The 500 euro is the world's most powerful banknote
beloved by black marketeers...
The 500 euro is the world`s most powerful banknote. Beloved by black marketeers, it is also financing a global crime wave. Live investigates the dark side of the note that`s so big, according to Dailymail.co.uk.
The fetching pink-and-purple 500 euro note has many fascinating features. Completing the architectural themes which begin with the classical depictions of the humble 5 euro note, the 500 sports a window in the modern style on the front, and a stylised version of the Pont de Normandie in France on the reverse.
It is also dripping with security measures as befits the world`s second-highest denomination note (only the little-used 1,000 Swiss Franc has a higher value): watermarks, hologram strip, reflective glossy stripe, EURion constellation, matted surface, bar-codes, ultraviolet ink, perforations, raised printing, colour-changing ink and a serial number.
It also has its own nickname: it is called the `Bin Laden` - you know they`re out there, and you know what they look like, but no one ever sees them.
No one, that is, except the scruffy Peruvian with a Mickey Mouse backpack who was being observed by a Chilean undercover police team as he sat patiently on the pavement in bustling downtown Santiago.
The man had a five o`clock shadow, stained jeans and well-worn trainers. He had flown in from Lima early that morning and now leant against the peeling green-painted exterior of the shabby Costa Brava casa de cambio (bureau de change) in Augustinas Street, waiting for it to open at 9am.
Inside his tiny backpack was 600,000 euros (around £520,000), all of which was in the distinctive pink 500 euro banknote. None belonged to him. He was simply a `smurf`, or money-laundering courier, and had been paid £1,000 for his errand.
No one looked on with greater interest than Christian Caamano, head of the financial crimes unit of the Policia de Investigaciones de Chile (PDI). He was steering a five-year investigation called Operacion Suspiro Europeo (Operation European Sigh) which eventually broke a £120 million euro-laundering scheme.
In his corner office in the turn-of-the-century monolithic police headquarters near the Chilean presidential palace, he shakes his head and smiles.
`This man took our breath away. He looked like a tramp. If any of the passers-by rushing to work that day had known his backpack was stuffed with so much money, he would probably have been robbed.
`Instead, he calmly waited for them to open. Then he handed over the euros, which were stashed away in a huge safe. A few hours later, they were picked up by a second courier. This one got a flight direct to Los Angeles, and put them into a U.S. bank.
`A few days later the money was wired back to a bank in Bogota from the U.S. So by now, the entire money-laundering cycle was complete. It is in this way that dirty drug money gets into the legitimate banking system in the U.S. and Europe.`
Why has the 500 euro note become so central to this trade? Because its ultra-portability has made it the marker of cross-border crime, greasing the wheels of the cocaine trade, the black market and the tax-evasion business.
The logic is simple. The 500 euro is easier to conceal - drug barons can hide very large sums in very small bags. Also, the value of the euro has grown; not only is it more stable than the dollar, it`s worth more, too, so even more value can be packed into a small space.
And while the U.S. market for cocaine has slumped, there has been a boom in the UK and Europe, thereby increasing the criminal trade in euros.
Take this fact: according to Colombian financial regulators, in 2006, euros valued at about £200,000 were legally imported and declared as entering Colombia. This would typically have been tourists` money.
Yet the same year, nearly £600 million worth of euros were exported. The vast disparity is because the balance went in undeclared - importers paying for cocaine tend not to fill out currency declaration forms.
And there`s this too: in 2006, just four years after the euro had been introduced, the Spanish government revealed that 25 per cent of all 500 euro notes in world circulation were to be found in Spain. It estimates that figure has since risen to 30 per cent. Significantly, Spain is one of Europe`s principal conduits for cocaine importation.
In this investigation, stretching from the world`s cocaine capital of Bogota in Colombia, to Chile, Spain, West Africa and London, Live has pieced together the latest phenomenon to hit the world`s narcotic and money markets.
In simple terms, this report on the inner workings of the globalised underworld confirms the stark belief of Christian Caamano.
`The high denomination 500 euro note,` he says, `has made it easy for the bad guys.`
Two of the last big high-denomination banknotes were the $1,000 U.S. and Canadian bills. The first was killed off in 1969; the second in 2000. In both cases, the notes were helping organised crime be even more organised.
Police had lobbied intensively against them, arguing that large notes lend themselves to laundering and wider criminal activity.
