The cure is worse than the cash
A fundamental characteristic of most market economies is the ability to use hard currency to buy and sell goods and services. In Australia, it’s written on the notes: 'This Australian note is legal tender throughout Australia and its Territories'.
This bill challenges the primacy of cash and, in doing so, the freedoms that come with it. Cash provides people with the ability to transact without trace and outside of the banking system, if they so choose. Mr Guy Rundle—hardly a raging capitalist—well explained why this is important:
…there’s the crucial link between cash—utterly impersonal—and a basic form of freedom. Simply put, there should always be a way to be untraceable to some degree in contemporary society, and the existence of cash money is crucial to that. I should be able to create a gap between a withdrawal—which can be traced—and a purchase.
Why should I want to do that? Well that’s not a pertinent question where individual freedoms are concerned. It’s simply enough that I should want to do that, and it should be possible to do so.
Money is the means of life, as things stand. To be untraceable in everyday life is a necessary separation between the public sphere and the state.
Former Credit Suisse Director, Mr Ian Love, also explained the inherent freedoms provided by hard currency:
A peer-to-peer cash transaction holds within it a number of freedoms, these include: freedom from the need to trust the counterparty as it is an open exchange between the parties; freedom from the need for permission to trade/deal with each other; freedom from the possibility of censorship and the freedom of privacy.
This bill chips away at these personal liberties, and it is being put forward with scant examination of the implications of doing so. The bill is being advanced on the back of the technocratic examinations of the Black Economy Taskforce. The taskforce report fails to make mention of the relationship between hard currency and personal freedoms, let alone give it any deeper consideration. Instead, it adopts a utopic view of a fully digital financial world:
Not only is cash anonymous, but it can be used without leaving an obvious audit trail. In contrast, the more we move people into the digital payment world, the more visible, traceable and reportable their transactions can be. Digital payment can also be linked to identity, both individuals and businesses, which cash cannot.
Such sanguine views of a transparent market place are naïve and irresponsible, and are helping pave the way for surveillance capitalism. Any move towards such further scrutiny of individual transactions must be accompanied by a thorough examination of the implications for individual privacy and the impact of broader societal norms, both of which the taskforce has failed to do.
The zero lower bound
This bill cannot be viewed in isolation from two profound phenomena that are occurring within the financial world, namely: the uptake of digital payments and corresponding decrease in the use of cash; and the persistence of historically low interest rates.
Cash acts as a floor on interest rates: if people lose money by putting it in the bank, then they will keep cash instead. In response to the failure of ultra-low interest rates to stimulate demand, serious consideration is being given to abolishing cash altogether in order to facilitate negative (nominal) interest rates.
The advent of electronic banking has made this idea possible. For example, a 2018 International Monetary Fund Working Paper considered:
…the practical feasibility of recent proposals for decoupling cash from electronic money to achieve a negative yield on cash which would remove the lower bound constraint on monetary policy.
Negative interest rates are a seriously radical policy, and are the dead end of a broken capitalist system designed to perpetuate a debt crisis created by banks pumping cheap money into asset speculation. Banning cash to prop up the bubbles is not the answer to ongoing economic malaise.
The Black Economy Taskforce report states that 'we are not yet calling for the abolition of cash', but does suggest:
The Government could consider lowering the cash payment limit of $10,000 once it has been in operation for a while to ensure that smaller cash payments are also restricted.
In other words: ‘We like the idea and here’s the next step towards it.’
Again, such an untroubled and carefree perspective provides little reassurance that the full raft of the potential consequences of this bill—and forecast future changes—has been considered.
Cash never crashes
Another underexplored aspect of this bill, and any furtherance on it, are the access implications of restriction on the use of cash.
In the immediate term, this bill presents a problem for many elderly and for migrant communities, some of whom hoard cash rather than use banks. The Australian Funeral Directors Association have given a particularly vivid account of the impact that this bill could have on such people at a particularly upsetting and saddening moment in their lives:
…our role is to make it easier for client families when they have suffered a loss, when they are numb and when they are feeling the helplessness associated with the loss of a loved one, probably the most difficult time in their life. Our role as funeral directors is to help people. It's to say yes rather than no to requests. It's to provide flexibility to people who need flexibility at that vulnerable time.
It’s easy to conjure up a scenario: An elderly migrant man dies. His wife, who has no bank account of her own, goes to pay for his funeral in cash. Instead, she is told by the funeral director: ‘Sorry. You’ll have to make an electronic payment.’
Again, the Black Economy Taskforce, in their techno-utopic rapture, gave no examination to this issue in their report.
