Filed Under: Money, Payment systems

Well, yes, withdrawing cash is suspicious

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If people want cash, it’s pretty reasonable to ask them what it’s for, since we all have to suffer the externalities.

Cash attracts crime. There’s no doubt about it. So having large amounts of cash sloshing around in society has a high social cost: we all end up having to pay extra taxes to make up for tax evasion, for the economic inefficiency that corruption brings, for dealing with the wreckage left behind because we are subsidising the cost of crime of all kinds. Therefore, it should be public policy to replace cash with electronic transactions.

There’s a public safety component to this. Huge amounts of cash—substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited is something that would worry me, just from a law enforcement perspective

[From Attorney General Eric Holder: Feds to let banks handle pot money – POLITICO.com]

This isn’t all about protecting pot dealers from being ripped off by criminals, though.

HSBC said in a statement: “We ask our customers about the purpose of large cash withdrawals when they are unusual and out of keeping with the normal running of their account.

[From HSBC Bank Refuses To Let Customers Withdraw Large Sums]

This is not, by the way, confined to the UK. In other jurisdictions, prudent bankers and wise regulators are naturally suspicious of people withdrawing cash and entirely sensibly ask them what it is for.

On a a wider banking point, my French bank now always asks “reason for withdrawal” if I want more than 1k Euros in cash. “Because it’s my money” doesn’t seem to be a approved reply!

[From Why is the US a decade behind Europe on ‘chip and pin’ cards? | Heather Long | Comment is free | theguardian.com]

By the way, I think the issue here could be that the people complaining about these stringent AML precautions are not asking for enough money over the counter. If you ask for a few million instead of a few thousand, then it’s less of an issue.

Richard Caring, British clothing tycoon and restaurateur, stepped out of his Geneva bank on a warm September day in 2005 with 5m Swiss francs in cash – the equivalent of £2.25m ($3.4m) – enough to fill a suitcase.

[From HSBC files reveal mystery of Richard Caring and the £2m cash withdrawal | Business | The Guardian]

Anyway, the point is that it looks as if the home of free is heading in the same direction as these French banks. It used to be that the banks had to file a suspicious transaction report on deposits or withdrawals of more than $10,000 (whenever I fly into the US, the customs always make me fill out a quaint 1920s-style gold standard-related declaration that I have less than $10,000 in cash on me) but now, apparently, much smaller transactions are considered worthy of further investigation.

Banks refuse to allow their own account holders to withdraw over $2,000 in cash unless they can provide both an urgent and convincing reason in hardcopy.

[From Banks Refuse Cash Withdrawals Over $2,000 of Their Own Account Holders]

Now, whether it might be a matter of sound public policy to reduce the amount of cash in circulation and to prevent large cash transactions (I think it is) or not, and no matter how bizarre HSBC’s policy might seem, the blame should not be directed at HSBC but at the regulators. It’s the regulators who don’t know what the goal of payments system regulation should be. This can seen in sharp relief in the rather odd US environment around legalised marijuana touched on earlier.

Obama may say it’s okay for banks to take drug money, but banks will still worry that federal law enforcement and prosecutors won’t take his advice.

[From Obama Wants Banks to Take Drug Money – The Wire]

There’s a general problem with this sort of thing around payments, which is why we need an international agreement on safe harbour. If politicians want the payment system to act as a policemen in certain well-defined circumstances – something that costs the banks time and money and annoys legitimate  customers – then they need to give something in return. Otherwise you end up in this crazy situation, not only in the US, that the banks won’t make perfectly legal transactions because they are worried that US prosecutors will go after them for huge fines anyway. I want marijuana dealers to take cards not cash and you (Joe Taxpayer) should too.

2 thoughts on “Well, yes, withdrawing cash is suspicious”

  1. bcsl@blueyonder.co.uk' David Moss says:

    Lemma 1:
    Cash attracts crime … Therefore, it should be public policy to replace cash with electronic transactions.

    Lemma 2:
    Electronic transactions attract crime … Therefore, it should be public policy to replace electronic transactions with cash .

    That’s a dilemma.

    1. Dave Birch says:

      The academic studies on, for example, electronic benefit transfer, clearly show that electronic transactions attract less crime than cash.

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