Decades ago, a lot of people used to keep their excess cash hidden at home, ‘under the mattress’, because of their mistrust in financial institutions, or due to cultural barriers, or because of an irrational fear of not having money readily available for an emergency.
Today, there are a few other reasons for people to hoard cash, including tax evasion and criminal intent. Whether or not wads of bank notes are still kept hidden somewhere in people’s beds, the effect is the same: the cash does not have a paper trail.
The risks of this practice are higher nowadays as governments intensify their efforts to curb money laundering.
Government sources have told Times of Malta that legal amendments dating back some six years have been redrafted with the aim of introducing a €10,000 limit on cash transactions. The watchdogs confirm that cash payments for high-value items such as property, cars, boats, jewellery and art are often used as a means of laundering money acquired through illegal activities.
Malta has one of the most sizeable black economies in the EU in relation to our economy. According to some estimates, this activity accounts for about 20 per cent of GDP. Cash being largely untraceable, it is difficult for law enforcement agencies to link underground financial dealings back to illegal activity.
It was most short-sighted of the government not to have introduced a cash-transactions limit in 2015 when the growing risk of money laundering was flagged.
The same source that spoke to Times of Malta said the government had little appetite for setting limits then, fearing the possibility of irritating the electorate, particularly the business community.
The chickens are now coming home to roost. Malta’s reputation has been badly damaged by incidents of corruption at the highest levels of government. We also had suspected money laundering incidents by individuals who believed they enjoyed impunity because of their connections with rogue politicians.
The threat that Moneyval may greylist Malta in the coming months seems to have at last pushed the government to upgrade its anti-money laundering processes.
By introducing this cash-transaction limit, the government will be sending a strong message to the community that using cash to avoid obligations and potentially engage in criminal activity is a serious matter that requires a sufficient deterrence level.
As expected in a society that still believes in hoarding cash, many see this restriction as an attack on civil liberties. Some may even link this sensible approach to George Orwell’s classic novel, 1984, exploring how Big Brother used surveillance to control citizens.
On the other hand, others believe the limit is too high. When Australia introduced similar limits last year, big-four accounting firm KPMG said that the ban should be set at a lower level. The US is making moves to lower the suspicious transactions threshold from $3,000 to $250 – meaning any transaction above $250 will have to be investigated manually by banks.
The introduction of maximum limits for cash transactions will make it necessary for practically every adult to have a bank account. Today, the often arduous process of opening a bank account results from Malta having projected an impression in the last few years that it did not take its anti-money laundering obligations seriously enough.
The cash-limit restriction is meant to deter criminal abuse and not to put undue hardship on those who do not have a bank account.
Flushing out mattress money is long overdue.