Effects of cash payments restrictions in relation to financing of terrorism and money laundering
Ecorys, together with CEPS, conducted an impact assessment of the European Commission’s initiative to impose restrictions on cash payments. This study concluded that a ban on high cash payments is an effective means of countering current distortions in the internal market and potentially effective in countering money laundering in particular. These restrictions have introduced additional barriers to money laundering and remove the opportunities for money laundering that have arisen as a result of state-by-state differences. However, the restrictions also affect enforcement costs and have impacts on such things as economic freedoms, privacy and compliance costs.
An increasing number of EU member states have restrictions on cash payments to counter illegal activities such as terrorist financing, money laundering and tax evasion. These national measures differ, for example, in terms of the level of thresholds above which cash payments are prohibited and who and which organizations are monitored. At the EU level, there is no limit on cash payments. Before the start of this study, the European commission expressed its intention to investigate this. This could complement the current European framework.
The study focuses on two shortcomings created by the current situation and varying national restrictions:
- Differing national restrictions reduce its effectiveness. Illegal activities are moved from member states with restrictions to member states without restrictions.
- These differences in rules can create an inequality in the EU market. Some business sectors in countries with restrictions are disadvantaged compared to countries without restrictions.
In this impact assessment, we analyze the problems created by the current situation. To determine the nature and extent of the problem, a literature review, economic analysis and field research (including in-depth interviews in 10 EU member states) were conducted. We also conducted analyses and validation activities with various stakeholder groups.
As a result of the results of this study, the European Commission decided not to formulate restrictions on cash payments in order to counter terrorist financing. This was decided because the impact on terrorist financing is limited but, on the other hand, it is a sensitive issue for European citizens.
For more information, read the full research report.