Introduction
The 2023 McKinsey and Company Global Payments[i] analysis indicates that the global decline in cash usage observed during the pandemic persists, marked by a significant shift towards instant digital payments and a reduction in cash transactions. However, despite the push towards cashless payments, cash still holds a notable share of consumer transactions globally, according to a European Central Bank[ii] study on the Payment Attitudes of Consumers in the Euro Area. Cash remains the preferred method for both point-of-sale and person-to-person payments, especially for small transactions. It’s worth noting that, although many African nations have seen remarkable growth in e-payments since the 2000s, cash continues to dominate the payment landscape across the continent[iii]. This leads to a key question: Why do some people still choose cash over digital payments, which offer convenience, cost-efficiency, and increased security measures?
Factors Influencing Preferences for Cash Dealings
Factors influencing individuals’ preference for cash vary widely. They often include the perceived advantages of cash like anonymity and safeguarding privacy, perceived control over expenses, a desire for liquidity to maintain financial security, distrust in financial systems, and demographic factors like age, gender, and income. Furthermore, in developing countries with large informal sectors and limited banking infrastructure, reliance on cash is pronounced due to low financial literacy and limited access to banking services. Ultimately, preferences are influenced by the evolution of payment infrastructure, individual experiences, cultural norms, and lifestyle preferences.
Attraction to Cash
Unlike other forms of payment, such as cheques, digital assets, or transactions, cash doesn’t require identification or endorsement to be used. It functions as a bearer negotiable instrument, meaning whoever holds it owns it, making it difficult to trace its origin or intended recipient. This feature makes cash attractive to bad actors, as it offers them almost unlimited flexibility. Bad actors use cash to hide the source and true ownership of illicit funds, stash large cash sums to preserve their wealth, or avoid detection and distance themselves from their illegal activities. Cash plays a crucial role in laundering money obtained through bribery, corruption, and other financial crimes. Thus, from an anti-money laundering (AML) perspective, cash transactions or large cash holdings are inherently seen as high-risk due to their untraceability, ease of exchange, and anonymity.
Crypto Assets and Cash
Crypto assets are digital assets offering an alternative to traditional fiat currency, widely used for payments, investments, and fund transfers. They are vulnerable to exploitation for money laundering due to features like transaction speed, global reach, and potential anonymity. Despite the increasing use of cryptocurrency in criminal schemes, Europol Report; Tracing the Evolution of Criminal Finances [iv] revealed that cryptocurrency transactions constitute a small share of the criminal economy compared to cash. The 2020 UK National Risk Assessment rated the risk of using crypto assets for money laundering as medium, while cash was rated high, indicating a greater threat from cash-related crimes. Arguably, this is because, unlike fiat currencies, cryptocurrencies are highly volatile and traceable; lacking complete anonymity. Hence, although bad actors exploit vulnerabilities in emerging technologies, as rational actors they might be reluctant to entrust funds to unpredictable traceable currencies, in contrast to the stability and anonymity offered by conventional cash.
Some Cash-Based Money Laundering Techniques
Cash usage facilitates corruption, especially among public officials in developing countries. Understanding how cash is used in criminal activities is crucial for detection and prevention. Common cash-based money laundering techniques among corrupt officials include investing in real estate to disguise wealth, smuggling cash across borders to erase audit trails, and hoarding large sums to avoid detection.
That said, it is important to note that cash remains widely used and valued for both legitimate and illegitimate purposes, with banks needing it for foreign exchange, ATM operations, and supporting financial inclusion. Some individuals keep large cash reserves for investment opportunities. Possessing large sums of cash does not necessarily imply wrongdoing or violate money laundering regulations if the cash originates from legitimate sources. However, it can raise suspicions and warrant further scrutiny in certain contexts, especially when involving politically exposed persons (PEPs), it can trigger public concerns about the legitimacy of the funds. IMF research [v]indicates that high levels of cash usage correlate with increased opportunities for corrupt practices.
Politically Exposed Persons (PEPS)
Politically Exposed Persons (PEPs) [vi]are individuals who hold or have held significant public positions such as members of parliament, presidents, ambassadors, and senior military officials. PEPs can pose a higher money laundering risk to financial institutions (FIs) because their positions may make them vulnerable to corruption. They can exploit their roles to divert public funds, influence procurement processes, and direct contracts to private entities. This risk also extends to their immediate families and close associates, who can be used to facilitate illicit gains.
