A Typology of Profit-Driven Crimes

3. Detailed Analysis of Selected Cases (continued)

3. Detailed Analysis of Selected Cases (continued)

3.3 Counterfeit Currency

Counterfeiting is regarded as an especially serious offence. It strikes at the heart of the political and economic system. Those who fake money are, in effect, challenging one of the most important perquisites of sovereignty, and therefore the foundations of the state itself. Furthermore, anything that seriously destabilizes the currency can threaten national prosperity. It is precisely for this reason that, when states engage in economic warfare with each other, one popular trick has long been to counterfeit each other’s currency.[5]

Counterfeiting, not as a tool of covert statecraft, but merely as a means of making illegal money, in both senses of the term, has a long history, probably as long as money itself. Since paper became the principle medium of exchange in the West, counterfeiting has gone through roughly distinct three stages, each dictated by the state of technology. Indeed, there is probably no other economic crime so conditioned by technological change as currency counterfeiting. The technology almost by itself can determine whether the act is carried out en masse by underground groups who then have complex logistical problems in getting it into circulation, or by opportunists who knock off a few specimens and directly use them.

Throughout most of the 19th Century, when individual banks printed their own currency notes, counterfeiting was largely entrepreneurial in nature. A crime of opportunity, it attracted every species of artisan from professional printers to snake-oil salesmen. The lithographic printing techniques were inexpensive and relatively easy to use (though obviously a more skilled printer produced a better product), security measures were simple to break, and distribution was no great problem. The batches of notes tended to be small, and in some cases, counterfeiting was so endemic, merchants actually preferred good counterfeits of the notes of sound and well-known banks to real notes issued by small and relatively unknown banks – the fakes were easier to pass!

When governments took over a monopoly of the business of printing paper money, the counterfeiting craft shifted. The uniformity of national currencies was itself an impediment to opportunistic incidents. The more familiar the populace was with the notes, the harder to pass fakes; and the better (and therefore more time-consuming and expensive) any successful fakes had to be. Governments also introduced more sophisticated security measures. And, because counterfeiting now threatened the financial integrity of countries, rather than just of this or that financial institution, the effort put into detection was much enhanced.

The result was very high capital costs to counterfeiters. Consequently, they required long print runs to cover those costs. Furthermore, the skills required to mimic official notes were difficult to find. Techniques for passing large batches of newly minted paper had to be more sophisticated, usually more long-distance in nature, to evade detection. Therefore, although traditional "organized crime" groups tended to avoid counterfeiting because of both the high risk of detection and visibility involved, success in counterfeiting usually required the efforts of groups with the capital, skills, and connections to pass the product. That remained generally true until the 1980s.

During the last two decades, with the spread of new digital print technologies, counterfeiting has again shifted. Although the quality of the end-product is highly variable, the use of scanners, colour printers, and colour copiers mean that counterfeiting is once more a crime of opportunity. Of course, sophisticated groups still do get involved from time to time. As before, they use expensive equipment to simulate intaglio printing, and employ long-distance wholesale distribution networks to move large batches of bills away from the point of production. But more and more instances of counterfeiting are the work of amateurs who print small sums using easy-to-access technology, and directly distribute them into retail trade. So far, although not enough to threaten the integrity of national currencies, at least of the major countries, opportunistic counterfeiting is sufficient of a problem to force governments to engage in an ever-more expensive technological arms race against counterfeiters. 

In Canada today, most fake money is produced by colour copier. As in the USA, the main target is the $20 bill, because it is the most common in circulation. The technology is easy to use, and the product of reasonably good quality.  However, the machinery is not cheap.  Moreover, as a security measure, there is a deal with the RCMP to report all sales as well as suspicious supply or service calls. Furthermore, any standard service call will likely turn up evidence of any illegal use. And some copies leave a nearly invisible code as a tracing measure. For these reasons some people rent or steal the machines, or break into offices and do the job at night.

