Today’s guest post is from Marcelo Costenaro Cavali, a Brazilian Federal Judge in the District Court of Sao Paolo and a Professor of Criminal Law at the FGV Sao Paolo law faculty.
Criminals like to use cash because it is widely accepted, anonymous, and virtually impossible to track. Paying bribes in cash, for example, may be less risky than using more easily traceable electronic transfers. For this reason, many countries have enacted, or are considering, legislation restricting the use or possession of cash in large quantities. For example, in Brazil, the Senate is currently considering a bill that would prohibit the use of cash for all real estate transactions and for all other transactions over 10,000 Brazilian reais (approximately 1,900 US$); the bill would further prohibit carrying over 100,000 reais (approximately 19,000 US$) and possessing over 300,000 reais (approximately 57,000 US$) in cash, except in specific situations. (The bill would leave the implementation and enforcement to the Brazilian Financial Intelligence Unit (COAF), which would also have the power to adjust the threshold amounts.) Such limits on holding and using cash can be an effective means for disrupting money laundering, corruption, and tax evasion, and this bill, if passed, could therefore be an important step forward in Brazil’s fight against corruption and other economic crimes.
Indeed, several recent cases in Brazil demonstrate the extent to which corrupt actors prefer to rely on cash, and how much the proposed bill would interfere with their preferred ways of doing business. To highlight just a couple of examples: One former Congressman arrested in the Lava Jato (“Car Wash”) anticorruption operation had R$51 million (approximately US$16 million at the time) stashed in his apartment; and earlier this year, a small town mayor was arrested with R$505,000 reais (approximatelly US$96,000) in a suitcase while boarding a domestic flight. And with regard to real estate transactions speficially, paying cash is a common method of laundering illegally obtained money. There are numerous cases of Brazilian poliiticans embezzling money and then using it to acquire real estate in cash.
The few arguments that have been advanced against these cash limits are unconvincing, mainly because the very high thresholds mean that the bulk of transactions conducted by ordinary people would not be affected. The new restrictions would constrain only a small number of individuals who would prefer to use cash when making large purchases. Thus while it is true that 36 million Brazilian citizens still don’t have a bank account, and so need to rely on cash, hardly any of these low-income Brazilians would be conducting transactions large enough to be affected by the proposed measures. Virtually all Brazilians wealthy enough for the high thresholds in this law to matter have access to online payment systems, bank transfers, and credit and debit cards. (Indeed, Brazil’s Central Bank recently instituted a nationwide instant payment system, called Pix, that makes it possible to transfer money between people and companies in up to 10 seconds, 24 hours a day, seven days a week, for free.
To be sure, restrictions on cash will not be sufficient to combat money laundering and illicit financial flows. The banks have not done enough to address illicit flows within the banking system, and criminals are also increasingly using cryptocurrencies to disguise their activities. Nevertheless, many criminals still prefer cash. And that means that approving this bill will be an important step forward.