branch offices. An Post, the state owned post office, will now handle all non-electronic bill payments.

If the rush to 'launder' black money leads to a substantial transfer from the black economy into the official economy, will that not result in some very flattering economic statistics for the eurozone this year, perhaps followed by a slump in 2002? If it's true that the black economy represents between 15% and 30% of the economies of some eurozone economies, then quite a lot of current growth could be illusory.

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