So you might think it was a hostage to fortune to introduce a 500 euro note in 2002, but the European Central Bank insists that it was only meeting the demands of countries who already had high denomination notes: Germany had a 1,000 Deutschmark note, for example (then worth £300).
Today, of some 776 billion euros in circulation, about 280 billion of the currency are in 559 million individual 500 euro notes. The euro has now become the second-largest reserve currency in the world and has been tipped to knock the dollar off its perch sooner rather than later.
Since 2002, the Eurozone has expanded to include 16 of the 27 European Union states, and to keep up with demand 14 production plants printing euro banknotes are spread across the currency member countries, some being run by central banks and others by licensed private companies.
Production schedules are controlled by the European Central Bank (ECB), based in Germany, in conjunction with the local central banks, and production of the different notes is rotated throughout the countries in the Eurozone. Each member decides for itself how many 500 euro notes it will produce in a year.
All of the central banks have their own vaults, unlike the ECB itself. Criminals too have been keen to build up their stocks of euros and have not been shy of cashing in on the euro to fund their own nefarious activities as well as conceal the origins of their criminality.
They appreciate how the 500 euro notes do not require conversion every time they encounter a national border, and nor do they betray their illicit origins with such ease as a cache of mafia-tainted Italian lire or a bundle of hashish-scented Spanish pesetas.
Increasingly, however, the euro is becoming the currency of choice not just of local crime syndicates but also for international drugs cartels; and especially those that are run by the crime kingpins of South and Central America.
In part, this reflects the increasing prevalence of cocaine across Europe in the last ten years thanks to a surge in use, especially in Spain and the UK according to the UN Office on Drugs and Crime (UNODC), which also reports a decrease in use of the drug in America in the past few years.
Russell Benson, regional director for Europe and Africa of the DEA, says: `Cocaine trafficking towards Europe has seen a dramatic increase over the last three or four years and we will see this upward direction maintained into the future.
`Colombian and Mexican organisations are looking to increase their market share in Europe. One of the reasons why they see this as an advantage is simply because of the amount of money they can earn from a kilo of cocaine.
`In recent years the value of the euro against the dollar has increased, making it a valuable proposition for these groups of thugs. A 500 euro note is worth around $720: $1 million (£600,000) in $100 bills weighs 22lb - in 500 euro notes just 3.5lb.
`These notes are significantly easier to smuggle back to Colombia or Mexico. Couriers can fit millions into a small bag. You can see why these large denominations appeal to criminal organisations.`
The introduction of the 500 euro note in 2002 was, as one top Colombian drug enforcer said, `like a gift from the gods for the narco guys. To transport a million bucks of dirty money you`d need a suitcase or two. Now, $1 million in 500 euro notes fits into a backpack. It`s made life much more convenient for the drug lords.
`The focus has switched from drugs going from Colombia to the U.S. to drugs flooding Europe. The drug barons of Colombia love the 500 euro. They make much more money for their cocaine in Europe. It sells for roughly twice the amount as in America, and they can hide the money with much less difficulty.
`The drugs go in through Spain, often via West Africa, and then the euros come back out to the drug lords back over in Colombia, in Cali or Medellin or Bogota.`
The problem, however, is what to do with the European currency once it arrives in Latin America. Banking regulations mean that any deposit over $10,000 (around £6,000) in a legitimate Colombian bank automatically alerts the authorities.
The UIAF, Colombia`s financial regulator, believes 90 per cent of the euro 500 notes currently in circulation worldwide (outside the European Union) are being smuggled into Colombia.
Because anyone walking into a bank with a stack of 500 euros would immediately set alarm bells ringing, scores of unregulated casas de cambio have sprung up all across Latin America: in Chile, Colombia, Ecuador, Peru and Venezuela.
These will exchange foreign currency for local pesos, or courier the notes over to the U.S. to be deposited in a legitimate bank. They then have the money wired back to the drug gang accounts in the home country.
This is exactly what was happening in the case being investigated in Operacion Suspiro Europeo, which revolved around the two brothers Mauricio and Jose Mazza and their cousin Luis Mazza (known as `the Mexican`). In general the drug lords hire scores of couriers - the `smurfs` - to carry out multiple transactions.
`Very often the euros will be sent back via smurfs on planes from Spain,` says a DEA source in Bogota.
