Category: Payments

Limiting cash payments to $10,000 is more dangerous than you might think

From The Conversation. We are used to being able to pay for things with legal tender.

Other than in special circumstances, refusing to accept cash can have legal consequences.

The Currency (Restrictions on the Use of Cash) Bill 2019 at present before the Senate seeks to make it an offence to use “too much cash” to pay your bills.

The intent is clearly stated in Section 4:

This Act places restrictions on the use of cash or cash-like products within the Australian economy. The Act imposes criminal offences if an entity makes or accepts cash payments in circumstances that breach the restrictions.

The proposed limit is A$10,000. Section 8 would make it an offence to make or accept cash payments of $10,000 occurring either as one-offs or in a linked sequence.

Extract from Currency (Restrictions on the Use of Cash) Bill 2019

In parliament the minister said the $10,000 limit would not apply to person-to-person transactions, such as private sales of cars.

But these exceptions are not included in the the Bill. What is included is the phrase “specified by the rules”. Section 20 puts those rules in the minister’s hands. Future ministers may narrow exceptions and change rules.

It would remain legal to withdraw and hold more than $10,000. The stated intent of this Bill is to modify the use of cash, not the holding of cash.

All Australians will continue to be able to deposit and withdraw cash in excess of $10,000 into and from their accounts, and to store more than $10,000 of their money outside a bank.

Cash overboard

What’s proposed would limit competition (Visa, Mastercard, and PayPal would face a lesser competitor, for example) and limit long-held rights.

Everyday behaviour at present protected by the law would be criminalised.

In some cases, and perhaps many, the onus of proof would be reversed, with an “evidential burden” imposed on cash-using defendants.

As stunning is the assignment of “vicarious criminal liability” in Section 16.

Each partner in a partnership, each committee member of an incorporated association and each trustee of a trust or superannuation fund might become individually culpable for their entity’s use of cash.

Oddly, “bodies corporate and bodies politic” are treated differently (Part 3), and the government itself cannot be prosecuted, an uneven application of the law which has attracted little attention.

In my submission to the Senate inquiry (Submission 146) I argue the provisions would, among other things:

  • undercut the ability of banks to head off a banking crisis by providing a trusted and useful form of money
  • funnel more financial traffic through the equivalent of private toll roads
  • remove a guaranteed and always available fallback from electronic transactions
  • increase societal ill-ease and polarisation as citizens realise their rights have been eroded for not particularly compelling stated reasons.

Each point and many presented in other submissions need serious consideration, including in public Senate hearings.

The rationale presented

The speech to parliament introducing the bill was built around the hardly-new observation that cash payments can be “anonymous and untraceable”.

The government’s Black Economy Taskforce produced no detailed analysis but recommended the ban as a means of fighting tax avoidance, to:

make it more difficult to under-report income or charge lower prices and not remit good and services tax.

The speech also asserted that “more crucially” the ban would fight organised crime syndicates, although organised crime was not mentioned in the part of the taskforce report that dealt with the problem the limit was meant to address.

The guarantee dishonoured

Every pound note and then every dollar note issued by the Commonwealth Bank and then Reserve Bank of Australia bears this unconditional promise signed by the head of the bank and the head of the treasury:

This Australian note is legal tender throughout Australia and its territories.

The bank’s website suggests the promise is ongoing:

All previous issues of Australian banknotes retain their legal tender status.

Its note printing arm was mortified earlier this year at the apparently accidental omission of the last letter “i” from the word “responsibility” on the new more secure $50 note.

The Bill before the Senate contains many and much more serious errors.

Cash has been one of the few things we can absolutely rely on, whatever our status, situation or access to other payment means.

Removing (and dishonouring) that guarantee, while criminalising reliance on it, should not be done lightly in a mad rush to an arbitrary date.

Until now public debate about the proposal has been light, but concern is growing, even among quiet Australians.

Each Senator should ensure that last “i” in responsibility isn’t missing here either.

Author: Mark McGovern, Visiting Fellow, QUT Business School, Economics and Finance, Queensland University of Technology

10,000 voices of freedom destroyed Frydenberg and Sukkar

The Victorian Liberal Party held their state council meeting in Ballarat where a motion was put forward calling on the Government to abandon their $10,000 cash transaction ban policy.