International and local money laundering guidelines such as the FATF Recommendations 10 and 12[vii], Regulation 35 of the UK Money Laundering Regulations 2017, and the Bank of Ghana (BoG) and Financial Intelligence Centre (FIC)[viii]; AML/CTF & P Guidelines, Part A; Section 1.11, mandate FIs to identify PEPs, their known relatives and close associates (RCAs), and subject them to heightened customer due diligence scrutiny using a risk-sensitive approach. This approach allows FIs to tailor the level of due diligence measures to correspond with the assessed risk level, ensuring proportionality. In instances of high risk, the intensity of enhanced due diligence (EDD) must be higher, necessitating the collection of additional information and documentation from clients to assess and mitigate perceived risks, and vice versa for lower-risk scenarios
Through customer due diligence processes, FIs can identify suspicious activities and report them for further investigation. To evade this scrutiny, corrupt PEPs often prefer dealing in cash to bypass the regulated financial sector, which is tasked with tracking money trails to combat crime.
Cash-based Money Laundering by PEPS
Case Examples In March 2022, Anastasia Katiuska, the wife of a PEP, a former Ukrainian politician was allegedly caught at the Hungarian border with approximately USD 29 million stuffed in suitcases.
In September 2022, Guy Nzouba Ndama, a Gabonese PEP, former parliament speaker, and education minister, was arrested with about two million euros in suitcases. He was charged with money laundering and espionage and sentenced to three months of house arrest after failing to justify the source of the funds.
Indicators Linked to Cash-Based Suspicious Activities Involving PEPs
Here are some red flag indicators to help spot Cash-Based Suspicious Activities Involving PEPs:
Unusual Cash Withdrawals & Deposits: Large withdrawals or payments without a clear economic reason, or structuring deposits (smurfing) to avoid detection.
High-Value Producers Paid in Cash: High-priced items, such as vehicles or homes, are paid for entirely or significantly in cash.
Cash Payments by Legal Entities: Legal entities make large cash payments without a plausible explanation.
Unusual Explanations: Clients provide incomplete, unlikely, incorrect, or no explanations for the origin of the cash, or lack supporting documentation for the source of funds.
Third-Party Payments: Payments to or from unrelated third parties, involving offshore companies and accounts, or using the company’s bank account to pass through cash flows.
Transfers to Offshore Financial Centres or Tax Havens: Clients request transfers to offshore financial centres or tax havens, especially if the beneficiary is a legal entity.
Cross-Border Cash Smuggling; A Money Laundering Technique
Another technique used by bad actors to launder cash involves exploiting business-class, first-class, and private jet services to smuggle large sums of cash across borders. Although these travellers undergo customs and security checks, they often receive more lenient treatment and less scrutiny, which some bad actors take advantage of.
Case Examples: On April 26, 2024, Amrollahibyouki and Nawab were imprisoned for transporting illegal money out of the UK. The National Crime Agency reported that they hid millions of pounds in suitcases and flew from Heathrow to Dubai on eight separate flights in 2020. Their organized crime group moved a total of £104 million out of the UK. During the trial, it was revealed that some smugglers travelled in business class to carry extra luggage.
On August 14, 2023, Zambian authorities seized a chartered private aircraft at Kenneth Kaunda International Airport in Lusaka, carrying $5.7 million in cash, 602 pieces of gold, and ammunition. The plane, flying from Egypt, led to the arrest of ten people, including a Zambian, six Egyptians, a Dutch citizen, a Spaniard, and a Latvian. Among the suspects were three Egyptian military officers and a senior police officer.
According to Reuters, the plane had been inspected before leaving Cairo, but one of the Egyptians managed to board with unchecked bags. In September 2023, the Zambian Director of Public Prosecutions (DPP) dropped the charges against the Egyptians and the Zambians without providing reasons, ending the legal proceedings without a trial or conviction.
In November 2022, Glencore Energy UK Ltd was fined over £280 million (over $400 million) after the UK Serious Fraud Office (SFO) investigation revealed it paid $29 million in bribes to gain preferential access to oil in Africa. The investigation showed that Glencore withdrew large sums of cash from its London-based West Africa desk to pay bribes for securing oil in Cameroon, Equatorial Guinea, Ivory Coast, Nigeria, and South Sudan. Additionally, cash was withdrawn from Glencore Plc’s Swiss headquarters and flown to South Sudan by private jet, including one instance involving $800,000 in cash.
