Counterfeit U.S. Currency Abroad:
Issues and U.S. Deterrence Efforts
(Letter Report, 02/26/96, GAO/GGD-96-11)
Pursuant to a congressional request, GAO provided information on
counterfeiting of U.S. currency abroad and U.S. efforts to deter these
activities.
GAO found that: (1) counterfeit U.S. currency is used for economic gain
and illegal activities, such as drug trafficking, arms sales, and
terrorist activity; (2) there are several techniques used to counterfeit
U.S currency, including photocopying, the raised note technique,
computer assisted printing, bleaching and reprinting, and
photomechanics; (3) the offset printing method offers the highest
quality of counterfeit notes and can only be detected by experienced
bank tellers; (4) it is difficult to determine the extent of
counterfeiting abroad because of the lack of accurate counterfeit
detection data and foreign officials reluctance to view counterfeiting
as a serious problem; (5) of the $380 billion in U.S. currency
circulated in fiscal year 1994, $208.7 million was counterfeit, which
represented less than one one-thousandth of U.S. currency in circulation
at that time; and (6) the U.S. government is involved in various
counterfeit deterrence activities, including redesigning U.S. currency,
increasing the presence of the Secret Service and the exchange of
information abroad, and seizing the production and distribution
capabilities used in counterfeiting of U.S. currency.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-96-11
TITLE: Counterfeit U.S. Currency Abroad: Issues and U.S.
Deterrence Efforts
DATE: 02/26/96
SUBJECT: Currency losses
Currency and coinage
Crimes or offenses
Foreign governments
Intelligence gathering operations
Forgery
IDENTIFIER: International Counterfeiting Deterrence Act
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved. Major **
** divisions and subdivisions of the text, such as Chapters, **
** Sections, and Appendixes, are identified by double and **
** single lines. The numbers on the right end of these lines **
** indicate the position of each of the subsections in the **
** document outline. These numbers do NOT correspond with the **
** page numbers of the printed product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** <info@www.gao.gov> **
** **
** with the message 'info' in the body. **
******************************************************************
Cover
================================================================ COVER
Report to the Honorable John M. Spratt, Jr., House of
Representatives
February 1996
COUNTERFEIT U.S. CURRENCY ABROAD
- ISSUES AND U.S. DETERRENCE
EFFORTS
GAO/GGD-96-11
Counterfeit U.S. Currency Abroad
(280132)
Abbreviations
=============================================================== ABBREV
Letter
=============================================================== LETTER
B-261994
February 26, 1996
The Honorable John M. Spratt, Jr.
House of Representatives
Dear Mr. Spratt:
The U.S. currency,\1 reportedly the most widely held in the world,
is susceptible to counterfeiting. Of the $380 billion of U.S.
currency in circulation, the Federal Reserve estimates that over 60
percent may be held outside the United States. The widespread use of
U.S. currency abroad, together with the outdated security features
of the currency, makes it a particularly vulnerable target for
international counterfeiters.
Various congressional groups and the media have expressed concerns
about counterfeiting of U.S. currency abroad. Widespread
counterfeiting of U.S. currency could undermine confidence in the
currency and, if done on a large enough scale, could have a negative
effect on the U.S. economy. In light of these concerns, and in
response to your request, we are providing information on (1) the
nature of counterfeiting of U.S. currency abroad, (2) the extent of
that counterfeiting and of concerns about this issue, and (3) the
status of U.S. efforts to deter such counterfeiting of U.S.
currency abroad. As discussed with your office, because of
significant limitations in the data on the size and direction of the
problem of counterfeiting abroad, we were unable to reach conclusions
or comment on the adequacy or effectiveness of the various deterrent
efforts described. Also, as discussed with your office, this report
was prepared using unclassified sources of information. The draft
report underwent a security classification review by the appropriate
agencies, including Treasury and the Secret Service, and was released
by the appropriate officials as an unclassified report.
--------------------
\1 In this report, "U.S. currency" refers to U.S. Federal Reserve
notes and does not include coined money.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
U.S. currency is counterfeited by a diverse group of perpetrators
using a variety of methods. Although counterfeiters may engage in
this activity for direct economic gain, counterfeiting is sometimes
linked with other more nefarious criminal endeavors, such as drug
trafficking, arms dealing, and alleged terrorist activities.
According to law enforcement officials, counterfeiters run the gamut
from office workers to organized crime and terrorist groups, and the
equipment used for counterfeiting U.S. currency ranges from
photocopiers to sophisticated offset presses. Moreover, the quality
of counterfeit notes varies significantly, and even those made using
the same method vary according to the sophistication of the
perpetrator and the type of equipment used. Of increasing concern is
the fact that certain foreign counterfeiters are becoming extremely
sophisticated and are producing very high-quality counterfeit notes
that are more difficult to detect than any previous counterfeits.
Due to the criminal nature of this activity, the true extent of
counterfeiting of U.S. currency abroad cannot be determined. The
total level of counterfeit-currency detections--$208.7 million in
fiscal year 1994--represented less than one one-thousandth of U.S.
currency in circulation.
Both Treasury and Secret Service officials agreed that counterfeiting
of U.S. currency is a threat to be taken seriously, but that it is
not now at a level that poses an economic threat to the U.S.
monetary system. Treasury Department and Secret Service officials
use counterfeit-detection data from the Secret Service to help assess
the extent of counterfeiting. The Secret Service has also used these
data to demonstrate significant increases in counterfeiting activity
abroad, citing a 300-percent rise in detections in fiscal year 1993.
According to the Secret Service, it supplemented these data with
intelligence information and field experience in reaching its
conclusions on the degree of and risk represented by counterfeiting
abroad.