We discuss the implications of this move, with Steve Holland who is a member of the Victorian Liberal Party and who moved the motion at the State Council Meeting.

Afterpay Breached Money Laundering Legislation

Afterpay breached money laundering law because of incorrect legal advice, according to an auditor. Via InvestorDaily.

The buy-now, pay-later giant was the subject of an AUSTRAC probe over allegations it breached the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF).

But an independent auditor contracted by Afterpay has discovered that the breaches occurred because of incorrect legal advice. 

“In reaching these findings I have established that Afterpay’s compliance with its AML/CTF obligations was, from the outset and over time, based upon legal advice from top tier Australian law firms,” wrote Neil Jeans, an anti-money laundering consultant who conducted the audit. 

“I am of the opinion this initial legal advice was incorrect.”

The unnamed law firms decided Afterpay was not providing loans to consumers but instead providing factoring services to merchants. This advice “did not reflect Afterpay’s business model” and led to the company focusing its AML/CTF controls upon merchants rather than consumers. 

“Despite Afterpay having a compliance-focused culture, the consequences of being provided with incorrect legal advice has resulted in historic non-compliance with the AML/CTF Act and Rules,” Mr Jeans wrote in the report. 

However, the audit noted that Afterpay’s transaction monitoring system is now “effective, efficient and intelligent” as a result of greater resource allocation. 

Mr Jeans also decided that the nature of Afterpay’s service mitigates some money laundering and terrorism financing risks, and noted that the company’s AML/CTF compliance had “evolved and matured over time”. 

Afterpay was quick to seize on the opportunities of the report in light of Westpac’s recent breaches of the same laws. 

“Afterpay reaffirms that it has not identified any money laundering or terrorism financing activity via our systems to date,” the company said in a statement accompanying the report. 

But the ball is now in AUSTRAC’s court. The regulator will consider the report and decide whether to take further action.

Afterpay has pledged to continue its co-operation with AUSTRAC.

What I Said To The Senate On The Restrictions On The Use Of Cash Bill

I outline my submission made to the Senate Inquiry, which is open until next Friday 15th November 2019.

https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/CurrencyCashBill2019

Here is the full text of my submission.

Currency (Restrictions on the Use of Cash) Bill 2019

I have carefully reviewed the latest iteration of this legislation and am gratified that the Senate has chosen to review the proposals, which I strongly oppose.

Not only is the bill significantly eroding our civil liberties, but the conduct of Treasury needs to be called out by suggesting that 3,400 of the 3,500 submission they received during their brief 2 week exposure review submission period were part of a campaign “by the CEC, a political party”. While there was indeed a campaign to oppose the draft legislation, I have evidence that submissions were made by many concerned individuals and businesses with no links to the CEC. Indeed, my own submission, some of the contents I am using here again, is based on my own independent research and analysis.  I have no financial or political association with said CEC. I believe Treasury tried to play down the considerable opposition which exists within the community. This bill is, in my view toxic.

Digital Finance Analytics is a boutique research and analysis firm specialising in the financial service sector. We undertake primary research through our surveys, as well as deep research from the global literature relating to financial services. We publish regularly via our online channels at Digital Finance Analytics[1] as well as preparing reports on a range of related subject matters for our clients, and we collaborate with a number of academics.

My objections are centred around the following points.

  • Civil Liberties Are Being Eroded. Further public debate on these measures are warranted as they are fundamentally restricting personal freedoms. Today I can use and hold cash as I please. If passed, my freedom will be eroded. This is one in a series of measures which have been taken (including media freedoms) which are curtailing the hard-won freedoms Australians used to enjoy.  Public hearings should be held by the Senate to judge community reactions to the bill as part of the current review.
  • There Is No Cost Benefit. The stated objective of the bill is to close tax avoidance and money laundering loopholes. But there is no quantification of the potential “savings” – and this is also true of the earlier Black Economy Taskforce report. It appears that simply stating these desired objectives is seen as sufficient to justify the bill. What is the cost benefit of such a measure, bearing in mind that transactions which fall outside the exemptions would need to be tracked and examined? 
  • Increased Surveillance Will Be Required. In some form, monitoring of offending transactions would be required if the Bill were passed.  This is not explained, nor how it would be policed. Who would police them, at what cost?  Further, the bill proposed a draconian set of penalties designed to deter. Treasury admitted this in their FOI’d response.
  • Existing Laws Are Not Enforced. The true size of the black economy is much in dispute, but indications are that it is already falling. In addition, much of the tax leakage and avoidance would be covered by existing legalisation if it were being policed effectively. We support the view, recently aired by Andrew Wilkie in the debate on the floor of the house, that:

