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The rising circulation of the $100 bill: What BSA/AML professionals need to monitor

By Jennifer Morrison, VP, Senior Risk Manager

On July 25, the International Monetary Fund (IMF) blog introduced the Chart of the Week with a discussion on the rise of the $100 bill, or “Benjamins,” in the U.S. economy. My first thought while reading this blog was of my retired mother-in-law who is fond of playing slot machines with an uncanny ability to win and later reveal her wallet full of “Benjamins.” (She credits her recently-deceased husband’s fondness for the slots and his luck.) But while this anecdote and the rising circulation volume of the $100 bill might just seem like harmless entertainment, it is actually a reminder of important red flags credit unions should monitor as part of their BSA/AML programs.

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Why is the $100 bill increasing in circulation?

The reasons for the rising number of $100 bills in circulation, especially in an increasingly cashless society, have less to do with gambling and luck than they do with tax evasion, criminal intent, and crime. Beginning in 2018, the number of $100 bills in circulation overtook the ubiquitous $1 bill in circulation volume for the first time in history. Since then, there are more $100 U.S. bills circulating than ever before, roughly doubling in volume since the financial crisis. This increased circulation of the $100 bill is due in part the expansive underground economy where the $100 bill is often a favored denomination. While online sales and bartering sites are common and generally benign, sometimes the goods sold on Craig’s List, eBay, and Facebook Marketplace are stolen goods. Everyone likes a bargain, and criminals often sell stolen goods at deep discounts. The underground economy is also rife with tax evasion and fraud schemes.

Another reason for the rise of the $100 bill is because it is easier to carry. One of the challenges for a drug dealer is physically handling money. The fewer bills in play, the fewer counting, handing, moving, and storing issues faced by the dealer (which is one of the reasons that the U.S. took all denominations over the $100 bill out of circulation more than 40 years ago). For example, $1 million in five-dollar bills in a single stack is 860 inches high--nearly 72 feet! This stack would weigh 440 pounds (assuming the bills are freshly-printed because dirty bills would weigh more). If the drug dealer converts the $5 bills to $100 bills, the stack is a mere 43 inches tall and only weighs 22 pounds, which is much easier to conceal and transport.

A third reason for the rise is of the $100 bill is due to those who prefer cash to banks and the un/under-banked: $100 bills are simply easier to carry around than a handful of smaller bills. The Federal Reserve estimated there are 55 million unbanked and underbanked adult Americans in the U.S. or about 22% of households.

Test your knowledge: Red flags to watch out for

Here are a few hypothetical situations with helpful solutions you can use to test your knowledge on identifying and responding to red flags that involve large amounts of cash.

Situation 1: A member is making large cash withdrawals, without reasonable explanation. The member might just come into the branch to take out the cash but may also aggregate the branch withdrawals with currency transactions across a number of ATMs.

Solution: This is always a red flag. Not only is a Currency Transaction Report (CTR) often required, but a Suspicious Activity Report (SAR) referral might also be appropriate from branch personnel. Make sure that branch personnel are trained to ask questions such as “What is the purpose of this cash withdrawal?” This kind of question can also be phrased to show concern for the safety of the member who will be carrying a large amount of cash on his/her person (instead of coming across like an accusation). Branch personnel should also ask themselves the following questions:

  • Is the reason for the cash withdrawal reasonable?
  • Is a large cash withdrawal of this type typical for this member?
  • Is the member planning a big purchase?
  • Is the member planning some sort of international travel?
  • Is the member accompanied by an interested family member or new “friend”? Note: The presence of the family member/friend and the withdrawal is a specific red flag for financial abuse/exploitation or other criminal coercion.

Interesting facts about U.S. dollars

  • Most $100 bills are held abroad. According to the Federal Reserve Bank of Chicago, nearly 80% of “Benjamins” and more than 60% of all U.S. bills are held overseas. This is up from roughly 30% in 1980.
  • The U.S. dollar is the world’s reserve currency and is seen as a particularly safe asset during times of global instability. This is not a recent phenomenon, and it is not tied to the global war on terror or specific to the recent financial crisis. People are more likely to hold U.S. dollars in times of financial instability, as much as political instability, similar to the propensity of some people to hoard gold in scary times.
  • Demand for U.S. dollars increased over the 1990s through the early 2000s, then stabilized or declined after the 2002 debut of the cash euro.
  • In addition to the safety of the U.S. currency, the overseas holdings of $100 bills (and other bills) is often tied to efforts by U.S. citizens to avoid taxes and regulation.
  • U.S. citizens often hide funds by buying assets abroad in U.S. dollars. “Apartments and houses in all major cities all over the world are paid for with suitcases of cash every day, and it is not because the buyers are afraid of bank failures,” according to Harvard University’s Kenneth Rogoff.

Situation 2: A member is exchanging an amount of money from smaller denomination bills into larger ones.

Solution: This is called “refining.” Refining currency is a big red flag for drug trafficking and their money mules. While some branch systems capture this transaction, the most reliable identification of refining is made by branch staff working with the member in person. This means branch staff must be educated to identify refining currency. Of course, this red flag does not refer to the member who occasionally empties their cash and coin stash from their car or a jar at home, or the member who is a server at a restaurant and has a lot of cash due to tips. Rather, the red-flag behavior is when the member requests to refine currency without a reasonable explanation. Make sure to report unexplained refining as suspicious.

Situation 3: Legal marijuana businesses often cannot find a credit union or bank to handle their accounts, so business owners may find it necessary to manage their cash through their personal accounts in order to reduce the large cash hoards that pose risks of theft.

Solution: In addition to the possible need to file a SAR for marijuana transactions, regardless of legality at a state level, such an exchange of cash from a business through its owners’ hands is also a red flag for tax evasion. Watch businesses such as parking lots, recyclers, food trucks, and even pet sitters for cash transactions that might not be reported to state and federal taxing authorities. Use a SAR to report the suspicion of tax evasion, remembering that you do not need proof to file a SAR.

Additional monitoring tips

Hopefully your financial institution’s systems will help you identify many of these red flags. Examples include the following:

  • ATM network. Does your network allow the credit union to aggregate transactions across multiple locations and days? Can the BSA/AML staff aggregate ATM transactions from outside the network with in-network transactions? Remember that a SAR covers an expanded timeline in contrast to the CTR that covers the credit union’s defined business day. Look for multiple ATM withdrawals of currency in small increments that when aggregated total amounts that would otherwise trigger a CTR. This is often known as “smurfing.”
  • Coin and currency. Your BSA/AML system should also monitor coin and currency orders at the branch level for shifting needs for higher denomination bills. Internal BSA/AML systems should help identify the high “consumers” of currency, along with members who typically deposit large amounts of currency (“suppliers” of currency). If there is a strong shift upward in demand for large bills, like $100 bills, branch and compliance staff should try to identify a source or sources.
  • Instincts/observations by your staff. In addition to internal systems, branch staff are your eyes and ears and are critical to monitoring members for changing behaviors that might indicate criminality. As long as there are branches, machines and AI will never replace the instincts and observations of humans. Branch staff often get to “know your members” personally and therefore must be trained to identify the red flags leading to the discrete but effective probing of members when confronted with activity that is unusual for that member. This is particularly critical for the growing threats to our seniors and susceptible populations from elder financial abuse, human trafficking, and other forms of exploitation.