Our analysis of the counterfeit-detection data used by Treasury and
Secret Service raised questions about their usefulness for
illustrating either actual counterfeiting activity or recent growth
in counterfeiting activity. As previously mentioned, because of the
criminal nature of this activity, the actual extent of counterfeiting
cannot be directly measured. Other limitations of the data are that
they (1) included only those counterfeit detections that were
reported to the Secret Service, and thus may in part have been a
reflection of where Secret Service focuses its efforts; (2) may have
underreported the occurrence of high-quality notes because those
notes are difficult to detect; (3) may have reflected factors other
than increased counterfeiting activity, such as improvements in the
ability to detect counterfeits or to determine their source; and (4)
may have shown fluctuations over time that were skewed because of the
occurrence of unusually large seizures. Because of these
limitations, use of the data alone to estimate the extent of
counterfeiting or counterfeiting trends, without appropriate
qualifications, may be misleading.
Foreign law enforcement and financial organization officials we
interviewed varied in their degree of concern over the counterfeiting
of U.S. currency. Foreign law enforcement officials tended to be
more concerned about the counterfeiting of U.S. currency than were
foreign financial organization officials. Moreover, financial
organization officials did not complain of increases in
chargebacks,\2 and financial and foreign law enforcement officials we
met with provided few examples of instances where U.S. currency was
no longer accepted due to concerns about counterfeits.
The U.S. government, primarily through the Treasury and the Federal
Reserve, has increased its efforts to deter counterfeiting
activities. However, none of these efforts have been fully
completed, and thus their success cannot be evaluated at this time.
These anticounterfeiting efforts included (1) redesigning U.S.
currency to incorporate additional security features, and then
publicizing and distributing the new currency; (2) using joint
federal agency team visits abroad to obtain more information on
counterfeiting and provide counterfeit-detection training; (3)
increasing Secret Service staffing abroad; and (4) using additional
task forces and increasing diplomatic efforts to combat
counterfeiting abroad, particularly efforts to eradicate the highest
quality counterfeit note known to the Secret Service, commonly
referred to as the "Superdollar."\3
--------------------
\2 A chargeback occurs when the Federal Reserve or a bank detects a
counterfeit note in a deposit and charges the customer's account for
the value of the counterfeit.
\3 The note is also known as the "Supernote" or the "Superbill" and
is referred to as the "C-14342 Family" by the Secret Service.
BACKGROUND
------------------------------------------------------------ Letter :2
The widespread use of U.S. currency abroad, together with the
outdated security features of the currency, makes it a particularly
vulnerable target for international counterfeiters. According to the
Federal Reserve, the proportion of U.S. currency in circulation
abroad has increased from 40 percent in 1970 to over 60 percent
today.
High foreign inflation rates and the relative stability of the dollar
have contributed to the increasing use of U.S. currency outside the
United States. And, in fact, the United States benefits from this
international use. When U.S. currency remains in circulation, it
essentially represents an interest-free loan to the U.S. government.
The Federal Reserve has estimated that the U.S. currency held abroad
reduces the need for the government to borrow by approximately $10
billion a year.
Despite this benefit, its increasing international use has made U.S.
currency a target for counterfeiting. Furthermore, with the
exception of two changes introduced in 1990,\4 the security features
of the currency have not substantially changed since 1929, which has
resulted in the U.S. dollar's becoming increasingly vulnerable to
counterfeiting. (See fig. 1 for the existing security features of
the currency.)
Figure 1: Overt Security
Features of U.S. Currency
Source: U.S. Department of
the Treasury.
(See figure in printed
edition.)
Congressional groups and the media have continued to highlight their
concerns that the counterfeiting of U.S. currency abroad is becoming
an increasingly serious problem. Concerns about counterfeiting
abroad were heightened in 1992 with the issuance of the first of two
reports\5 by the House Republican Research Committee's Task Force on
Terrorism and Unconventional Warfare. These reports charged that a
foreign government was producing a very high-quality counterfeit
note, commonly referred to as the Superdollar, to support terrorist
activities. In 1993, the House Appropriation Committee's Surveys and
Investigations staff completed a report on the Secret Service's
counterfeiting deterrence efforts and briefed the House
Appropriations Committee. In the same year, a bill--the
International Counterfeiting Deterrence Act--was introduced to
address international counterfeiting and economic terrorism; however,
it was not passed.
The Secretary of the Treasury is responsible for issuing and
protecting U.S. currency. Treasury, including the Secret Service
and the Bureau of Engraving and Printing, and the Federal Reserve
have primary responsibilities for combating the counterfeiting of
U.S. currency. The Secret Service conducts investigations of
counterfeiting activities and provides counterfeit-detection
training. The Bureau of Engraving and Printing designs and prints
U.S. currency, which includes the incorporation of security features
into the currency. The Federal Reserve's role is to distribute and
ensure the physical integrity of U.S. currency. It receives
currency from financial institutions around the world and uses
specialized counting and verification machines to substantiate the
authenticity of all U.S. currency received. The various
counterfeiting deterrence efforts are coordinated through the
Advanced Counterfeit Deterrence Steering Committee, which was formed
in 1982.
The Secret Service is the U.S. agency responsible for
anticounterfeiting efforts abroad. At the time of our work, the
Secret Service primarily used its six overseas offices, three task
forces, two temporary operations, and resources from six domestic
offices to conduct this task. (See app. I for a description of
Secret Service offices responsible for locations abroad.) Secret
Service offices outside the United States typically are staffed by
one to six agents. Agents working abroad are involved in the same
issues as their domestic counterparts, such as detecting
counterfeits, investigating financial crimes, and protecting
dignitaries. However, the majority of a typical agent's time abroad
is spent on counterfeiting deterrence efforts. In pursuing these
efforts, agents must rely on the cooperation of foreign law
enforcement agencies and sometimes are allowed to provide only
investigative support. This situation is different from that in the
United States, where agents have direct investigative authority. The
Secret Service also provides other staff to support international
counterfeiting deterrence activities. For example, the Secret
Service has assigned two Counterfeit Division staff to work with the
Four Nations Group\6 and three agents to work with Interpol--the
International Criminal Police Organization.