“There’s already a requirement to report transactions over $10,000. The problem is that those laws are not being implemented and enforced[2].”

  • There are other more pressing areas of tax leakage and AML risk. According to the OECD report “Implementing The OECD Anti-Bribery Convention” released as part of the OECD Working Group on Bribery, Real Estate is identified as at “significant risk” of being used for money laundering. Among a raft of recommendations, is one saying Australia should be “Taking urgent steps to address the risk that the proceeds of foreign bribery could be laundered through the Australian real estate sector. These should include specific measures to ensure that, in line with the FATF standards, the Australian financial system is not the sole gatekeeper for such transactions”.  To date these loopholes, remain open, as do those relating the corporates and big business who, partly thanks to the assistance of the large international accounting firms are responsible for the lions share of tax leakage and AML activity. Our research suggests that Government, under heavy corporate and business lobbying is deliberately letting this slide, preferring to target in on a relatively inconsequential area of tax leakage relating to cash transactions.
  • The Legislation Would Be Ineffective. Beyond that, it is clear from our wider research of a range of sources that such a proposed cash ban would have very little impact on hard core tax leakage. For example, Professor Fredrich Schneider, a research fellow at the Institute of Labor Economics at the University of Linz, Austria, a leading international expert on the black economy has stated that there is a lack of empirical evidence that cash transaction bans will help reduce the black economy. Schneider published a paper in 2017[3]  “Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism” in which he made this specific point.
  • There Is Another Agenda. In addition, while the Bill is silent on the connection to implementing negative interest rates as part of unconventional policy, the link was made clearly in the 2016 Geneva Report by the International Centre Monetary and Banking Studies (ICBM) titled: What else can Central Banks do?[4]  This paper which was drafted by officials from international organisations such as the IMF/BIS and multiple central banks + commercial banks. In addition, within the original Black Economy Taskforce Report there was mention of the benefits of a cash transaction ban in relationship to monetary policy – yet this link was denied by Treasury in their recent FOI release.
  • The IMF Shows Why. The same thematic came through in recent IMF Blogs and working papers.  In April 2019, the IMF published a new working paper on how deeply negative interest rates work. In previous papers, the IMF has suggested that nominal interest rates may have to go deeply negative, for example, -3% – 4%.   First, they say “In summary, ten years after the crisis, it is clear that the zero-lower bound on interest rates has proved to be a serious obstacle for monetary policy. However, the zero lower bound is not a law of nature; it is a policy choice. We show that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future.” Next they declare “Our view is that, when needed, deep negative rates are likely to be worth the political cost. While the complete abolition of paper currency would indeed clear the way for deep negative interest rates whenever deep negative rates were called for, such proposals remain difficult to implement since they involve a drastic change in the way people transact.”
  • The Bill Is Connected to Negative Interest Rates. The connection is obvious in that in a negative interest rate environment households and businesses will be likely to withdraw funds from the banking system and transact in cash. If enough cash is extracted, negative interest rates will simply have no effect. We believe the measures proposed in the current Bill are truly about enabling negative rates, yet this is not mentioned within the Bill. This is misleading and deceptive. The true motivations should be on the record. But it explains the short time frames.
  • Households and Businesses Would Be Trapped In The Banking System. If such a ban was introduced households and businesses would be forced to use the banking system, meaning that bank charges could not be avoided, which benefits banks, not their customers. In addition, we have seen recent system and power failures which have caused disruption to the electronic payments systems. If cash is less available and restricted, a failure would be even more significant and inconvenient and could damage the economy. Once in the banking system, funds can be monitored and controlled (seen by the Taskforce as a positive move – we disagree), but such control could limit access to cash and transactions in general in a crisis. And we note from our SME surveys that many businesses, especially in rural and regional Australia regularly use cash as electronic alternatives are not available. Finally, offering cash for a discount, which is part of legitimate everyday business (because bank charges are avoided) would be removed.
  • The Structure Allows Change by Regulation Subsequently. The structure of the Bill enables parameters to be changed subsequently by regulation (not via Parliament). This opens the door to removing some of the concessions contained in the current drafting by agencies without full scrutiny. The bill is therefore open ended with regards to crypto, precious metals and other carveouts. In addition, we note surprisingly, government transactions, and cash transactions in Casinos are carved out, which again flags concerns about the structure and limitations of the bill.
  • A Reduced Limit Could Be Waived Through.  Whilst we note that the $10,000 limit would require Parliamentary approval, in practice this could be made without full debate – as illustrated by the passage on the recent APRA bill, or as part of an omnibus “procedural” bill which masks the true intent. It is important to note that where cash transaction bans have been introduced, the value ceiling has been lowered.  France has legally prohibited cash transactions above 1,000 euros, Spain has legally prohibited cash transactions above 2,500 euros, Italy has legally prohibited cash transactions above 3,000 euros, and the European Central Bank ended the production and issuance of its 500 euro note at the end of 2018.

