The End of Money

by David Wolman

  Yet dodging taxes has become such a regular part of life that the Dave Birches of the world end up sounding like spoilers, even though his is a decidedly unradical plea: pay your share, so everyone can have as low a tax rate as possible.

  One peculiar aspect of tax evasion in the United States is that the demographic most likely to engage in it is often the same one that gripes about one of its more severe consequences: the deflating dollar. Think about what happens to countries in which people grossly underpay their taxes. (I’m looking at you, Greece.) The government, economy, and currency are weakened to the breaking point. Even if the government isn’t about to capsize, a monstrous tax gap can compound budgetary problems—which hurts the economy, which hurts confidence in the currency, which can send the currency’s value south. By worsening the government’s budgetary woes, tax evaders contribute to the diminishment of everyone’s money, including their own unreported cache.

  It’s almost amusing to hear people say the government should keep its hands off their money. Not that government should confiscate peoples’ wealth, but this complaint reveals just how poorly we understand money’s value. You may have seen the anti-Obama bumper stickers or placards at Tea Party events: “I’ll keep my money, freedom, & guns. You keep the change.” But as long as you’re talking about the national currency, the government is your money or, more accurately, your money only has value because of confidence in the government’s capacity to govern and cover its debts. If the government truly kept its hands off your money, you’d definitely be left with none.

  Practically speaking, though, there is a big difference between an impoverished housecleaner failing to report a few hundred dollars, and corporations and individuals hiding tens of billions of dollars overseas or behind convoluted legal schemes. The economy being as tight as it is for so many people, it’s hard not to sympathize with the housecleaner, and millions of other people teetering on the financial edge, for underpaying taxes. How would I not do the same if it were a matter of putting food on the table?

  But in principle, there are no gradations of deliberate evasion, and it’s a curious thing that this $350 billion tax gap is of such little interest to the public. Despite that other ethic, the one that advises us to mind our own business, Birch is right. It is our business whether our fellow citizens pay their share. Functioning democracy depends on it, and, even if you don’t buy that, let’s at least be honest about the difference between legitimate arguments in favor of cash and objections that are really only about preserving the freedom to skip paying taxes.

  Not that the criminality stops there.

  THE PREVIOUS DAY, during the Digital Money Forum, a presentation that did grab my attention was one that detailed cash’s role as the currency of the underworld. In Italy, off-the-books transactions rob the government of about €100 billion annually, or about 20 percent of the country’s GDP. For Greece, it’s over 27 percent.59 Not to pick on these two countries: the United States, Belgium, Spain, and even stereotypically square Germany are all near or in the double digits when it comes to the magnitude of their shadow economies.

  Much of this is made possible by the existence of high-denomination banknotes. Everyday citizens increasingly avoid carrying them, yet 500-, 200- and 100-euro notes make up 60 percent of the nearly half a trillion euros of cash circulating on the continent, although “circulating,” as we’ve seen, is a relative term. A recent Bank of Italy study concluded that the €500 bill is the beloved tool of smugglers, money launderers, and drug dealers. In Spain, the €500 note is nicknamed the “Bin Laden”: no one has ever seen one, but everyone knows what they look like.

  It’s just that much easier to store, manage, and move large amounts of money when each banknote has more value. In 2003, U.S. soldiers in Iraq discovered $650 million in crisp new Benjamins in one of Saddam Hussein’s palaces. One million dollars in C-notes weighs twenty-two pounds, whereas the equivalent value in euros only weighs between 3.5 and four pounds. When an Afghan official was accused in 2010 of taking $52 million out of Afghanistan, he proclaimed his innocence by saying: “It’s not true. $52 million is a pile of money as big as this room!” (He hasn’t been charged with anything.)60 Meanwhile, U.S. military officials working in Iraq and Afghanistan are trying to replace physical money with debit cards and other electronic systems. The goal is to reduce the “insidious military consequences of this large-scale reliance on cash,” writes one senior army official, because when you want to buy weapons on the black market, cash is the bomb.61