--------------------
\4 In 1990, Treasury added a security thread and microprinting to
U.S. currency.
\5 The House Republican Research Committee, Iran, Syria and the Trail
of Counterfeit Dollars (Washington, D.C.: July 1, 1992); and Update:
Iran, Syria and the Trail of the Counterfeit Money (Washington, D.C.:
July 13, 1994).
\6 The Four Nations Group, an international group with
representatives from the United States, Great Britain, Australia, and
Canada, meets every 18 months to share information on counterfeiting
trends and investigations.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
To obtain information on the nature and extent of counterfeiting of
U.S. currency abroad, as well as U.S. efforts to combat this
activity, we obtained views and material from (1) U.S. government
agencies in the United States and abroad; (2) foreign law enforcement
and financial organization officials in seven European countries, as
referred to us by U.S. embassy officials; (3) Interpol officials in
the United States and abroad; and (4) individuals researching the
Superdollar case, including the author of the House Republican Task
Force on Terrorism and Unconventional Warfare reports on the
Superdollar. We performed our review in the United States, England,
France, Italy, Germany, Hungary, Poland, and Switzerland. Interpol,
State Department, and Secret Service officials recommended these
countries for our review on the basis of their knowledge of
counterfeiting abroad.
To obtain U.S. government perspectives on the nature and extent of
counterfeiting as well as on efforts to deter this activity, we
interviewed and obtained documentation from senior Treasury officials
in Washington, D.C.; Secret Service officials in Washington, D.C.;
New York, New York; San Francisco, California; England; France;
Italy; and Germany; and Bureau of Engraving and Printing officials in
Washington, D.C. We also interviewed Federal Reserve Board officials
in Washington, D.C.; Federal Reserve Bank officials in San Francisco
and New York; and State Department officials in Washington, D.C., and
abroad.
To secure information on the extent of the problem of counterfeit
U.S. currency abroad, we obtained Secret Service data on domestic
and international counterfeit detections. We then reviewed the
Secret Service's counterfeit-detection data for fiscal year 1987
through fiscal year 1994. We also reviewed Interpol's 1991 to 1993
annual reports on international counterfeiting activity. We did not
independently verify the accuracy of the data that the Secret Service
and Interpol provided.
To gain perspective on both counterfeiting and deterrence efforts
abroad, we obtained input from foreign law enforcement and financial
organization officials in the countries we visited. (See app. II
for a listing of foreign agencies and organizations we contacted
while abroad.) In conducting our interviews, we did not pose the same
questions to all officials. Thus, the responses we obtained cannot
be generalized.
The scope of our work was limited by a number of factors related to
national security and investigative concerns. First, due to the
criminal nature of counterfeiting, the actual extent of
counterfeiting abroad cannot be determined. Second, since current
known counterfeiting activities involved ongoing investigations, we
were not able to fully explore and discuss these investigations with
law enforcement and intelligence officials. Third, due to the
sensitive nature of the ongoing investigation of the so-called
Superdollar, we were unable to fully explore this extremely
high-quality, allegedly foreign government-sponsored, counterfeiting
operation. As a result of these limitations, this report is not
evaluative, and it thus contains no conclusions or recommendations.
This report was prepared using unclassified sources of information.
The draft report underwent a security classification review by the
appropriate agencies, including Treasury and the Secret Service, and
was released as an unclassified report. Although they initially
stated that some of the information was or should have been
classified, Treasury and the Secret Service later rescinded this
statement after they performed a full security classification review
and we reached agreement with them on a minor revision to appendix
VII. (See app. VIII, pages 66 and 67, for Treasury and Secret
Service statements that the report is unclassified.)
We conducted our review from September 1994 to May 1995 in accordance
with generally accepted government auditing standards. In June and
then again in November 1995, we updated our work on Secret Service
staffing abroad. We obtained written agency comments on a draft of
this report from the Departments of the Treasury and State and from
the Federal Reserve. These comments are discussed at the end of this
report and presented in appendixes VIII through X.
THE NATURE OF COUNTERFEITING OF
U.S. CURRENCY ABROAD IS
DIVERSE
------------------------------------------------------------ Letter :4
The nature of counterfeiting of U.S. currency abroad is diverse,
including various types of perpetrators, uses, and methods. The
relative sophistication of the counterfeiter and method used results
in counterfeit notes of differing quality. According to a National
Research Council report requested by Treasury,\7 the counterfeiting
problem will increase as technologies improve and are made more
accessible to the public. Already, the Secret Service has been
troubled by some very high-quality counterfeits of U.S. currency
identified as originating abroad.
Perpetrators include both the casual and the professional
counterfeiter. The casual counterfeiter is a person who commits the
crime because it is convenient or easy to do. For example, an office
worker may use a copying machine to counterfeit U.S. currency. The
number of casual counterfeiters is expected to increase with the
greater accessibility of and improvements to modern photographic and
printing devices, according to the National Research Council report.
Conversely, the professional counterfeiter may be a member of a gang,
criminal organization, or terrorist group. Foreign law enforcement
and Secret Service officials that we interviewed told us of suspected
links between counterfeiting and organized crime.
Counterfeit U.S. currency is used for economic gain and is sometimes
linked to other crimes. According to foreign law enforcement and
Secret Service officials, counterfeit U.S. currency is sometimes
distributed in conjunction with drug trafficking, illicit arms deals,
and other criminal and/or terrorist activities. Moreover, Secret
Service and foreign law enforcement officials told us that
counterfeit U.S. currency is now sometimes produced by
counterfeiters in one country for export to another country. For
example, in Milan, Italy, counterfeiting has become an industry in
which counterfeit U.S. currency is produced for export, according to
Italian law enforcement officials. They added that the counterfeits
typically were exported to the former Soviet Union and Eastern
Europe.
