EURO'S ENTRY IS FORCING EUROPE'S HIDDEN HOARDS TO SURFACE

WEIL AM RHEIN, Germany, Sept. 3 - The two Dutchmen in the aging Mercedes
looked haggard but betrayed no anxiety when German border guards asked if
they were carrying large sums of cash.

Driving from Switzerland this morning, they were simply two among the
thousands of people who cross the border into Germany here every day. But
when guards popped open their trunk in a surprise inspection, they found a
black suitcase with three crisp white envelopes containing 100,000 Dutch
guilders (about $40,000) and 10,000 British pounds (about $14,400).

The origins and intended use of the cash are still under investigation, but
the two men will almost certainly have to sacrifice about 10 percent of it
just for violating currency disclosure laws.

Such discoveries have recently become frequent, in part because of the
imminent introduction of euro bills and coins. Beginning Jan. 1, German
marks and the currencies of 11 other European countries will be replaced by
euros. By March, they will no longer be accepted as legal tender by retailers.

People who have been secretly hoarding cash, whether to evade taxes or
conceal profits, must change their money soon or watch it become virtually
useless.

"Deutsche marks have to be changed into euros, or they will become
worthless," said Roland Bahr, head of German customs inspections along this
heavily traveled section of the Swiss-German border. "They have to come
forward. It is as simple as that."

One beneficiary of all this may have been the American dollar. Partly
because of anxieties about the euro, and partly because euro currency and
coins are not yet available, billions of German marks have been changed
into dollars. Much of the conversion may have involved huge sums of German
cash held in Central Europe and the Balkans by local mafias. Though the
matter is disputed, some economists believe this has contributed to the
euro's weakness.

But covertly changing suitcases of cash is not simple. Even secretive Swiss
banks will report suspicious cash transactions to money laundering
authorities. Banks in most other European countries will automatically
report cash transactions bigger than about $15,000.

As a result, European financial officials believe that a lot of cash is now
heading back to its country of origin, where it can be spent on jewelry,
cars, boats and even real estate.

According to the Bundesbank, Germany's central bank, the marks in
circulation has declined by about 12.5 billion since last November. The
number of 500-mark and 1000-mark bills flowing back to the Bundesbank has
been especially large.

Most banks will stop issuing marks and other local currencies in January.
Stores will stop accepting the currencies by the end of next spring. When
euro money begins circulating banks will stop issuing marks, lire, guilders
and francs. By the end of next spring, stores will no longer accept them as
legal tender. While central banks around Europe will still redeem old
currencies for years to come, that is cold comfort to people like tax
evaders and drug smuggler who have spent years keeping their money out of
sight.

The volumes of money are substantial for most European countries, but
particularly for Germany because its trusted currency circulates widely in
Europe. Banking experts estimate that as much as 100 billion marks in cash
is outside Germany, mostly in central Europe, Turkey and the Balkans. The
Bundesbank has estimated that the volume of "black money" tied to criminal
activity could be as high as 30 billion marks, or nearly $14 billion.

Hoping to capitalize on the pressures created by the euro-changeover, the
finance minister of Germany announced a crackdown involving random car
searches along all its borders, but particularly those with Switzerland and
Luxembourg, which have long been tax havens for Germans.

It is hard to know whether covert cash shipments have increased
significantly, or whether the discoveries simply result from more frequent
inspections. But the numbers have increased dramatically.

Here in Weil am Rhein, just a few miles south of Basel, customs officials
say the volume of cash discovered last year through routine spot-checks
quintupled to 13 million marks. In the first six months of 2001, they found
eight million marks and the volumes are climbing. Along the Luxembourg
border, the German police say they have found 4.8 million marks in
undeclared cash so far this year, about 50 percent more than at the same
point last year.

"We never see more than the tip of the iceberg," Mr. Bahr said. "Our goal
is to have a preventative effect, to hinder people and make them more
insecure about what they are doing."

Officials say they are checking for cash moving in both directions over the
border because different people have different motives. One big group is
organized criminals, who have kept their profits in cash outside of Germany
to avoid the paper trails created by bank transactions. Those people are
under pressure to take money back to its home country — whether Germany or
some other euro-country — where it can be readily converted to dollars or
goods.

A quite separate group is people evading taxes. Germans have been carting
cash for years to Switzerland and Luxembourg, which imposes extremely low
taxes on interest and capital gains. People who have such foreign bank
accounts can simply let their banks convert the money to euros
automatically, but those still sitting on cash in Germany face a deadline
to get it to a cooperative and secret bank.

Intercepting money on the Swiss border is easy in some ways because
Switzerland is not a member of the European Union and its border with
Germany is still lined with customs agents and passport controls, which
European Union countries eliminated long ago. Though smugglers can try to
sneak through forests along the border, customs agents say most people feel
less conspicuous in crowds passing through the main checkpoints.

The problem is that Swiss officials provide virtually no help to other law
enforcement authorities. People are not required to disclose large sums of
cash they bring in or out of Switzerland, and border guards who find large
sums are not allowed to alert counterparts on the other side of the border.

"Fundamentally, there is no restriction on bringing money into or out of
Switzerland," said Rudolf Nebel, head of Swiss customs for the Basel
region. The only exceptions are if the money is counterfeit or if there is
evidence of criminal activity, as in cases where the police find weapons or
drugs with the money.

While Swiss banks are required to report any suspicious transactions to
money-laundering authorities, they refuse to report to foreign governments
about possible tax evasion in Switzerland. The Swiss view is that tax
evasion by foreigners is some other country's problem, according to James
Nason, a spokesman for the Swiss Bankers' Association in Basel.

Luxembourg, with no customs booths or checkpoints on the German border,
poses a different problem. German customs agents must rely on mobile squads
that roam the countless highways and smaller roads that link the two countries.

Guards say they have found drivers hiding money under floor mats, behind
the radio, in underwear and even, in the case of a butcher, in a cooler
stuffed between slabs of meat.

But many people have become so accustomed to breezing across borders that
they make little effort to hide the money. When guards here stumbled across
300,000 German marks last week, their biggest find this year, they found it
in an ordinary overnight bag.

Today, when German guards checked the two Dutch travelers coming from
Switzerland, the case they stumbled on was intriguing The two men, who
appeared to be in their fifties, hardly looked like wealthy jet- setters.
Their Mercedes was 11 years old, their clothes were rumpled and neither
looked as though he had shaved. They told border guards that the money
belonged to them.

Customs officials released the men after a few hours but kept about 10
percent of the cash while investigators determine if the money is tied to
either criminal activity or tax evasion. But even if the money is not
tainted, the two are liable for fines of up to 50 percent of the cash
simply for refusing to admit they had it before they were searched.

To many Europeans, now accustomed to crossing borders without even showing
a passport, the car searches are a shock. Reinhart Illert, a retired German
businessman who lives in Brussels, looked on in amazement as border guards
spent 20 minutes searching his BMW and his luggage. "I understand why they
need to do it," Mr. Illert said. "But the last time something like this
happened to me was when I was trying to cross into East Germany."