In summary, my overriding concern is that Parliamentarians will only consider the narrow tax efficiency aspect of the Bill and vote it through without grasping the true intent and consequences. Civil liberties are being eroded, and the trap will be set to force households and businesses to transact within the banking system, thus facilitating experimental monetary policies, via the back door.

This Bill should not be allowed to pass.

[1] https://www.digitalfinanceanalytics.com/

[2] ABC News

[3] https://www.econstor.eu/handle/10419/162914

[4] https://voxeu.org/article/what-else-can-central-banks-do

Mounting Evidence Against Cashless Debit Cards

It would be nice if the “facts” being thrown around in the debate over the Cashless Debit Card were peer-reviewed, or even just evidence-based. Via The Conversation.

Instead, there are anecdotes. And it’s these that are being used to justify the government’s decision to spend A$128.8 million over four years continuing the existing trial of the cashless debit card in five sites in Western Australia, Queensland and South Australia and extending it to Cape York and all of the Northern Territory.

The extension will lift the number of people on the card from 11,000 to 33,000. Most will be Indigenous people – its disproportionate targeting has already attracted the attention of the National Congress of Australia’s First Peoples and the Human Rights Commission.

The cashless card was recommended to Prime Minister Tony Abbott in a report from mining billionaire Andrew Forrest in 2014. He initially called it the “Healthy Welfare Card”.

It wasn’t a new idea. Some A$1 billion dollars had already been spent on income management programs in the past, many of which had failed to meet their stated objectives.

It’s been tried before

The 2007 Basics Card. AAP

The biggest was the Basics Card introduced as part of the 2007 Northern Territory Emergency Response (the “Intervention”) which was only made possible through the suspension of the Racial Discrimination Act.

Research published by the Australian Research Council funded Life Course Centre of Excellence found its introduction was correlated with negative impacts on children, including reductions in birth weight and school attendance.

It points to several possible explanations, including increased stress on mothers, disrupted financial arrangements within households, and confusion about how to access funds.

The government has not addressed these serious issues. Instead, it now seeks to place those who have been left on the basics card for over ten years now, on to the cashless debit card.

What was ‘Basics’ has become ‘Indue’

The 2016 Indue Cashless Debit Card. indue.com.au

The “Indue” Cashless Debit Card trials underway since 2016 direct 80% of each payment to the card (Forrest asked for 100%) where it can only be spent on things such as food, clothes, health items and hygiene products. Purchases of alcohol and withdrawals of cash are not permitted.

The trials are compulsorily for everyone living in the trial sites receiving a disability, parenting, carer, unemployment or youth allowance payment.

My own research in the East Kimberley found it makes those people’s lives harder.