The methods used by counterfeiters of U.S. currency abroad are the
same as those used within the United States, according to Secret
Service officials. Common techniques include using black and white,
monochromatic, or color photocopiers; cutting and taping or gluing
numerals from high denomination notes to the corners of a note of
lower denomination, also known as making "raised notes"; using
sophisticated computers, scanners, and laser or ink jet printers;
bleaching good notes and reprinting higher denominations on the
genuine paper; and using photomechanical or "offset" methods to make
a printing plate from a photographic negative of a genuine note.
Depending upon the sophistication of the counterfeiter and the method
used, the quality of counterfeit notes can vary a great deal. The
Secret Service has found good, fair, and poor quality notes for each
method used. For example, a good color copier-produced note could be
better than a poor ink jet-produced note. However, the offset
printing method generally results in the highest quality
counterfeits, whether produced abroad or domestically. (See app.
III for descriptions of common methods used and some examples of
counterfeit notes.)
Recently, very sophisticated counterfeiters have been producing very
high-quality notes using the offset process. High-quality
counterfeit notes are difficult for the general public to discern,
but according to Federal Reserve officials, the notes can be detected
by experienced bank tellers. (See app. IV for case examples of
high-quality counterfeit notes produced in Canada, Colombia, and the
Middle East.)
--------------------
\7 National Materials Advisory Board, Commission on Engineering and
Technical Systems, National Research Council, Counterfeit Deterrent
Features for the Next Generation Currency Design (December 1993).
THE EXTENT OF THE PROBLEM COULD
NOT BE DETERMINED, AND FOREIGN
VIEWS WERE INCONCLUSIVE
------------------------------------------------------------ Letter :5
The criminal nature of the activity precludes determination of the
actual extent to which U.S. currency is being counterfeited abroad.
The best data available to reflect actual counterfeiting are Secret
Service counterfeit-detection data.\8 However, these data have
limitations and thus provide only a limited measure of the extent of
counterfeiting activities. Use of these data should be qualified to
reflect these limitations so that conclusions reached using the data
do not mislead. Overall, detected counterfeits have represented a
minuscule amount of the currency in circulation. According to Secret
Service officials, the data that they gathered was supplemented by
intelligence information and field experience to demonstrate an
increase in counterfeiting activity abroad. However, our analysis of
the same counterfeit-detection data proved inconclusive. Moreover,
foreign officials' views about the seriousness of the problem of
counterfeit U.S. currency were mixed. Foreign financial
organization and law enforcement officials that we interviewed
reported no significant numbers of chargebacks and few reported
instances of U.S. currency not being accepted abroad.
--------------------
\8 Interpol data, the only other international compilation of
counterfeit-currency statistics, were less reliable due to the
limited amount of reporting by foreign countries. According to
Interpol officials, reporting to Interpol was inconsistent and mostly
limited to European nations.
TREASURY BELIEVED THE LEVEL
OF COUNTERFEITING WAS
ECONOMICALLY INSIGNIFICANT
---------------------------------------------------------- Letter :5.1
On the basis of the number of Secret Service counterfeit-detections,
Treasury officials concluded that counterfeiting of U.S. currency
was economically insignificant and thus did not pose a threat to the
U.S. monetary system. According to Secret Service and Treasury
officials, detected counterfeits represented a minuscule portion of
U.S. currency in circulation. Secret Service and Federal Reserve
data showed that, in fiscal year 1994, of the $380 billion in
circulation, $208.7 million had been identified as counterfeit notes,
a figure which represented less than one one-thousandth of the
currency in circulation. However, while Treasury and Secret Service
officials agreed that, overall, counterfeiting was not economically
significant, they considered any counterfeiting to be a serious
problem.
THE SECRET SERVICE BELIEVED
COUNTERFEITING ABROAD WAS
INCREASING
---------------------------------------------------------- Letter :5.2
The Secret Service reported that counterfeiting of U.S. currency
abroad was increasing. It used counterfeit-detection data,
supplemented with intelligence information and field experience, to
support this claim. It also employed two counterfeit-detection data
measures to illustrate the extent of counterfeiting abroad: (1)
counterfeit-detections abroad and (2) domestic detections of
counterfeits that were produced abroad. Counterfeits detected abroad
are categorized as "appearing abroad," while counterfeits detected
domestically are divided into two separate categories. Domestic
detections of counterfeits not yet in circulation are called
"seizures," and those counterfeits detected while in circulation are
called "passes."
The Secret Service has reported a significant recent increase in
detections of counterfeit U.S. currency abroad. In one analysis, it
reported that the amount of counterfeit currency detected abroad
increased 300 percent, from $30 million in fiscal year 1992 to $121
million in fiscal year 1993, thereby surpassing domestic detections
in the same period (see fig. 2).
Figure 2: Secret Service
Counterfeit Detection Data,
Fiscal Years 1987-94
Note: See pages 13 to 15 for our views on the limitations of this
data.
Source: U.S. Secret Service.
The Secret Service has also reported that, in recent years, a larger
dollar amount of the notes detected as domestic passes has been
produced outside the United States. Since 1991, the dollar amount of
counterfeit U.S. notes detected while in circulation and produced
abroad has exceeded the dollar amount of those produced domestically
(see fig. 3). In fiscal year 1994, foreign-produced notes
represented approximately 66 percent of total domestic passes
detected.
Figure 3: Secret Service
Domestic Pass Data, Fiscal
Years 1987-94
Note: See pages 13 to 15 for our views on the limitations of this
data.
Source: U.S. Secret Service.