`They will come in through Venezuela, Ecuador or Peru. Either they change it into pesos at a casa de cambio in those countries, or put it in a backpack to cross into Colombia along the long stretches of the border that are unmanned.
`Sometimes they will spend days travelling through jungles and across rivers with a backpack full of 500 euro notes.
`These are ordinary people who will get only one or two thousand per trip. They will make multiple deposits at several exchange houses so as not to raise suspicions or, if the wholesale currency broker hired by the drug cartels can set it up, they will make a major deposit at a corrupt exchange house that has agreed in advance to take the money.`
In the Chilean case, the Peruvian courier was one of dozens who made multiple deposits at the Mazza brother-owned Turismo Costa Brava exchange house.
According to lead prosecutor Hernan Penafiel, an undercover sting operation was set up after customs agents at Santiago Airport busted a Peruvian smurf who had been found carrying a backpack containing approximately £300,000 in 500 euro notes into Chile in August 2004: `He told us all about Turismo Costa Brava and the Mazza clan and a secret surveillance operation was put in place. The first bust was by pure chance.`
Basing themselves in a nondescript brick office building opposite the exchange house on Augustinas Street, dozens of officers maintained their stakeout all around the clock.
The euros would arrive via one smurf, would be picked up days (or sometimes hours) later by another courier who would then board a plane to Los Angeles, where they would be deposited in Harris Bank, respected and long-established (it was founded in 1882) and based in Chicago.
From there, the money would be wired back in pesos to accounts controlled by suspected narco traffickers in Colombia. That part of the investigation is still ongoing and further charges are expected.
Penafiel said: `We discovered a pattern. Every week we watched as a flotilla of Peruvian couriers came into Chile. It was the same modus operandi every time. Same flights, same amount of 500 euros, all to the same casa de cambio - Costa Brava.
`We apprehended the first courier in August 2004. He cooperated with the investigation fully. We traced the serial numbers on the 500 euro notes. They all came from banks in Spain.`
One of the main conduits for the large-denomination euro notes out of Europe has been through the Costa del Sol in Spain. Here they are following the very same routes that the cocaine dealers will have been taking to traffic their product into the increasingly lucrative markets in western Europe.
But the Costa del Sol also offers the opportunity for another and more subtle process of money-laundering through Spain`s property industry, which was burgeoning for many years until the effects of the credit crunch.
A study by the Malaga Criminology Institute illustrated the link between real estate developments on the Costa del Sol and illicit - or at least inexplicable --sources of large-denomination euros. Antonio Verchet, who is one of Spain`s senior prosecutors on environmental crimes, has noted that 20 alleged drug syndicate leaders who had been arrested had all had their own real estate firms. Given these facts, it no surprise that so many `Bin Ladens` are swilling around the country.
This complex flow of money has created problems for law enforcement agencies across Europe and the Americas. However, it has also given their detectives new opportunities to break cases.
Russell Benson says that the DEA has recently been focusing not on trying to stop the drugs - an increasingly hopeless task - but on `following the money` on the return journey. The aim is to cut off the cashflow from the criminals and so cripple the cartels` ability to oil the wheels of supply and demand.
Worringly, the DEA has lately come to believe that the appeal of the large-denomination euros is not just restricted to the drug trackers of Latin America and their trade in Europe.
In December 2009 three alleged Al-Qaeda members were arrested in Ghana after a lengthy sting operation involving the DEA. An agent went undercover to pose as a member of the Colombian revolutionary organisation FARC, which has long been known to fund its activities through cocaine trafficking.
Oumar Issa, Harouna Toure, and Idriss Abdelrahman claimed, according to US court papers, that they were members of the group Al-Qaeda in the Islamic Magreb (AQIM) and that they could shepherd FARC cocaine shipments from the west of Africa to the north and then on to Spain.
Russell Benson of the DEA said: `We have seen the rise of euros being used by traffickers in West Africa, and in this particular case these men wanted to charge our undercover operative in euros for each kilo that was being transported.`
Britain`s Serious and Organised Crime Agency (SOCA) has also become increasingly focused on large-denomination euros as the currency of choice for criminal cartels.
David Thomas, head of SOCA`s UK Financial Intelligence Unit, says: `Serious organised crime groups have developed a taste for the euro. They can move the high denominations that they have accumulated down towards Spain before it is shipped over to Europe.
