Why Money Launderers Love $100 Bills

Odd Lots

This episode of Odd Lots explores the paradox of increasing physical cash circulation—especially $100 bills—in a world where digital payments dominate. Hosts Joe Wiesenthal and Tracy Alloway discuss

Key takeaways

• Money laundering is estimated to account for 2–5% of global GDP—equivalent to $2–5 trillion annually—despite decades of anti-money laundering efforts.
• The persistence of this figure since the late 1990s suggests that regulatory and law enforcement measures have largely failed to reduce criminal financial flows.

Main topics

• The paradox of rising cash circulation despite declining everyday use
• Money laundering as a global economic force

Notable quotes

"The fact that [money laundering] grows alongside the global economy is proof that our efforts to stop it have essentially failed."

Conclusion

Despite technological advances and global anti-money laundering initiatives, criminal enterprises continue to

Transcript preview

Speaker 6 (0:00) Here are five reasons to subscribe to Speaker 7 (0:02) Bloomberg News Now. Number five, you get the latest news from around the world instantly. Number four, it saves you time. Your day's busy. Catching up takes just a few minutes. Three, it's available 24 hours a day whenever you need it. Two, it's convenient. Listen on your smartphone or smart speaker. And number one, it's easy to find. Subscribe on Apple Podcasts, Spotify, or anywhere you listen. Five reasons, one simple way to stay on top of the news. Bloomberg News Now. Speaker 5 (0:34) Hello, Odd Lodge listeners. I'm Joe Wiesenthal. And Speaker 2 (0:37) I'm Tracy Alloway. We're Speaker 5 (0:38) the hosts of the Odd Lodge podcast, and we've got something exciting for you. Speaker 2 (0:42) That's right. So one of the best parts of hosting our podcast is we get to actually meet and interact with our listeners. And we know we have some listeners over in Los Angeles. Speaker 5 (0:51) That's right. So if you're in L.A., we're going to be recording a live show, some live recordings at the Vermont Theater in Hollywood on September 17th. We Speaker 2 (1:01) have some really exciting guests lined up. have some really great conversations planned. So go ahead and get your tickets. You can find those over at Bloomberg.com forward slash oddlots or click the link below in the show notes and come and say hi when you're there. Speaker 3 (1:20) Bloomberg Audio Studios. Podcasts. Radio. News. Speaker 2 (1:35) and welcome to another episode of the Odd Thoughts Podcast. I'm Tracy Alloway. And Speaker 5 (1:39) I'm Joe Weisenthal. Speaker 2 (1:40) Joe, everything I know about cash came from that tour we took of the Chicago Fed's cash facilities with its president, Austin Goolsbee. That Speaker 5 (1:50) was really fun. I'm trying to think. What do you remember? I remember just seeing lots and lots of cash, ink. I remember appreciating the smell Speaker 2 (1:59) of the cash. It has a very idiosyncratic. I remember the color of the cash, which you don't really notice all the different shades of dollar bills until you see them stacked up. Right. Speaker 5 (2:12) We just think of them as green. Yeah. But there's like pinks in there and oranges. Yeah, absolutely. Speaker 2 (2:16) Fifty shades of green. And then one thing that I remember is Austin actually telling us that 85 percent of the two point four trillion dollars in circulation. happens to be $100 bills. Do you remember that? Speaker 5 (2:31) Yeah. And this is one of those sort of like facts about the world that people seem to know, but don't really think through. It just sort of comes up every once in a while. This phenomenon that, you know, by and large, like two things I think people may know about the cash economy, which is by and large, people use less and less cash in their daily lives. That fact seems to have actually had no effect on the amount of cash in circulation. Right. It keeps growing. And then quite a bit of that cash in circulation is in relatively high denomination bills that are even used less than, say, the fives or the 20s. Speaker 2 (3:07) Yeah. I don't know about you, but I do not walk around with a lot of $100 bills in my pocket. No, me neither. On the rare occasions when I do go to a cash machine, I always choose. 20s or even fives and tens, right? So the question is, what are people doing with all these $100 bills, right? And when we talked about it with Austin, he described it as a disconnect between the stats and the daily use of cash of most Americans. But I think there's kind of an obvious answer here, right? What are people doing Speaker 5 (3:37) with $100 bills? Well, Speaker 2 (3:38) I have an answer Speaker 5 (3:38) because I can tell you the last time I walked around with a significant stack of $100 bills. Speaker 2 (3:44) Okay. Speaker 5 (3:45) I was playing in a poker game in New York City. And it was not a regulated poker game. And I didn't lose all my money that night. And so I walked home with a lot of $100 bills. So maybe that is a sort of- That's some Speaker 2 (3:56) good, humble bragging, Joe, about winning at poker. Speaker 5 (3:59) I didn't win. I said I didn't lose all my money. But maybe that's sort of a clue about the types of activities that might lend themselves to high-denomination individual bills. Speaker 2 (4:09) Yes. So this episode is- Perhaps poker adjacent. We're Speaker 3 (4:14) going Speaker 2 (4:14) to be talking