Financial Times: Your article May 10, 2006:" Number in the news: Loadsamoney" ( €500 notes)

Dear Mr Briscoe:
I saw your recent article cited above.
Part of the answer about where the €500 bills are lurking is set out in the following IHT article, which I believe understates the situation here. I have sent this and other articles ( appearing in the Spanish press) on the situation to your Madrid based colleague, Leslie Crawford, who had in fact a front page story also in the May 10 FT issue, "Police raid over €5bn Spanish Investments". That is relevant in that in one of the raids, police discovered that one of company bosses had hidden some €10 million in €500 notes in a false wall, one expects as a rainy day contingency fund.
Leslie had another relevant article on the situation here in the May 12 FT as well. The connection there is that a lot of the €500 notes form part of the corrupt , under the counter land speculation and related deals. Recently I saw another article here which reported that, because these notes have also been so convenient to pay for ilegal drugs coming in here from Colombia, it is possible to buy these notes , for $US at a 20% discount. The €200 notes are almost as popular for the same illicit purposes, by the way. Those two high denomination bills, which one rarely sees in normal commerce, account for about half the total value of currency in circulation here.
I saw that there has been some consideration in Brussels about introducing €1 and 2 euro notes, as a means of countering the gouging that still goes on because of the transfer to the Euro from national currencies. In my view that measure is too late, and nowhere has this "euro effect" been felt more than in Spain. However, given the situation concerning high denomination notes, it may be timely for the relevant EU bodies to consider withdrawing both the €500 and €200 notes from circulation, with a six month window in which to exchange them for smaller denomination notes or place them on deposit with regulated financial institutions. At almost one blow, a lot of the all too familiar corrupt practices would be exposed and possibly curtailed, if not entirely stopped.
Best regards,
Charles Svoboda
President
Abusos Urbanisticos NO
Valencia , Spain
www.abusos-no.org

IHT: 20/04/06: €500 bills in Spain-Why so many?
One in four €500 bills are in Spain. Why? Crime might be the answer (Note : other articles claim the total is actually 40% of these "Bin Laden" bills)
By Renwick McLean International Herald Tribune

THURSDAY, APRIL 20, 2006

MADRID The Spanish government has opened an investigation to learn why nearly a quarter of the €500 bills in circulation are currently found in Spain and to determine whether it was the result of illicit activity, officials at the Ministry of Economy said Wednesday.

Government officials and outside analysts say that the high number of bills reflects a large black market economy, extensive tax evasion, and perhaps considerable levels of money laundering and corrupt business practices.

The €500 bills, worth $618, are seldom seen in everyday commerce in Spain, but officials at the Ministry of Economy say that there are more than 90 million of them here, or about 25 percent of the total. About 10 billion bills of all denominations are currently in circulation, according to the European Central Bank.

"If you consider the size of the economy, Spain has many more of these bills than you would expect," said a spokesman for the Ministry of Economy, where protocol dictates that press officials speak on the condition of anonymity.

"We would like to know why," he said, adding that it was too early to say whether the cause was illicit activity.

Gestha, an association of tax professionals in Madrid, has been calling for an investigation of the bills for months, speculating that they were a result of corruption connected to the booming Spanish real estate market.

Housing prices in Spain have more than doubled since the late 1990s, driven by rising incomes, immigration, and low interest rates set by the European Central Bank. According to the Ministry of Housing, unsubsidized house price growth slowed slightly in the last quarter of 2005 but was still up by an annual 12.8 percent.

Spanish investigators say that city governments in Spain have become increasingly vulnerable to corruption during the boom, as developers lobby them to hand out building licenses and to approve rezoning requests.

When the euro went into regular circulation in 2002, hardly any of the €500 notes were in Spain, partly because it was not one of the countries initially authorized to issue them. But the number has grown steadily since then, increasing by more than 30 percent in 2005 alone, according to the association of tax professionals.

This sharp growth and the suspicions that it is linked to illicit activity have led to calls that the bills be withdrawn from circulation from some industry groups and associations.

But government officials have rejected the requests, saying among other things that the bills are an important tool for investigators who track money laundering.

"Killing the €500 euro would deprive us of an important piece of information" in the fight against money laundering, Soledad Núñez, director for political finance at the Ministry of Economy, said at a conference on money laundering in March, according to the state-financed news agency EFE.

But Alejandra Gómez, a criminology professor at the University of Malaga, said in an interview that the presence of large bills does not generally indicate money laundering. "Laundering of large sums of capital is usually done through institutional channels," she said.

"The only thing these bills indicate for sure is that there is a high-level underground economy here," she added.

The large bills could be from drug dealing or corrupt activities in booming industries like real estate, she said. But the most likely explanation is that many Spaniards are trying to hide their income and wealth from the government.

"What this tells us is that there is a significant level of tax evasion in Spain," she said. "Much of the population does not believe tax evasion is a serious crime."

MADRID The Spanish government has opened an investigation to learn why nearly a quarter of the €500 bills in circulation are currently found in Spain and to determine whether it was the result of illicit activity, officials at the Ministry of Economy said Wednesday.

Government officials and outside analysts say that the high number of bills reflects a large black market economy, extensive tax evasion, and perhaps considerable levels of money laundering and corrupt business practices.

The €500 bills, worth $618, are seldom seen in everyday commerce in Spain, but officials at the Ministry of Economy say that there are more than 90 million of them here, or about 25 percent of the total. About 10 billion bills of all denominations are currently in circulation, according to the European Central Bank.

"If you consider the size of the economy, Spain has many more of these bills than you would expect," said a spokesman for the Ministry of Economy, where protocol dictates that press officials speak on the condition of anonymity.

"We would like to know why," he said, adding that it was too early to say whether the cause was illicit activity.

Gestha, an association of tax professionals in Madrid, has been calling for an investigation of the bills for months, speculating that they were a result of corruption connected to the booming Spanish real estate market.

Housing prices in Spain have more than doubled since the late 1990s, driven by rising incomes, immigration, and low interest rates set by the European Central Bank. According to the Ministry of Housing, unsubsidized house price growth slowed slightly in the last quarter of 2005 but was still up by an annual 12.8 percent.

Spanish investigators say that city governments in Spain have become increasingly vulnerable to corruption during the boom, as developers lobby them to hand out building licenses and to approve rezoning requests.

When the euro went into regular circulation in 2002, hardly any of the €500 notes were in Spain, partly because it was not one of the countries initially authorized to issue them. But the number has grown steadily since then, increasing by more than 30 percent in 2005 alone, according to the association of tax professionals.

This sharp growth and the suspicions that it is linked to illicit activity have led to calls that the bills be withdrawn from circulation from some industry groups and associations.

But government officials have rejected the requests, saying among other things that the bills are an important tool for investigators who track money laundering.

"Killing the €500 euro would deprive us of an important piece of information" in the fight against money laundering, Soledad Núñez, director for political finance at the Ministry of Economy, said at a conference on money laundering in March, according to the state-financed news agency EFE.

But Alejandra Gómez, a criminology professor at the University of Malaga, said in an interview that the presence of large bills does not generally indicate money laundering. "Laundering of large sums of capital is usually done through institutional channels," she said.

"The only thing these bills indicate for sure is that there is a high-level underground economy here," she added.

The large bills could be from drug dealing or corrupt activities in booming industries like real estate, she said. But the most likely explanation is that many Spaniards are trying to hide their income and wealth from the government.

"What this tells us is that there is a significant level of tax evasion in Spain," she said. "Much of the population does not believe tax evasion is a serious crime."