In the long term, the access issues associated with the abolition—or near-abolition—of cash are much bigger. The adoption of a fully electronic financial system cannot be blind to the fact that computers can crash and that systems can be hacked. To the extent that this bill is a further step towards a fully electronic banking system, this issue needs more examination.
If you’re actually interested in tax avoidance and money laundering…
Undoubtedly, many cash transactions of $10,000 or more are designed to avoid tax and a lesser number are designed to launder money. It follows that banning large cash transactions will have the effect of curbing this end of the black economy, although the government has failed to provide much by way of quantification of the likely benefit.
But it is worth noting that, as a general rule, the adoption of digital payment platforms has not stopped—and has in fact turbocharged some—nefarious financial transactions the world over. From facilitating payment to paedophiles to shifting wealth into offshore tax havens, digital payment platforms have been an enabler rather than a preventer of the movement of illicit money.
If this government was actually serious about tax avoidance and money laundering, then there’s plenty it could do to demonstrate this, including by better regulating digital financial transactions. It’s hard to escape the idea that by chasing the small stuff, this government is trying to hide the fact that they have allowed the big-end of town to continue to avoid tax and launder money on a wholesale scale.
On tax avoidance, this government has:
repealed the requirement for the largest private companies to undertake the most basic public reporting;
opposed the requirement for some of the oldest private companies to undertake the most basic public reporting;
abandoned a commitment to establish a public register of beneficial owners for companies;
failed to introduce a worldwide gearing ratio that would eliminate the practice of multinationals artificially inflating their deductions through thin capitalisation;
continued to award contracts to companies who are involved in egregious acts of tax avoidance;
continued to keep secret the details of settlements between the ATO and companies challenging their tax bill; and
continued to allow discretionary trusts to undertake income splitting so that high income earners can reduce their tax bill.
On money laundering, this government has failed to act on what is universally understood to be the big problem: the exemption for real estate agents, accountants and lawyers from having to report under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. Australia is now one of only six countries in the world not to have closed this loophole, alongside the United States, China, Mongolia, Madagascar and Mauritius.
This government has failed to close the property loophole despite:
the Explanatory Memorandum to the Anti-Money Laundering and Counter-Terrorism Financing Bill 2006 forecasting a ‘second tranche’ of legislation that would include real estate agents, accountants and lawyers as designated services under the Act;
in April 2016, the Government releasing the statutory review of the Anti‑Money Laundering and Counter-Terrorism Financing Act 2006 which recommended that the Government develop options to regulate real estate agents, accountants and lawyers under the Act;
the Financial Action Task Force’s April 2015 Mutual Evaluation Report on Australia’s progress in combatting money laundering and terrorist financing stating that Australia is an attractive destination for foreign proceeds of crime, particularly corruption-related proceeds flowing into real estate; and
the December 2017 OECD Phase 4 Report on Australia’s implementation of the OECD Anti-Bribery Convention recommending that Australia address the risk that the real estate sector could be used to launder the proceeds of foreign bribery.
AUSTRAC estimates that $1 billion in suspicious transactions flowed through the Australian property market from just one country, China, in just one year, 2016. But AUSTRAC is hamstrung because it has little oversight of the three professions that most facilitate this activity.
Beyond the problems with the substantive policy in this bill, the proposal to establish strict liability offences for the use of cash is extraordinarily heavy-handed. The Law Council of Australia explains:
This ban exposes front line staff of retail and wholesale business operations, potentially including large numbers of low paid and unskilled employees, to criminal consequences for conduct within the scope of their employment and which they may have no control over, without regard to the ML/TF [money laundering and terrorism financing] risk and other circumstances of the transaction underlying the offence, or the individual’s role in it.
The establishment of a strict liability offence effectively reverses the onus of proof. In the case of restrictions on cash transactions, CPA Australia explains why a strict liability offence is particularly problematic:
For the strict liability offence, the defence of ‘honest and reasonable mistake of fact’ is challenging to argue given that cash … cannot be mistaken for anything else.
This bill is a classic case of the cure being worse than the disease. By criminalising the use of legal tender, and by taking a rose-coloured view of a world without cash, this government is blithe to the fundamental freedoms provided by hard currency, and is instead laying down a path towards surveillance capitalism and negative interest rates.
This government should drop this bill and start doing what is needed to tackle the wholesale tax avoidance and money laundering that makes anything that this bill might stop look like child’s play.
This bill should be opposed
Senator Peter Whish-Wilson
Senator for Tasmania