about money laundering, which we've never done an episode specifically devoted to money laundering. And it is, in fact, like a huge business. Some Speaker 5 (4:21) of the numbers you read about them and they're like staggering. And I almost like don't believe some of the numbers. When you figure out it's like, OK, drugs are probably a big deal. Fraud is probably a big deal. Crime is a big deal. People are trying to get their money out of countries that have very sort of rigid capital controls. China being an obvious example. You can see how it adds up. Speaker 2 (4:44) Yeah, absolutely. And of course, money laundering is kind of the thing that makes a lot of crime possible, right? Like a lot of people wouldn't be in the crime business if they couldn't actually use the money they're generating from it. And money laundering is the way they're able to do that. So I think it's Speaker 5 (4:58) a Speaker 2 (4:58) worthy subject to dive into. Speaker 5 (5:00) I really want to learn more about how it all works. Speaker 2 (5:02) All right, let's do it. We do, in fact, have the perfect guest. We're going to be speaking with Oliver Bullough. He is a journalist and author of Everybody Loves Our Dollars. So, Oliver, thanks so much for coming on All Thoughts. Speaker 1 (5:14) And thanks for having me on the show. I'm really pleased to be here. Speaker 2 (5:17) Talk to us about the scale. of money laundering? Because you sometimes hear these statistics thrown out, like bigger than the entire GDP of Germany, certainly bigger than a lot of big tech companies and things like that. How large are we talking about here? Speaker 1 (5:33) Well, it's worth saying in advance that obviously no one really knows. The criminals are not filing accurate tax returns. So there's a lot of supposition going on here. But the most widely used estimate is that we're talking about between 2 % and 5 % of global GDP. And since global GDP is approximately $100 trillion, that means between $2 and $5 trillion being laundered globally. And that's a pretty decent amount of money. You could build quite a lot of data centers with that. And that's growing all the time. I like how we measure everything in Speaker 2 (6:08) data centers now. How many data centers can you build? Speaker 1 (6:12) Yeah, I mean, I don't know if the criminals are building a lot of data centers. I mean, they are choosing almost any avenue they can find to launder their money. So perhaps that's the new new thing. But the old things are still very much current. We're talking about, obviously, cash money earlier. And although we like to focus on shiny things, crypto for laundering money, I mean, criminals are pretty traditional in a lot of the ways they move their cash. So we are often talking about literal banknotes. Speaker 5 (6:39) Do you have a sense of how that 2 % to 5 % number is derived? Because, yes, we've seen that stat, etc. But also, as you've said, no one is filing these things in any sort of official manner. It's a lot of money. Do you have a sense of why people think it's in that ballpark? Speaker 1 (6:58) That's a really good question. Actually, it derives from an estimate given by Michel Candesso, who was the head of the International Monetary Fund back in the late 90s, a French central banker. And he came up with this idea in the late 90s that it was between 2 % and 5 % of global GDP, which was based on a couple of economists' work at the time trying to work out the size of the global economy. And it was very much a guesstimate. at the time. And it's been attacked from lots of different directions, trying to work it out in a sort of a macro way, looking at it in micro way, trying to work at various guesses. And people do keep coming back to this kind of a range. So the estimate that tends to be given is, yeah, two to 5 % is the same estimate that was given in the late 90s, which is, it's a kind of uncomfortable truth hidden in that estimate, which is that if the scale or the share of the global economy that is criminal is the same now as it was in the 1990s, it means that everything we've done to try and tackle money laundering, which has been an awful lot since the late 90s, has essentially failed to do anything except perhaps prevent the criminal economy from getting bigger. Criminals have been able to outmanoeuvre regulators and law enforcement agencies and governments' attempts to limit them by a sort of ceaseless entrepreneurial nature ever since have been attempts to stop them from laundering money. And the fact that their share of the global economy just grows alongside the global economy is proof of that. Speaker 2 (8:24) Yeah. The fact that it's growing in tandem with like broader economic growth. Absolutely. So, okay, what's going on with our efforts to actually tackle money laundering? Because I used to cover the banking industry. And one thing you would hear from banks all the time is how onerous KYC regulation, know your customer regulation was, how terrible it was that they had to file thousands and thousands of like... suspicious activity reports, lots and lots of complaints about everything they're doing to stamp out suspicious or illegal activity. But at the same time, per your commentary, it doesn't seem like it's actually been effective. Speaker 1 (9:00) It's obviously easy to dismiss what banks say as special pleading, but actually they do have a point. We have an incredibly intrusive and onerous