Even in an age of electronic money and digital-payment apps, there is still big demand for cold, hard cash. 

The Obama administration’s secret airlift of $400 million worth of cash to Iran earlier this year, as reported by The Wall Street Journal, is a reminder of that. Yet the business of moving cash around the world remains a largely secretive and burdensome specialty—one that fewer and fewer banks are willing to undertake.

Just three lenders now handle the bulk of the global “bank notes” business: Bank of America Corp., Bank of Ireland in Europe and United Overseas Bank Ltd. in Asia, people familiar with the matter said.

Those banks have to negotiate tough rules around money laundering and terror financing in a low-margin logistics business that is more like cargo than finance. Banks that take it on need a global network of vaults and partners among armored-car operators and airlines, because most cash flies commercial.

Banks get paid fees based in part on the weight of the money they move, and they don’t get paid a lot. Bank of America typically handles hundreds of millions of dollars a day for about two hundredths of a percentage point of the face value, people familiar with the process said. At that rate, shipping $100 million only brings in about $20,000. Bank of America’s total global revenue from the business is about $100 million a year, these people said.

In light of the challenges, Bank of America has recently cut back on certain bank notes relationships in high-risk countries although it isn’t exiting them completely, people familiar with the business said. The Federal Reserve Bank of New York has privately expressed concerns that a further pullback by Bank of America could push money movement underground, snarl trade and gum up emerging-market economies, some of these people said.

Several large European banks including Commerzbank AG, Deutsche Bank AG, HSBC Holdings PLC and Royal Bank of Scotland Group PLC have fully exited or drastically reduced their role in the bank notes business in recent years.

The broader retreat has led some countries in Latin America, Central America, Africa and the Middle East to work with the New York Fed to set up accounts with a part of the agency that distributes dollars around the world, people familiar with the situation said.

An estimated half to two-thirds of the $1.4 trillion in paper currency in circulation goes outside U.S. borders, according to the Federal Reserve.

Even without the regulatory strictures, the business of moving cash around can be a chore. A vacuum-sealed crate of $50 million in 100-dollar bills comes up to an adult man’s waist. A million dollars in one-dollar bills weighs about a ton, while $1 million in hundred-dollar bills is just over 20 pounds. Theft is always a concern.

© Kris Tripplaar/Sipa USA

Although the Bureau of Engraving and Printing, a part of the U.S. Treasury, prints U.S. dollars, there is a complex web involving private banks that gets cash moving across the world. Once printed, the notes are stored in the Federal Reserve vault and then issued to each regional Fed bank. Within the U.S., some commercial banks have accounts with one of the 12 regional Fed banks from which they can get and deposit dollars. Those commercial banks have correspondent banking services to other banks in the country.

Central and commercial banks overseas can have dollars and accounts, typically with the New York Fed or the Miami branch of the Federal Reserve Bank of Atlanta, where they can withdraw or deposit U.S. currency. There are, though, sometimes limits to the currency services they can access. And they will often use a bank in the money-moving business to get physical notes, as opposed to funds that are electronically transferred.

Credit Suisse Group AG, for example, has been one of Bank of America’s largest bank notes customers in Europe, buying $15 million to $50 million a day, according to people familiar with the matter.

When the Swiss bank needs physical dollars, it sends its request to Bank of America, which orders them up from the New York Fed’s facility in East Rutherford, N.J., people involved in the process said.

An armored vehicle, usually from Brink’s Inc., takes the cash to John F. Kennedy International Airport in New York and puts it on a plane that ultimately takes it to Zurich. It is met by an armored vehicle, driven to Bank of America’s vaults in the Swiss city, and then transferred to Credit Suisse’s vault in the same building, some of these people said.

Bank of America got into the wholesale notes business with the acquisition of Toronto-based Mercury Foreign Exchange in the early 1980s. It now has major trading hubs in Toronto, London, Sydney and Hong Kong, the people said.

Bank of America has cut off services to firms in Russia at one point because of money-laundering concerns, largely leaving European banks to serve the country, people familiar with the matter said. It also has never offered service in Sweden and Belgium, in part because of the high incidence of armored car robberies at gunpoint, some of the people said.

Last fall, Bank of America vastly reduced the amount of dollars it would send to Angola, through one of its bank clients, people familiar with the situation said. In recent months, Bank of America also reduced its relationships with firms based in the United Arab Emirates, a financial hub in the Gulf region, some of these people said. One place it is expanding: China, these people said.

China and neighboring countries have demands for all major currencies and more exotic ones the Fed provides certain banks with, but mint, or crisp, dollar bills are viewed as particularly valuable across Asia.

Write to Emily Glazer at emily.glazer@wsj.com

http://www.msn.com/en-us/money/markets/cash-flies-commercial-and-other-secrets-of-moving-money/ar-BBvhomF?li=BBnbfcN


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