THE ACTUAL EXTENT OF
COUNTERFEITING ABROAD COULD
NOT BE DETERMINED
---------------------------------------------------------- Letter :5.3
The true dimensions of the problem of counterfeiting of U.S.
currency abroad could not be determined. Treasury and the Secret
Service use Secret Service counterfeit-detection data to reflect the
actual extent of counterfeiting. However, although these data are
the best available, they have limitations. Specifically, they are
incomplete and present only a partial picture of counterfeiting. If
these limitations are not disclosed, the result may be misleading
conclusions.
First of all, the actual extent of counterfeiting could not be
measured, primarily because of the criminal nature of this activity.
Secret Service data record only those detections that are reported to
the Secret Service; they do not measure actual counterfeiting. As a
result, the data provide no information about the number of
counterfeiters operating in any given year or the size and scope of
their operations. More importantly, these data could not be used to
estimate the volume of counterfeit currency in circulation at any
point in time. In the case of counterfeit currency appearing abroad,
reasons for this include the following: (1) the data do not
distinguish between how much counterfeit currency was seized and how
much was passed into circulation; (2) they could not provide
information about how long passed counterfeits remained in
circulation before detection; and (3), most critically, they provide
no indication of how much counterfeit currency was passed into
circulation and not detected.
Second, counterfeit detection data may in part be a reflection of
where the Secret Service focuses its efforts. Use of these data thus
may not identify all countries with major counterfeiting activity,
but simply countries where agents focused their data collection
efforts. For example, in fiscal year 1994, almost 50 percent of
detections abroad occurred in the six countries where the Secret
Service was permanently located. In other countries,
counterfeit-detection statistics tend to be more inconsistent. For
example, in fiscal year 1994, certain African and Middle Eastern
countries reported no counterfeiting activity to the Secret Service.
This lack of reported detections, however, does not necessarily
indicate that counterfeiting activity did not occur in these
countries.
Third, detection data for high-quality notes may be underreported.
The Secret Service has said that, because so few Superdollars have
been detected, this indicates that there are not many in circulation.
However, according to the Task Force on Terrorism and Unconventional
Warfare report, the majority of Superdollars are circulating outside
the formal banking system and therefore would not be reported to the
Treasury if detected. Also, as we discovered on our overseas visits,
many foreign law enforcement and financial organization officials had
inconsistent and incomplete information on how to detect the
Superdollar. Thus, financial institutions abroad may be
recirculating the Superdollars.
Fourth, reported increases in counterfeiting abroad, as supported by
Secret Service detection data, may be due to a number of factors
other than increased counterfeiting activity. For example, in 1993,
the Secret Service changed its reporting practices abroad to be more
proactive in collecting counterfeit-detection data. Instead of
relying solely on reports from foreign officials, agents abroad began
to follow up on Interpol reports and intelligence information in
order to collect additional data. Also, according to Treasury
officials, foreign law enforcement officials have improved their
ability to detect counterfeit U.S. currency and report it to the
Secret Service. Furthermore, although domestic reporting and
detection practices have been more consistent, the increase in
domestic detections of counterfeits produced abroad is also subject
to interpretation. For example, rather than foreign-produced notes
increasing, it is possible that the Secret Service's ability to
determine the source of counterfeit currency has simply improved over
time.
Fifth and finally, counterfeit-detection data fluctuate over time,
and one large seizure can skew the data, particularly for detections
abroad. For detections outside the United States, the Secret Service
has relied heavily on information provided by foreign law enforcement
organizations, and has obtained little information from financial
organizations. Thus, counterfeit detections "appearing abroad" have
primarily been seizures reported by foreign law enforcement
organizations, and the size of these seizures can have a significant
impact on detection data. For example, according to the Secret
Service, several large seizures accounted for the jump from $14
million in counterfeit detections abroad in fiscal year 1988 to $88
million in fiscal year 1989. The following year, the data indicated
a significant drop in detections (see fig. 2).
FOREIGN VIEWS ON THE EXTENT
OF COUNTERFEITING ABROAD
WERE MIXED
---------------------------------------------------------- Letter :5.4
Overseas law enforcement and financial organization officials' views
on the extent of the problem of counterfeit U.S. currency varied.
Foreign law enforcement officials tended to be more concerned about
counterfeit U.S. currency than foreign financial organization
officials. Financial organization officials we met with said that
they had experienced minimal chargebacks, and most expressed
confidence in the ability of their tellers to detect counterfeits.
Furthermore, we heard few reports from foreign financial organization
and foreign law enforcement officials about U.S. currency not being
accepted overseas because of concerns about counterfeiting.
Most foreign law enforcement officials we spoke with believed that
the counterfeiting of U.S. currency was a problem, but their
opinions on the severity of the problem differed. While the Swiss,
Italian, and Hungarian law enforcement officials said that it was a
very serious problem, French and English law enforcement officials
said that the problem fluctuated in seriousness over time; German,
French, and Polish officials said that the counterfeiting of U.S.
currency was not as serious a problem as the counterfeiting of their
own currencies. Some of these law enforcement officials expressed
concern over increases in counterfeiting in Eastern Europe and the
former Soviet Union. Some also expressed particular worry about
their ability, and the ability of financial organizations in their
countries, to detect the Superdollar.
Conversely, most foreign financial organization officials we spoke
with were not concerned about the counterfeiting of U.S. currency.
Of the 34 organizations we visited in 7 countries, officials from 1
Swiss and 1 French banking association and 2 Hungarian banks viewed
the counterfeiting of U.S. currency as a current or increasing
problem. According to other foreign financial organization
officials, they were not concerned about U.S. counterfeiting
activity because it did not have a negative impact on their business.
For example, none of the 16 financial organization officials with
whom we discussed chargebacks told us that they had received
substantial chargebacks due to counterfeit notes that they had failed
to detect. In addition, some of these officials cited other types of
financial fraud and the counterfeiting of their own currency as more
significant concerns. For example, officials from one French banking
association were more concerned with credit card fraud, and officials
from two financial organizations in Germany and one financial
organization in France said counterfeiting of their country's
currency was a greater problem.
