CBA scandal blamed on ‘outdated’ banknotes

THE war on cash is heating up, with CBA’s money-laundering scandal being blamed on “outdated” $50 and $100 notes.

Are we heading for a cash crash? Picture: Gillianne Tedder/Bloomberg

THE Commonwealth Bank money-laundering scandal has given ammunition to the anti-cash crusade, with one analyst asking whether “outdated” $100 and $50 notes are the “root of the problem”.

The nation’s largest bank is facing allegations of more than 53,000 breaches of anti-money laundering and counter-terrorism financing laws, the majority relating to large cash deposits made at CommBank ATMs.

In a note earlier this month, UBS analyst Jonathan Mott said the CommBank scandal raised “four critical questions”.

“Is the root of the problem the outdated high denomination cash notes?” he wrote. “Should Australia move to phase out cash given its role in the black economy (including: proceeds of crime, money laundering, tax avoidance, welfare fraud)?”

In November, Mr Mott penned a note arguing that removing large-denomination banknotes would be good for the economy and the banks.

“Benefits may include: reduced crime (difficult to monetise); increased tax revenue (fewer cash transactions) and reduced welfare fraud (claiming welfare while earning or hoarding cash),” he wrote.

“From the banks’ perspective there would likely be a spike in deposits — if all the A$100 notes were deposited into banks (ignoring hoarded A$50s), household deposits would rise [roughly] 4%. This would likely fill the banks’ Net Stable Funding Ratio (NSFR) gap and reduce reliance on offshore funding.”

That coincided with the federal government announcing a review of the $100 note as part of its Black Economy Taskforce. The Reserve Bank later came out in support of the $100 note, saying removing it would do little to stamp out crime — because criminals prefer $50s.

In its interim report released in May, the Taskforce made 35 recommendations, including for an “economy-wide” cash payment limit.

“The level of any cash payment limit will require careful consideration (however $10,000 is a possible option),” wrote Taskforce chair Michael Andrew. “Wider payment system policy considerations will also need to be taken into account.”

The report also floated using biometric data such as “fingerprints, palm prints, iris and facial structure” to monitor the black economy. “Fingerprints are already widely used on smart phones and their wider use could bring down payment fees and enable better data checking,” Mr Andrew wrote.

“The Taskforce will consider whether increased used of biometrics (subject to privacy protections) would assist to reduce black economy participation, along with a broader look at the issue of digital identities which some initial consultations have noted should be considered.”

Another recommendation argued the need for “consumer-focused action” to crack down on cash payments, saying while current anti-black economy laws focused on businesses, consumers are “part of the problem”.

“We intend to examine the merits of consumer-focused sanctions, including the loss of consumer protections, warranties and legal rights for people who make cash payments without obtaining a valid receipt,” Mr Andrew wrote. “This is not simply a matter of imposing new penalties, but part of a wider cultural change agenda.”

It comes after Mr Andrew last month floated the idea of using “nano-chips” to keep track of “disappearing” $50 and $100 notes, which could also be subject to “expiry” dates to prevent hoarding of cash under pensioners’ beds and in foreign countries like China.

Estimates for the size of Australia’s so-called black economy vary from $23 billion to $50 billion. The government claims tax avoidance through cash payments costs the budget up to $10 billion in revenue, money that could go towards funding welfare and other services.

According to the Reserve Bank, cash withdrawals from ATMs have fallen by about 3.4 per cent annually since 2009, while credit card transactions are growing at 7.3 per cent per annum, driven by tap-and-go technology.

There are currently around 300 million $100 notes in circulation, almost three times the number of $5 notes, and 92 per cent of all currency by value is in $50s and $100s.

“I don’t know too many people who walk around with $100 notes, I certainly haven’t sighted one in a long time, but the point is that there is clearly an issue that we need to grapple with,” Revenue and Financial Services Minister Kelly O’Dwyer said earlier this year.

The Black Economy Taskforce’s final report is due in October.

[e-mail]