Those targeted are a broad group needing support for a broad range of reasons, yet all are treated as if they have issues with alcohol or drugs or gambling.

Most of the people on it do indeed have a common problem: that is trying to survive on meagre payments in remote environments with a chronically low supply of jobs.

Of all the claims made for the card, the least believable is that it gets its users into jobs.

What it does do is limit access to cash needed for day to day-to-day living. It makes it hard to buy second-hand goods, transport and (at some outlets) food, and can make living more expensive.

For anyone actually struggling with addiction, it can’t substitute for treatment, a concern raised by medical specialists.

While the government says the trials have been community-led, in reality consultation has been limited to a small group of people not subject to the card.

When leaders in the East Kimberley who had agreed to the card withdrew their support, the government continued with the trial.

Its success has not been established

In addition to relaying on anecdotes, the government continues to cite a widely condemned report by Orima Research. Among others, the Australian National Audit Office found this report was inadequate to draw any conclusions from.

Profiting from the Cashless Debit Card has been Indue, a private company whose deputy chairman up until 2013 is now the present President of the National Party, Larry Anthony.

Indue’s involvement is helping to create a two tiered banking system in which most people have a choice of financial providers, but those subject to the card are restricted to one, which provides a very different product to the others.

Indue is also not a member of the Australian Banking Association, and so is not bound by the consumer protection provisions of its Banking Code of Practice.

The inquiry is due to report next week. Given the expensive and harmful consequences of the trial, it ought to find the extension is not justified. There are better ways to spend $128.8 million that would actually help vulnerable Australians.

Author: Elise Klein (OAM), Senior Lecturer in Development Studies, University of Melbourne

Keep Fighting: The War On Cash Is Not Over!

Economist John Adams and Analyst Martin North discuss the latest on the Bill to outlaw certain cash transactions. Much more to come on this, as the latest draft bill has reshaped the purpose of the legislation.

https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/CurrencyCashBill2019

AUSTRAC orders audit of PayPal Australia’s compliance with financial crime laws

AUSTRAC has ordered the appointment of an external auditor to examine ongoing concerns in regard to PayPal Australia’s compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the AML/CTF Act).

These concerns relate to PayPal Australia’s compliance with its International Funds Transfer Instruction reporting obligations, which require regulated entities to report the transfer of funds or property to or from Australia.

International Funds Transfer Instructions reported by the financial services sector provide AUSTRAC with vital intelligence that enables AUSTRAC and its partners to combat serious crimes such as child sex exploitation.

AUSTRAC Chief Executive Officer, Nicole Rose PSM said the AML/CTF regime is in place to protect businesses, the financial system and the Australian community from criminal threats.

“Regulated businesses like PayPal Australia, who facilitate payments and transactions for millions of Australian customers every year, play a critical role in helping AUSTRAC and our law enforcement partners stop the movement of money to criminals and terrorists,” Ms Rose said.

“PayPal is an important partner in the fight against crime. However, when we suspect non-compliance AUSTRAC will take action to protect the Australian community.”

The external auditor must report to AUSTRAC within 120 days of being appointed and will examine PayPal Australia’s compliance with its:

  • AML/CTF Program obligations
  • International Funds Transfer Instruction (IFTI) reporting obligations
  • Record keeping obligations.

The outcomes of the audit will assist PayPal with its compliance, but also inform AUSTRAC whether any further regulatory action is required.

“We will continue to work closely with PayPal during this process to address any compliance concerns,” Ms Rose said.

The extent of the auditor’s examination is determined by AUSTRAC and will be at PayPal Australia’s expense.

Cashless Welfare Card – Not So Flash

“This is a bit controversial, we know that,” deputy prime minister Michael McCormick told the National Party’s federal council, which on the weekend voted for a national roll-out of cashless debit cards for anyone younger than 35 on the dole or receiving parenting payments. From The Conversation.

The Nationals have joined the chorus within the federal government proclaiming the cards a huge success.

The Minister for Families and Social Services, Anne Ruston, has even gone so far as to claim welfare recipients are “singing its praises”.

Really?