  Birch seems to relish illustrations of cash’s role in crime—validations, really, that cash is a “menace” that often undermines the efforts of the very governments that supply it. While cotton-industry lobbyists wield trite nationalism-tinged defenses for banknotes, and thieves and tax evaders rob the rest of us blind, they do so, says Birch, with cash provided to them by us. “We make their business possible, or at least much, much easier. Cash lets criminals maintain anonymity, store value, make payments—everything,” which means we provide them with “a cross subsidy,” he says. “When you kick down a Mexican drug dealers’ door to find $205 million in cash, which happened a few years ago, you have to wonder whose side the Treasury is on.”62

  This is not a fringe opinion. The Wall Street Journal reported in July 2010: “Gangsters, drug dealers and money launderers appear to be playing their part in helping shore up the financial stability of the euro zone. That is thanks to their demand, according to European authorities, for high-denomination euro bank notes, in particular the €200 and €500 bills. The European Central Bank issues these notes for a hefty profit that is welcome at a time when its response to the financial crisis has called its financial strength into question.” Banking executives as mainstream as Citigroup’s chief economist have taken note of the euro’s role as “currency of choice for underground and black economies.”g63

  Responding to cash’s role as evasion enabler and currency of crime, some countries are trying to limit how much cash you can get, or how big a transaction you can make with paper. In Italy, any transaction involving more than €5,000 has to be paid by other means. In Greece, the government now prohibits citizens from using cash in transactions larger than €1,500.64 A viable way to capture lost tax revenue? Probably not. How do you enforce this kind of thing? But I wouldn’t call these measures ridiculous, either. If using cash for expensive one-way airline tickets were illegal, the twenty-three-year-old kid who tried to blow up that flight to Detroit may not have so easily boarded the plane. Hijacking, piracy, armed robbery—perhaps the head of the Stockholm Police Department said it best: “Cash is the blood in the veins of crime.”65

  Other governments have decided to eliminate high-value notes or push them to the periphery. Canada withdrew its CA$1,000 bill in 2000 “as part of the fight against money laundering and organized crime,” according to the central bank. Money exchanges in the UK have stopped offering €500 notes after British investigators concluded that 90 percent of these notes within the country were being used domestically by—you guessed it—gangs, drug dealers, and money launderers.66 This was the rationale of none other than the U.S. Treasury when it decided in 1969 to stop issuing $500, $1,000, $5,000, and $10,000 notes. Not that they’re necessarily making much headway against the dealers and launderers. A 2010 study by U.S. Immigration and Customs Enforcement found that Mexican drug cartels launder much of their profits by shipping cash south across the border—between $19 billion and $29 billion a year—and then using it to buy cars, land, hotels, and other goods.67

  The most direct link between cash and crime, of course, is robbery. Every year, 800 or so Americans are killed in cash robberies.68 More than 10,000 bank robberies in 2009 and 2010 in the United States alone wouldn’t have happened if crooks knew there was no cash to be had. Yet never have I heard someone imagine a world without cash robberies. It’s as if our affection for Bonnie and Clyde, Jesse James, Butch Cassidy and the Sundance Kid, and so many other venerated villains mak
es us want to keep bank heists around like some kind of treasured pastime.

  In 2009 a quiet French citizen named Toni Musulin, who worked as an armored car driver for ten years, finally gave in to the temptation to drive away with his cargo, which on that particular autumn day was worth an estimated €11.6 million (about $17 million). He was in over his head, though, and a few days later, Musulin walked into a police station in Monaco and surrendered.

  Online, Musulin was an instant folk hero. Facebook fan pages with thousands of viewers and cascades of posts declared their support for Musulin. “Allez Toni!” one man wrote. “Viva La Revolución!” wrote another. In what feels like perilously uncertain economic times, here was this unknown man, standing up in the only way he could, to corrupt politicians and greedy bankers. That’s the sweetheart version, anyway. Unfortunately for Musulin, there’s no correlation between legions of Facebook admirers and the laws of France. He’s currently serving five years.