`We used to call them "boomerang euros" because they would be shipped from Europe over to South America, then back up to Miami and finally back over to Europe. But even by the time it reaches the U.S. the money has been stripped of criminal value, which is what makes it so difficult for U.S. prosecutions.
`I like to explain laundering money using the image of a bucket. At the beginning of this process the bucket is full of criminal value, but as it is passed along the line a little bit more of that criminality is spilled each time.
`At various points the money may be changed again or it may be swapped for goods or services - protection, houses, or cars for instance. By the time it reaches the end of the line it has been stripped of all criminal value. The money might be tainted but it is too late for us. We need to move earlier in the chain.`
More and more law enforcement agencies are having to broaden the front against drugs.
`The UK market in cocaine is still on the increase,` says Thomas Pietschmann, the leading expert on cocaine at the United Nations Office on Drugs and Crime, `but now euros are increasingly being used as well for the heroin trade.`
The suspicion is that the 500 euro note is playing a vital part in a criminal operation with links even to the poppy fields of Afghanistan.
Britain`s role in the far from virtuous circle of laundering doesn`t just encompass the sale of drugs and the funds this generates. There is evidence that British gangs have been using bureaux de change in London for changing sterling into euros. The UK involvement in the intimate relationship between international crime and Europe`s highest-denomination note is highlighted by the extraordinary facts that came to light in a court case in Miami in 2008.
Almost £9 million worth of high-denomination notes, nearly all 500 euros, were seized from an American Airlines flight from Bogota. American federal agents believe that this was just the tip of the iceberg, with Miami the transit point for a transatlantic trade that amounted to little short of £1 billion.
The final destination was, according to the U.S. court papers, London Heathrow and the British money exchange house TTT Moneycorp.
This route started with drug traffickers taking their euros to a `mayorista`, or unregulated wholesale currency broker, who then moved the cash onto a small but regulated currency exchange business, before they were passed onto a large regulated government-run exchange house.
From there the cash was to be flown to Miami, and then to London, where the pattern has been to exchange it into dollars before transferring it via the U.S. banking system to Colombia`s regulated money exchanges. Finally the plan would be for it to be realised as Colombian pesos.
A TTT Moneycorp spokesman said: `This currency had not actually reached us. We take money-laundering very seriously and we are at the top end of our business when it comes to controls and procedures so we do not get involved in this.`
The only people, it seems, who do not accept a link between the note and crime are the European Central Bank.
`The ECB refuses to accept that 500 euro notes should be scrapped,` says a spokesman at the bank.
`You can argue that U.S. currency notes are being used by narcotics gangs. Should dollars be stopped because they are used for certain things? There is no evidence that certain bank notes are used by criminals or made to satisfy this market.`
But he also adds, `There will be an ongoing debate about whether certain notes are needed. Some advocate the scrapping of the 500 notes because they are rarely used, and in some countries hardly anyone pays with them. But there are no plans currently to change the notes we have in circulation.`
At least while the 500 euro note continues to be printed and circulated it helps the police `follow` the trail. Witness how it bore fruit in compiling the police case against Mauricio Mazza over more than two years, a joint investigation between the U.S., Colombia, Peru and Chile.
Lead prosecutor Hernan Penafiel explains: `It took time because it was a particularly complicated investigation at the Colombian end. The money was being laundered through multiple casas de cambio in Colombia, making it extremely hard to trace the source of the cash.`
Mazza was eventually arrested in the U.S. as he entered Los Angeles in March 2007. He was tried in New York and convicted in January last year on three counts of unlicensed operation of a money exchange. In September he was sentenced to three and a half years in prison and given a $10 million (£6 million) fine.
He is currently in a New York jail and remains under investigation in Chile. Mazza is expected to be extradited at the end of his jail term in the U.S. and face further charges in Chile.
`I worked out a deal with the prosecutor,` says Bernard Alan Seidler, former attorney for Mazza.
`It permitted him to go home to Chile but he wanted to stay and fight the charges. He didn`t seem anxious to go back to Chile. You can draw your own conclusions on why that might be.`
From `the bunker`, the heavily fortified concrete building in the south of Bogota that houses the judicial prosecutors, to the authorities in Chile, Spain, the UK and the U.S., attention is turning away from greenbacks to the pink `Bin Ladens`. And the stakes are getting ever higher.