Furthermore, foreign financial organization officials we spoke with
were confident about their tellers' ability to detect counterfeits
and, in some countries, tellers were held personally accountable for
not detecting counterfeits.\9 In most of the countries we visited,
detection of counterfeit U.S. currency relied on the touch and sight
of tellers, some of whom were aided by magnifying glasses or other
simple detection devices, such as counterfeit detection pens.\10
Other counterfeit-detection devices used abroad, like ultraviolet
lights, did not work effectively on U.S. currency. While foreign
financial organizations appeared confident of their tellers' ability
to detect counterfeits, some of these organizations had incomplete
information on how to detect counterfeit U.S. currency, particularly
the Superdollar.
Finally, foreign financial organization and law enforcement officials
provided a few isolated cases in which U.S. currency was not
accepted abroad. For example, when it first learned about the
Superdollar, one U.S. financial organization in Switzerland
initially stopped accepting U.S. $100 notes, although it later
resumed accepting the U.S. notes from its regular customers. Also,
Swiss police, Hungarian central bank, and French clearing house
officials reported that some exchange houses and other banks were not
accepting $100 notes. We were unable to confirm these reports.
However, a State Department official commented that, because drug
transactions tended to involve $100 notes, some foreigners were
reluctant to accept this denomination, not because of counterfeiting
concerns, but rather because of the notes' potential link to money
laundering.
--------------------
\9 For example, in Hungary tellers were charged for every counterfeit
note they accepted that the bank later detected.
\10 Counterfeit detection pens are filled with a chemical that, when
applied to currency, turns gold if the currency's paper contains
certain characteristics of genuine paper and black if those
characteristics are not present.
ADDITIONAL U.S. COUNTERFEIT
CURRENCY DETERRENCE EFFORTS
------------------------------------------------------------ Letter :6
The U.S. government, primarily through the Treasury Department and
its Secret Service and the Federal Reserve, has been increasing its
counterfeiting deterrence efforts. These recent efforts include
redesigning U.S. currency; increasing exchanges of information
abroad; augmenting the Secret Service presence abroad; and
undertaking efforts to stop production and distribution of
counterfeit currency, including the Superdollar.
In an effort to combat counterfeiting both domestically and abroad,
Treasury is redesigning U.S. currency to incorporate more security
features intended to combat rapid advances in reprographic
technology. This change, the most significant to the U.S. currency
in over 50 years, is, according to some U.S. and foreign officials,
a long overdue one. The redesigned currency is planned for
introduction in 1996 starting with changes to the $100 note, with
lower denominations to follow at 9- to 12-month intervals. According
to Treasury officials, the currency redesign will continue, becoming
an ongoing process, because no security features are
counterfeit-proof over time. These officials also said that the old
currency would not be recalled and would retain its full value.
Moreover, Treasury is leading a worldwide publicity campaign to
facilitate introduction of the redesigned currency, ensure awareness
and use of the overt security features, and assure the public that
the old currency will retain its full value. Through this campaign,
the Federal Reserve hopes to encourage the public to turn in old
currency for the redesigned notes. (See app. V for further
information on the currency redesign.)
In addition, the Secret Service, through its team visits abroad in
company with Treasury Department and Federal Reserve officials, has
both gathered further information on counterfeiting and provided
counterfeit-detection training. As of May 1995, the team had met
with law enforcement and financial organization officials in Buenos
Aires, Argentina; Minsk, Belarus; London, England; Zurich,
Switzerland; Hong Kong; and Singapore. According to Secret Service
officials, their visits were successful because they were able to
develop better contacts, obtain further information about foreign
financial institutions' practices, learn more about tellers' ability
to detect counterfeits, and provide counterfeit detection training
seminars for both law enforcement and financial organization
officials. Future trips were planned to Russia and possibly the
Middle East.
Further, the Secret Service has been attempting to increase its
presence abroad, although it has encountered difficulties in
obtaining approval. The Secret Service has over 2,000 agents
stationed in the United States, but it has fewer than 20 permanent
positions abroad. The Secret Service first requested additional
staff in February 1994 for permanent posting abroad beginning in
fiscal year 1996. However, due to uncertainties over the funding of
the positions as well as to other priorities within the Treasury
Department, as of June 21, 1995, the Secret Service had secured
approval for only 6 of 28 requested positions abroad. Subsequent to
our discussions with the Secret Service, Treasury, and State, on July
21, 1995, Treasury approved the remainder of the positions and passed
them on for State's approval. As of November 30, 1995, the
respective chiefs of mission had approved only 13 of the 28
positions, and only 1 agent had reported to his post abroad. (See
app. VI for further information on increasing the Secret Service
presence abroad.)
Additionally, the U.S. government has undertaken special efforts to
eradicate the highest quality counterfeit note--the Superdollar.
These efforts include the use of task forces and diplomatic efforts
among senior policy-level officials of the U.S. and certain foreign
governments. Due to the sensitivity and ongoing nature of this
investigation, we were made generally aware of these efforts but not
provided with specific information. (See app. VII for further
information on U.S. efforts to eradicate the Superdollar.)
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :7
The Department of the Treasury, including the Secret Service, the
Department of State, and the Federal Reserve provided written
comments on a draft of this report. (See apps. VIII, IX, and X.)
These comments included technical changes and/or factual updates that
have been incorporated where appropriate. However, Treasury,
including the Secret Service, also raised and later rescinded issues
of security classification and sensitivity and did not fully agree
with our characterization of the limitations of the Secret Service
counterfeit currency detection data and other supporting methods for
estimating trends in counterfeiting. In their comments, Treasury and
the Secret Service made frequent reference to activities that they
believed provided additional support for the conclusions they drew
from the detection data. These activities included contacts with
foreign law enforcement and financial organization officials, vault
inspections of banks abroad, and analysis of Federal Reserve data.