Granted there are excellent security features on bills – the optical security device that refracts light from different angles in different colours; planchettes scattered throughout the bill at the point when the paper is produced; intaglio printing; portraits laden with fine details; different coloured bills; multidirectional fine line patterns; special paper; serial numbers; etc. Unfortunately, most of these features are useless in keeping fake notes out of immediate circulation – what sales clerk in a busy store stops to hold a bill up to the light to see how the colour is refracted? – and worst, all can be duplicated with time and effort.  Increasingly, these features can be mimicked by the best quality copiers, or, in the case of serial numbers, by linking a computer with a generated list to a copier. There is even a computer paper commercially available that simulates the look and feel of the real stuff. As to intaglio printing, not only can it be mimicked on fakes, but it wears down on the real stuff. New security features are constantly being introduced, but the estimate today is that on average it takes three months for someone to copy them.

Because today most successful counterfeiters are opportunists, the bills get passed in small numbers over extended periods and therefore tend to circulate widely before ending up in a financial institution where there is some reasonable (but by no means assured) chance they will be detected by the teller. Therefore, detected amounts are likely a poor estimate of total sums. Hence, it is difficult to wholly accept RCMP claims that counterfeit accounts for less than one note in 5000 or that the cost of counterfeiting is $4 million compared to $32 billion in currency.[6] This is especially true given that the $20 bill, which dominates day to day circulation, will also be the one detected most frequently, whereas the $100 bill, which tends to stay in hoards, is obviously both more profitable and less risky to fake.

Table 9: Seizure Statistics Canadian Fake Currency
YEAR Number Passed Growth Value Growth
1994 79, 182 $2, 012, 611
1995 49, 413 -37.60% $1, 045, 510 -48.05%
1996 70, 886 43.46% $1, 417, 092 35.54%
1997 95, 464 34.67% $2, 713, 514 91.48%
1998 122, 015 27.81% $5, 181, 932 90.97%

True, with opportunistic counterfeiting, fewer notes are printed with each incident, but the numbers of incidents are much greater, and a point often overlooked, because the notes are retailed directly, the returns are much higher per unit – large job lots are usually sold off by first stage producers at as little as 10% whereas an opportunist might well net the full 100%.

In any event, the real cost of counterfeiting is not a few millions in illicit income, but the potential damage it does by spreading fear about the state of the currency and the security costs the threat imposes on businesses and government alike.

In Canada, the problem applies not just to its own currency. Since the 19th Century, when many USA counterfeiters set up plant in Ontario and Quebec near the border, Canada has been one of the principal foreign venues for making fake USA bills. In one recent case, Joseph Badghassarian worked with an offset printing press, rather than a colour copier, to simulate intaglio printing. He made his own high-quality printing plates by "burning" the negatives of pictures of USA $100 bills onto metal plates using a high density light, the most difficult and important step. He then broke the printing process into 12 stages – the contours, the presidential portrait, the serial numbers, etc. – and the entire process was repeated to add relief to the paper. The result, the authorities said, was bills of exceptional quality. 

Badghassarian was an independent craftsman, not a member of some "organized crime" ring. Rather he was paid a fixed fee for service by the gang who then sold the notes, wholesale, for $12 per $100 bill to other "organizations." These, in turn, further distributed it to different cities across the continent. As with a drug chain, the unit price rises and the quantity per job lot falls at each step. Finally came the retail distribution.  When the fakes were employed, for example, to purchase goods, sometimes  inexpensive items were bought so as to receive change in real money.

There are elements of at least two crime categories in counterfeiting, that, like so many other criminal activities popularly summarized in a word or simple phrase, are  actually a complex of actions. There is intellectual property crime – imitating objects of value whose "patent," so to speak, rests with the government. There is market-based crime when gangs sell batches of counterfeit to one another prior to them being distributed to the retail trade. There is, once more, predatory crime when merchants are stuck with fake money accepted in payment for merchandise. There might even be an underground commercial crime when people selling banned or stolen goods find themselves paid off by customers with the same moral standards. There is also another predatory element with respect to government, for fake currency displaces real currency, and therefore pre-empts, though in most countries only to a very marginal degree, the capacity of the government to circulate its own currency and collect the de facto seigneurage. And there are additional security costs governments must swallow to defend the currency.[7]

On balance, though, this crime fits best into the predatory category. There are clear victims. Transfers of wealth occur ultimately by deception. Transfers are effected from victim to beneficiary primarily in legitimate cash or goods. There is rarely the need for a business context, even as a front, while only at the wholesale level is there any underground network of transfers involved.

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