system put in place to try and stop money laundering and terrorist financing, which was, I mean, it was created the first AML legislation. The sort of rather weirdly named Bank Secrecy Act was passed back in 1970 in the US, and then it spread globally when it became clear that one country couldn't fight money laundering on its own because it was pretty easy to. just fly your banknotes to the Bahamas, Cayman Islands or Panama. And then so it's pretty important to have their cooperation and then everyone had to cooperate. So we ended up from the late 80s, thanks to an institution called the Financial Action Task Force with a kind of global approach to tackling money laundering, which has become incredibly intrusive, incredibly expensive. The estimates from LexisNexis is that global compliance with AML legislation. It costs something like $200 billion a year, which is a lot of money. I mean, if you look at what you could do with that money if you weren't using it for this, that would be enough to solve world hunger and to provide clean water and sanitation to everyone on Earth with about $50 billion left over. So it's a huge amount of money which is being spent on this issue. And a lot of that money is being spent by banks who are expected to check transactions to use ever more elaborate. AI-powered compliance software, which they are doing. They are attempting to do the job being asked of them. They face very large fines if they don't do that job. So it's fairly easy to see why they're doing it. But it's not working. The system that we have is incredibly laborious, very bureaucratic. It generates, as you say, millions upon millions of suspicious activity reports every year, but it is signally failing to stop. the money launderers who are always at least one step ahead. Speaker 5 (10:48) So obviously, we really want to get into the details of the creative ways that criminals and so forth move money across borders. But just to sort of set the scene a little bit, we started this conversation by talking about how much cash there is in circulation and the prevalence of high denomination bills. We're also talking about all the suspicious sort of incident reports that banks file. Big picture, I sort of have two questions. One is, what is the general sense of the distribution? How much is this happening via cash and bearer instruments that are hard to track? And how much, you know, we see the headlines from time to time, a bank will get into really big trouble. HSBC got into trouble years ago. How much do we think is happening sort of inside regulated financial institutions that didn't identify the illegal movement of money? Speaker 1 (11:41) Obviously, it is happening via regulated financial institutions. We know this because occasionally they get caught, whether that's Danske Bank or Deutsche Bank, HSBC, whoever. But if you look at the scale of global cash smuggling, and you compare that to the amounts that are even in these gigantic money laundering scams, which are accused of going through regulated financial institutions, it's just an absolutely different. What Danske Bank was accused of moving, if I remember rightly, about $130 billion over several years for suspicious Russian clients. Global cash smuggling is certainly in the hundreds of billions annually. Cash is a hugely significant tool for moving illicit wealth around the world. And even that is dwarfed by what we refer to as trade-based money laundering. It is essentially a way of moving value around the world, not in the form of... money at all, but in the form of stuff. If you are moving value out of China, it's far easier to do it in the form of essentially misinvoicing a shipment of manufactured goods or knockoff designer clothes or whatever than it is to move it in the form of money at all. So there is a focus on the regulated sector, banks in particular, when we talk about money laundering, for obvious reasons, because it's sort of easy to look in a spreadsheet and see value moving around. But actually, it's a far... bigger deal if you look at how money is moved in the form of cash and how money is moved in the form of stuff. And that form of money laundering, trade-based money laundering, is almost impossible to estimate. I mean, there is an institution in Washington, Global Financial Integrity, that estimates that that's about a trillion dollars a year is moved via trade-based money laundering. You know, we're talking about amounts of money being laundered outside the financial system that completely dwarfs what's happening within the financial system. Speaker 2 (13:30) Yeah. So one thing I learned from your book is there's a connection between drug money and I guess John Deere tractors and other equipment with the Mexican cartels, like essentially trading fentanyl for farming equipment. Can you walk us through that particular example? How does this actually work? Speaker 1 (13:47) Well, you can see this. It's just logical that if there is, let's say, $50 billion worth of cocaine arriving in the United States every year, I've just invented that number, but it's a nice round number. So let's say it is that. Then there must be $50 billion of something else flowing in the opposite direction for the books of the cartels to balance. They're not in this for charitable reasons. They like to make a living out of moving drugs. So that follows. Now, obviously, a significant amount of that is in the form of money.