Both McCormick and Ruston have proclaimed success based on the most recent trial of cashless welfare in Queensland. This trial began barely six months ago, and the independent evaluation by the Future of Employment and Skills Research Centre at the University of Adelaide is ongoing.

A more complex story emerges out of my research into lived experiences of the first cashless debit card trial, which began in Ceduna, South Australia, in March 2016

I spent about three months in the town of Ceduna between mid 2017 and the end of 2018 talking to people about life on the card.

Ceduna is located on the north-west coast of Eyre Peninsula, South Australia. www.shutterstock.com

All communities are diverse and people’s experiences diverge. Some liked the card, or had come to accept it, others were caught up dealing with far more significant problems.

But I talked to people who found the card “an insult”. They told me it made them feel “targeted” and “punished”. They talked of degradation and defiance. They also told me the card didn’t work.

As for the the claim by both Ruston (and her ministerial predecessor Paul Fletcher) that the card empowers people to “demonstrate responsibility”, the opposite was true. In the words of June*, an Indigenous grandmother, foster carer and talented artist: “It has taken responsibility away from me. It’s treating me like a little kid again.”

Indigenous testing grounds

Ceduna, in the far west of South Australia, was the first of four sites chosen to trial cashless debit cards. The second was in the East Kimberley

The location of these two trial sites meant early trial participants have been predominately Indigenous. I am of the view that Indigenous communities are being used as testing grounds for new technologies and controversial measures.

The BasicsCard, introduced in 2007. AAP

In the first two trial sites, income support recipients younger than 65 have just 20% of their payment deposited into their bank account. The remaining 80% goes on to their debit card, which cannot be used at any alcohol or gambling outlet across the nation. Nor can they be used to withdraw cash.

The lead-grey cashless debit card is similar but different to the lime-green BasicsCard, introduced as part of the 2007 Northern Territory National Emergency Response (the “Intervention”). The use of the BasicsCard as an “income management” tool was extended to non-Indigenous people in the Northern Territory in 2010, and to other states in 2012.

The BasicsCard generally quarantines 50% of a social security recipient’s income so that it cannot be spent on alcohol, gambling, tobacco or pornography. BasicsCard holders need to shop at approved stores. In contrast, the cashless debit card, administered by financial services company Indue, can theoretically be used wherever there are Eftpos facilities.

Shame and humiliation

My research wasn’t based on collecting statistics but “hanging out” and getting to know people. I came to see the stigma associated with the “grey card” sometimes resonated with past experiences.

Robert*, for example, told me about growing up on a mission and then suddenly finding himself as “one little blackfella” in a large high school. He was acutely sensitive to the “smirks” and judgements of others whenever he used the grey card to pay for things.

Pete* left high school after a couple of weeks to join an itinerant rural workforce that has since vanished. After decades of manual work, finding himself unemployed due to ill health was devastating enough. Being issued the grey card compounded his humiliation.

Others voiced their belief the grey card was designed to induce shame. But they refused that shame, expressing instead a defiant belief in the legitimacy of their need for support.

The welfare system often defines people by the one thing they are not currently doing – waged employment. But many people I spent time with in fact laboured constantly: it just wasn’t recognised as work. People like June*, for example, looked after sick kin, the elderly and children. Yet the grey card treated them as dependents.

I heard about ways of getting around the card’s restrictions. As one acquaintance put it: “Drunks gonna drink!” One strategy involved exchanging temporary use of the card for cash. With terms that nearly always disadvantage the card holder, it has the potential to make life tougher for people living in hardship.

These observations concur with the sober assessments of experts such as the South Australian Aboriginal Drug and Alcohol Council.

The evaluation of the Ceduna trial for the Department of Social Services was more positive, noting that alcohol drinkers and gamblers reported doing so less frequently. But it also noted no reduction in crime statistics related to alcohol consumption, illegal drug use or gambling. And the Australian National Audit office was so critical of the government’s evaluation it concluded that it was difficult to ascertain “whether there had been a reduction in social harm” as a result of the card’s introduction.

Which makes simplistic claims about the card’s success look a bit rich.

Author: Eve Vincent, Senior Lecturer, Macquarie University