  As for the costs of all those bank robberies, we’re stuck speculating, again. The FBI tracks information such as the “modus operandi used” (in 2010, guns were used less than 1,500 times, while vault or safe theft occurred only seventeen times) and occurrences by day of the week and time (Tuesday and Friday mornings are popular). It also tracks the number of injuries (106, mostly to bank employees), the number of deaths (sixteen, mostly perpetrators), and the amount of loot taken that year (almost $43 million in 2010). But what about the cost of physical therapy and counseling for the injured, repairs from explosions, installation of new security systems, investigations, trials, and beds in already maxed-out prisons?69 By some estimates, eliminating cash robberies—at banks and garden-variety stickups—could save the United States almost $150 billion a year.

  Graft is yet another fun use for cash. In 2009 former New Orleans Democratic representative William Jefferson was convicted of taking bribes of over $400,000—not a headliner sum in the history of payoffs by any stretch, but the $90,000 stashed in his freezer was something you don’t hear about every day.70 In 2010 investigators found that a major money-transfer business in Afghanistan was laundering billions of dollars in drug-trafficking earnings on behalf of the Taliban—made possible by sending cash overseas.71 If that wasn’t serious enough, a few months later we learned that the government of Iran regularly delivers bags of cash to one of the Afghan president’s top lieutenants. Adding irony to this insult is the fact that the payments are denominated in euros. Apparently not even Iranian or Afghan officials perceive their own currencies as trustworthy stores of value.

  To borrow a line from Birch: doesn’t anyone else find this at all odd? In a world without cash, financial crime wouldn’t disappear. But the fact that we have, and always will have, electronic theft isn’t exactly a stellar reason for keeping cash around.

  Birch and I finish our museum tour with a pass through the gift shop. There’s no one here except an old lady stationed behind the cash register. On a whim, I decide to buy two chocolate bars. They’re packaged to look like gold bars, with Bank of England emblazoned in a regal font. They could be fodder for a disquieting meditation about gold, money, commodities, central banking, and value itself, but the truth is that I just want some chocolate.

  There’s a problem at the register, though. The charge won’t go through. The credit-card reader or the cashier herself isn’t working properly. Either that or my cards have been canceled—I suppose the Bank of England is as good a place as any to hide from creditors. In fact, this kind of hang-up is common for Americans visiting Europe. Whereas credit cards in the United States use magnetic strip technology, cards in Europe are embedded with a little computer chip and validated when the payer enters a password. Many terminals and kiosks in Europe can’t read magnetic strip-type cards. Birch probably knows more about the intricacies of this technology and the communication networks underlying it than anyone, and in this instance it looks like the equipment is capable of processing my payment. But because Birch doesn’t want to embarrass the old lady by showing her what she’s doing wrong, he charitably chooses to pay for my chocolate souvenirs with his British Airways American Express card.

  Leaving the bank, we walk to the Underground station at Canterbury Lane. “Maybe the problem is that they’re not doing the sums properly across government agencies,” says Birch. While national treasuries receive revenue from seigniorage, other branches of government—from the IRS and FBI, to the Department of Justice and Drug Enforcement Agency—are paying up big for cash’s mélange of downstream consequences. Birch asks a fair question: don’t those respective budgets eventually impact how things are looking over at the Treasury?

  One shorter-term proposal floated by Birch and others for taking a bite out of cash-related crime—not to mention national debts—is to demonetize higher-value banknotes, namely the $100, €500, €200, and €100. Preposterous? Probably. The United States is now rolling out its latest redo of the $100 bill. Besides, there’s that whole forever-value myth to safeguard. Still, the savings from ending the C-Note would be substantial, and there’s something undeniably seductive about the idea of making criminals pay for the next stimulus package.72 “We are all getting poorer while the people who don’t pay tax are getting better and better off,” says Birch.73

  He is surprisingly optimistic, though, about the direction of the war on cash, although he has no illusions about the power of opposition like the Bank of England and the Federal Reserve. Nevertheless, Birch is emboldened by an expanding legion of supporters, and the fact that those who are growing discontent with physical money’s costs, and taking steps to eliminate it, are a diverse and expanding army. It’s the collection of governments trying to limit cash payments; it’s the money exchanges no longer selling high-value bills; it’s retailers; it’s bank employees; it’s even military officials.

