Police cracking down on tax dodgers smuggling cash out of Italy in their shoes, underwear and even cigarettes have announced a steep increase in seizures, thanks in part to the use of labrador dogs trained to sniff out bank notes.

In the first seven months of 2012, police at ports, airports and border crossings seized €41m (£32m) – up 78% year on year – from travellers trying to avoid creeping austerity taxes in Italy. The haul covers 570kg of silver and 88kg of gold ingots, including 50kg found in a hidden compartment under the seat of a car driven by an Italian food store owner as he tried to cross into Switzerland at Ponte Chiasso.

A labrador sniffing cars at the same crossing alerted officers to a pensioner travelling with €242,000 , likely en route to a Swiss bank, while at Rome airport €122,000 (£96,000) was found in the lining of a suitcase carried by a businessman flying to Ethiopia.Officers reported that a Chinese businesswoman flying out of the airport was caught with €100,000 (£78,000) stuffed in her underwear, while shoe heels, dolls and tampons have also been used as hiding places.A second Chinese entrepreneur was rumbled after rolling €200,000 euros-worth of €500 notes and inserting them into cigarettes.

"The €500 note is often used by smugglers since you get €5m-worth into an overnight bag," said Major Maurizio Querqui, a tax police official.

A study by the Bank of Italy has revealed most of the country's €500 notes were in circulation near the Swiss border. "Thirty-four per cent of all euros by value are €500 notes, but you rarely see them," said Querqui.

Following the example of the UK Border Agency, Italy's tax police have adopted labradors and use tiny compacted cubes of shredded euros donated by the Bank of Italy for training.

"Labradors are meticulous and calmer than the alsatians we use to sniff drugs, which works because the smell of money is more subtle," said one trainer who declined to be named. "Passengers are also more prepared to be sniffed by a labrador than an alsatian," he added.

Dogs are trained to ignore the strong smell of coffee or chilli that smugglers sometimes use as a deterrent. And they receive their reward of a rubber ball only for finds of 40 bank notes or more. "That way they ignore people carrying up to €10,000, which you are allowed to travel with undeclared," said the trainer.