Although the Secret Service recognized the limitations of its
counterfeit currency detection data, Treasury and Secret Service
conclusions provided in hearings and reports have not always
reflected these limitations. Thus, in this report, we discuss the
data limitations and conclude that any use of the data should be
qualified to recognize these limitations. Although the Secret
Service has the best counterfeit-detection data available, this does
not negate the potential for the limitations of this data to foster
misleading conclusions. First, the actual extent of counterfeiting
cannot be determined because of the criminal nature of this activity.
Second, counterfeit-detection data may be a reflection of where the
Secret Service focuses its efforts. Third, detection data for
high-quality notes, which may more easily circumvent detection and
reporting abroad, may be even less representative of the actual
extent of the problem. Fourth, increases in counterfeiting
detections abroad may be due to a number of factors other than
increased counterfeiting, such as improved information gathering and
reporting. Also, counterfeit-detection data fluctuate over time, and
one large seizure abroad can skew the data.
We acknowledge in this report that the Secret Service supplements its
detection data with intelligence information and field experience.
Even though we did not evaluate these specific methods, our work did
yield some information on these activities.
With regard to Treasury and Secret Service contacts with foreign law
enforcement and financial organization officials, in our discussion
of additional U.S. counterfeit currency deterrence efforts, we
acknowledge that Treasury and Secret Service officials have recently
increased their contacts with foreign financial organizations in
preparation for the U.S. currency redesign effort. However, almost
all of the foreign financial organization officials we met with in
September 1994 had had little or no contact with Treasury and/or
Secret Service officials before that time.
Regarding vault inspections of banks abroad, Secret Service officials
initially told us that they were conducting vault inspections during
their joint team visits with Treasury and Federal Reserve officials.
However, according to Federal Reserve officials, and as subsequently
confirmed by Secret Service officials, vault inspections had been
conducted in only one of the six locations visited during our review.
Secret Service officials told us that the inspections had been
conducted in Argentina but were then discontinued because of the
limited results obtained there. The officials told us that the
inspections might be reinstituted in other countries if it was
subsequently decided that the effort was warranted.
Finally, regarding the use of Federal Reserve data, the Secret
Service and the Federal Reserve confirmed that the Federal Reserve
data were actually a component of the Secret Service data, and thus
were effectively addressed in our evaluation of the Secret Service
data.
---------------------------------------------------------- Letter :7.1
As agreed with your office, unless you publicly announce the contents
earlier, we plan no further distribution until 30 days from the date
of this report. At that time, we will provide copies of the report
to interested congressional committees, to the Departments of the
Treasury and State, and to the Federal Reserve. We will also make
copies available to others on request.
Please contact me at (202) 512-8984 if you have any questions
concerning this report. Other major contributors to this report are
listed in appendix XI.
Sincerely yours,
JayEtta Z. Hecker, Associate Director
International Relations and Trade
SECRET SERVICE GEOGRAPHIC COVERAGE
ABROAD, AS OF MAY 1995
=========================================================== Appendix I
Number of
agents Geographic coverage abroad
-------------- -------------- ------------------------------------------------
Overseas
office
Bangkok 2 Asia (Indonesia, Malaysia, Singapore, and
Thailand)
Bonn 1 Europe (Austria and Germany)
London 1 United Kingdom (England, Scotland, Wales,
Northern Ireland, Channel Islands, Isle of Man,
Shetland Islands, Gibraltar), Iceland, and
Ireland
Manila 1 Philippine Islands
Paris 6 Africa (Algeria, Angola, Benin, Burundi, Burkina
Faso, Cameroon, Cape Verde, Central African
Republic, Chad, Comoros, Congo, Djibouti,
Equatorial Guinea, Gabon, Ghana, Guinea,
Guinea-Bissau, Ivory Coast, Madagascar, Mali,
Mauritania, Mauritius, Morocco, Niger, Rwanda,
So Tom & Principe, Senegal, Togo, Tunisia,
and Zaire), Europe (Belgium, Czech Republic,
Slovakia, Denmark, Finland, France,
Liechtenstein, Luxembourg, Monaco, Netherlands,
Norway, Poland, Portugal/Azores, Spain, and
Switzerland), Former Soviet Republics (Belarus,
Estonia, Georgia, Latvia, Lithuania, Moldova,
Russia, Tajikistan, and Ukraine), and Greenland
Rome 5 Africa (Botswana, Egypt, Ethiopia, Gambia,
Kenya, Lesotho, Liberia, Libya, Malawi,
Mozambique, Nigeria, Seychelles, Sierra Leone,
Somalia, South Africa, Sudan, Swaziland,
Tanzania, Uganda, Zambia, and Zimbabwe), Europe
(Albania, Bulgaria, Cyprus, Greece, Hungary,
Italy, Malta, Romania, San Marino, Vatican
City, and former Yugoslavia), Middle East
(Bahrain, Iran, Iraq, Israel, Jordan, Kuwait,
Lebanon, Oman, Qatar, Saudi Arabia, Syria,
Turkey, United Arab Emirates, Yemen Arab
Republic, and Yemen Peoples Democratic
Republic)
Domestic
office
Buffalo \a Canada
Honolulu \a Far East, Australia, and all U.S. Pacific
possessions
Miami \a Bahama Islands, Canal Zone, Cayman Islands,
Central America (except Mexico), Cuba, Jamaica,
and South America
New York \a Bermuda
San Antonio \a Mexico
San Juan \a Puerto Rico, Virgin Islands, and West Indies
(except Bahama Islands, Cayman Islands, Cuba,
and Jamaica)
Temporary
assignment or
task force\b
Hong Kong; 1 Hong Kong
temporary
assignment
New Delhi, 1 New Delhi, India
India;
temporary
assignment
Latin America; 1 Central and South America
task force
Milan, Italy; 2 Italy
task force
Nicosia, 2 Cyprus
Cyprus; task
force
--------------------------------------------------------------------------------
\a Domestic agents cover U.S. territories as well as geographic
regions abroad. Therefore, no specific number of agents are assigned
to cover regions abroad.
