BIG NOTES DRUGS FEAR

High-denomination euro banknotes may have to be rationed to prevent them
falling into the hands of Latin American drug dealers and the Russian Mafia
and being used in money laundering operations, Belgium's Finance Minister,
Philippe Maystadt, warned yesterday.

Fears have been expressed that the euro could quickly supercede the US
dollar as the criminal underworld's currency of choice because of the ease
with which it will be able to be carried across borders.

Whereas $1 million in hundred-dollar banknotes, the highest denomination
printed, would fill a large suitcase, $1 million in 500-euro notes could
perhaps be stashed in a large handbag.

Speaking after a meeting of the Financial Action Task Force, the world's
leading anti-money laundering authority, Mr Maystadt, who is its chairman,
said the usual steps would be taken to prevent criminals converting national
currencies into euros when the notes and coins begin circulating in 2002.
These included banks notifying the authorities when they were suspicious
about the legality of a transaction.

Mr Maystadt said that the European Central Bank, which will run the euro,
may decide to restrict the volume of high denomination notes it prints.

"Most European governments are attentive to avoid facilitation of money
laundering," Mr Maystadt said. "We will keep an eye on this and, if
necessary, in due time we will take the measures to combat this new
development if it takes place."

Mr Maystadt said the final decision on the quantity of high-denomination
euro banknotes to be printed rested with the ECB, which is meant to be
ringfenced from political interference by national governments.

He said, however, that the ECB would not operate in a vacuum and that it
would co-operate with other institutions, such as the FATF.

Yesterday's meeting of the FATF, which took place in Paris at the annual
two-day ministerial meeting of the Organisation for Economic Co-operation
and Development, was the second since it was formed in 1989.

Its 28 members include most members of the OECD.

Mr Maystadt said the battle against money laundering was a continuous
process, with the authorities racing to keep up with techniques used by
criminals.

In addition to the opportunities presented by the arrival of the euro, the
FATF has identified the Internet as another method of laundering dirty
money.

But the FATF President, Jean Spreutels, said the authorities had not yet
detected it being used in this way. "The counter measures are preceding the
threat itself," he said.

Mr Maystadt said several ministers at the meeting had mentioned money
laundering operations in central and eastern Europe and Mr Spreutels
identified Africa as a problem zone.

* The OECD agreed yesterday agreed not to lower taxes to draw capital away
from other countries, and to rewrite tax treaties with countries that act as
tax havens.

However, the scope of the new accord was weakened when Luxembourg and
Switzerland, the two OECD members most often accused of using tax policies
to lure investment, said they would not sign it.

They both objected to language in the accord identifying bank secrecy as a
source of "harmful tax competition".

The accord is not binding. It works, said Jeffrey Owen, head of the OECD's
fiscal division, on the principle of "peer pressure".