Guidelines for Combating Cross-Border Cash Smuggling
To safeguard against cross-border cash-smuggling or money laundering, the FATF Recommendation 32, requires countries to ensure travellers declare or disclose any currency over a certain value (often USD 10,000 or its equivalent) when entering or leaving a country, either orally or in writing. It is a legal requirement for travellers to make truthful declarations, with penalties for false or non-declaration. This gives customs officials the authority to detain cash, conduct inquiries, and confiscate it if necessary. However, in practice, the declaration threshold and customs procedures for cash movements vary widely across jurisdictions. The effectiveness of these controls is influenced by regional or local factors. In countries where customs officials are poorly paid and trained, they are often susceptible to bribes and therefore tend to weaken these border controls. allowing criminals to move cash across borders.
The criminal economy[ix] remains overwhelmingly traditional, and cash is one of the most preferred facilitators for illicit activities because of its anonymity. According to Adrian Searle, director of the National Economic Crime Centre (NECC) of the NCA in the UK, “The laundering of such vast quantities of cash around the globe enables organized criminals and corrupt PEPs to clean or hide their ill-gotten gains.”
Indicators of Cash Smuggling via Air Transport
Here are some indicators to help spot cross-border transportation of illegally obtained cash by air.
Concealment: Hiding cash on one’s person, within clothing, or in luggage, whether within personal items or integrated into the luggage structure itself.
Indicators Large Cash Holdings: Unusual deposits or withdrawals of significant amounts of cash, particularly in high-denomination banknotes.
Front Companies: Utilization of shell companies or front entities to support private jet operations, potentially masking the true source of funds.
Frequent Travels to High-Risk Countries: frequent international travel to and from high-risk jurisdictions or those with weak regulatory oversight, border controls, and political instabilities, where funds may be deposited before being electronically transferred to their final destination.
False or Non-Declaration: Efforts to circumvent reporting requirements or provide misleading information while crossing borders with substantial cash.
Conclusion
Although cash usage continues to decline and the future of cash is uncertain, crime fighters must recognize that cash remains a major tool for criminals and therefore presents a real and persistent challenge in the fight against crime. Evidence shows that cash continues to be the go-to choice for both criminal payments and money laundering. It’s a key tool across various criminal activities, as highlighted in a Europol report. For instance, in Trade-Based Money Laundering (TBML), cash plays a significant role, with goods often being paid for solely in cash. Similarly, in cybercrimes, funds generated in the virtual world are often converted into cash through ATM withdrawals. Criminals are attracted to cash-intensive businesses, using them as fronts to distance themselves from criminal activities. Criminals exploit vulnerabilities in real estate to integrate illicit funds into the legal economy by converting cash into assets such as rental or private properties. This highlights the need for stronger regulatory oversight, enforcement of laws, and the promotion of digital payment systems to enhance transparency and accountability, especially in developing countries. Disrupting these activities requires ongoing awareness and education for professionals in the financial services industry and law enforcement. Click on our courses or events page to register for any of our AML and Compliance courses to learn more about these issues and the latest strategies for combating financial crime.
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References
[i] The 2023 McKinsey Global Payments Report; On the cusp of the next payments era: Future opportunities for banks, September 2023. p8
[ii] European Central Bank, “Study on the payment attitudes of consumers in the euro area (SPACE) – 2022,” December 2022, p5.
[iii] The Mc Kinsey & Company; Global Banking Practice; The future of payments in Africa, Sept. 2022, page 6.
[iv] Europol Spotlight: Cryptocurrencies – Tracing the Evolution of Criminal Finances, December 2021.
[v] International Monetary Fund, 2018, The Use of Cash in the Context of Money Laundering and Corruption, p
[vi] Adapted from FATF Guidance; Politically Exposed Persons (recommendations 12 and 22), June 2013, P5.
[vii] FATF Guidance; Politically Exposed Persons (recommendations 12 and 22), June 2013, p5 & 6
[viii] Bank of Ghana and Financial Intelligence Centre. “Anti-Money Laundering/Combating the Financing of Terrorism & the Proliferation of Weapons of Mass Destruction (AML/CFT & P) Guideline for Banks Non-Bank Financial Institutions in Ghana, July 2018; Part A; Section 1.11.
[ix] Why is Cash Still King? A Strategic Report on the Use of Cash by Criminal Groups as a Facilitator for Money Laundering. Europol, 2017, p. 7.