  On the other hand, governments and banknote manufacturers are fighting back, hard. One way they hope to prevail is by rolling out high-tech strategies to thwart still another species of criminal, one that owes its existence to cash: counterfeiters.

  CHAPTER 3

  The Counterfeiters

  I took out my money and unfolded it, took one glimpse and nearly fainted. Five millions of dollars! Why, it made my head swim.

  —MARK TWAIN, “THE £1,000,000 BANK NOTE”

  While visiting California in the summer of 2008, a Taiwanese woman named Mei Ling Chen anxiously awaited the arrival of a parcel of dehydrated seafood she had mailed to herself from Taipei. On that July afternoon, customs officers at San Francisco International Airport Air Mail Center hit a jackpot of sorts. Inside Chen’s box of would-be seafood were stacks of counterfeit U.S. $100 bills, with a face value of $380,000.1

  The discovery was kept under wraps so that the U.S. Secret Service, the federal agency charged with thwarting currency counterfeiters, could hide a tracking device inside the package. After she was caught in the act of spending the fakes, Chen pled guilty to charges of bringing counterfeit U.S. currency into the country and passing counterfeit currency.2 She was sentenced to almost three years in federal prison and had to forfeit goods “purchased” at Louis Vuitton, Coach, and Foot Locker.

  Sounds brazen, but in the annals of counterfeiting lore, Chen is a small fish compared with, say, the $7 million worth of fake notes a Los Angeles man produced in the early 2000s on an inkjet printer that he bought at Staples, or the millions of forged $100 notes printed by Art Williams in the 1990s, or the $16.5 million in fake bills printed by the German graphic artist Hans-Jürgen Kuhl between 2003 and 2005. Certainly Chen wasn’t as daring as counterfeiters who forged coin of the realm back when the crime was punishable by death.3 One such forger was William Chaloner, an enterprising seventeenth-century British charlatan and sex-toy salesman. After his capture and conviction by Sir Isaac Newton, then head of the Royal Mint, Chaloner was hanged, drawn, and quartered.

  Yet the story of Chen’s parcel is ominous because of its link to more end-of-days-style threats: nukes and terroris
m.4 The counterfeits she tried to smuggle into the United States are part of a sprawling investigation that has spanned twenty years, led U.S. authorities to 130 countries, and resulted in more than 200 arrests. Those bogus $100s are part of a genus of counterfeits called “supernotes,” fake $100 and $50 bills of such exquisite quality that they are virtually indistinguishable from the real thing. They are usually only identified once they circulate back to a Federal Reserve bank equipped with the fanciest detection gear. One Treasury official reported that when he looked with a magnifying glass at the back of a supernote, he saw that the clock-tower hands on Independence Hall, for example, were sharper on the fake than on the genuine article.5 Another anticounterfeiting cop put it in even starker terms: “Supernotes are just U.S. dollars not made by the U.S. government.”

  Investigators with the Secret Service, State Department, and other federal agencies all believe that supernotes come from North Korea.h A decade ago, a small State Department team was asked to solve the riddle of how a paranoid, flat-broke dictatorship with a huge trade gap was able to function at all, let alone fund its nuclear ambitions and buy luxury goods for Dear Leader. Money for food aid—even if it was being diverted, as it surely was—still wasn’t enough to explain the situation. Why weren’t sanctions and the dysfunctional domestic currency crippling Kim Jong Il’s fiefdom as much as analysts said they should?

  It didn’t take long to find the answer: industrial-scale counterfeiting and narcotics. Heroin, knockoff cigarettes, fake Viagra, meth—pretty much anything and everything that could be sold on the black market is made there. These enterprises generate anywhere from $500 million to $1 billion a year for the regime.6