\b Both task-force and temporary-assignment agents are located in
these countries on a temporary duty basis. Agents on temporary
assignments rotate more frequently than do those assigned to the task
forces.
Source: U.S. Secret Service.
FOREIGN LAW ENFORCEMENT AND
FINANCIAL ORGANIZATION OFFICIALS
INTERVIEWED
========================================================== Appendix II
Country Law enforcement agency Financial organization
---------------------- ---------------------- ----------------------
England National Criminal Bank of England
Intelligence Service National Westminster
Bank
Citibank
Republic National Bank
of New York
Hong Kong and Shanghai
Bank Holdings, plc
France Office Central Pour la Association Franaise
Rpression du Faux des Banques
Monnayage Banque de France
Caisse Parisienne de
Rescompte
American Express
Germany Bundeskriminalamt Deutsche Bundesbank
Deutsche Bank
Dresdner Bank
Hungary Landes Polizei Magyar Nemzeti Bank
Hauptkommissariat Budapest Bank
Ungarn Ibusz Bank
Magyar Hitel Bank
American Express
Citibank
Italy Polizia di Stato Banca D'Italia
Guardia di Finanza Associazione Bancaria
Carabinieri Presso la Italiana
Banca d'Italia Banca Nazionale del
Lavoro
Credito Italiano
American Express
Thomas Cook
Poland Komenda Glowna Policji Bank Polska Kasa
Opieki, S.A.
Bank Handlowy W
Warszawie, S.A.
American Express
Citibank
Switzerland Bundesamt fr Swiss Bankers
Polizeiwesen Association
Credit Suisse Bank
Swiss National Bank
Union Bank of
Switzerland
Citibank
JP Morgan
----------------------------------------------------------------------
METHODS OF COUNTERFEITING U.S.
CURRENCY
========================================================= Appendix III
Figure III.1: Offset Printed
Notes
(See figure in printed edition.)One defect in this good-quality
offset counterfeit is the presence of diagonal black lines in the
hair (A).
Source: U.S. Secret Service.
(See figure in printed
edition.)
According to Secret Service officials, the methods of counterfeiting
U.S. currency abroad are the same as those used domestically and
range from offset printing to raised notes. While offset printing
tends to produce the higher quality counterfeit notes, quality can
vary within each method used. In some cases, a good color copier
note can be better than a poor quality offset counterfeit. Although
some of the overt defects used to distinguish counterfeits from
genuine notes appear minor, often a combination of defects makes it
easier to distinguish between the two. It is also important to
remember that covert security features\11 are incorporated in U.S.
currency, and the makeup of the genuine paper is a highly guarded
secret.
(See figure in printed edition.)One defect in this fair-quality
offset counterfeit is the presence of a diagonal black line in the
hair (B).
Source: U.S. Secret Service.
(See figure in printed
edition.)
--------------------
\11 Covert features are undetectable by the naked eye and allow
sophisticated machines, such as those maintained by the Federal
Reserve, to identify counterfeit notes when those notes are of such
high quality that they escape detection by the average citizen during
a transaction.
OFFSET PRINTED NOTES
----------------------------------------------------- Appendix III:0.1
Offset printing is the most common process used by counterfeiters,
according to the Secret Service. From a photographic negative of a
genuine note, a printing plate that includes the image and nonimage
area is produced. This plate is placed on a plate cylinder, which
transfers ink onto the blanket cylinder. Then paper is rolled
between this blanket cylinder and an impression cylinder, resulting
in a printed image that appears to be flush with the surface of the
paper. A review of the range of counterfeits produced through offset
printing reveals various defects that distinguish counterfeit from
genuine notes. Examples are provided in figure III.1. The
good-quality offset sample has diagonal black lines in the hair on
the right side (see fig. III.1, A). The fair-quality offset sample
has a diagonal black line near the hair (see left side of fig.
III.1, B).
(See figure in printed edition.)One defect in this poor-quality
offset counterfeit is the lack of shading lines in the face and hair
(C).
Source: U.S. Secret Service.
(See figure in printed
edition.)
Finally, in the poor-quality offset sample, the portrait is missing a
majority of shading lines in the face and hair (see fig. III.1, C).
INK JET PRINTED NOTES
----------------------------------------------------- Appendix III:0.2
Ink jet printing is a counterfeiting method whose use is largely due
to improvements in technology--scanners, computers, and printers.
Unlike the offset method that uses plates to compress images onto
paper, ink jet printing is a pressureless and plateless printing
process that employs computers, electronics, electrostatics, and inks
to compose and produce images. Ink jet technology requires the image
to be scanned and converted to information that is transmitted to the
computer. This image must be created each time it is reproduced,
providing counterfeiters an
Figure. III.2: Ink Jet
Printed Note
(See figure in printed edition.)The ink jet counterfeit is detectable
by the small colored dots used to make up the image (A).
Source: U.S. Secret Service.
(See figure in printed
edition.)
opportunity to change the serial numbers on the notes. To create the
image, ink jet printers spray tiny droplets of ink from the printer
head through a small gap of air onto the paper (see fig. III.2, A).
The ink jet counterfeit has small red, blue, yellow, and black dots
that make up the image; the genuine note does not have these colored
dots.
Figure III.3: Office
Machine-copied Notes
(See figure in printed edition.)One identifiable defect in color
machine-copied counterfeit notes is the loss of some of the shading
lines in the face and hair (A).
Source: U.S. Secret Service.
(See figure in printed
edition.)
OFFICE MACHINE-COPIED NOTES
----------------------------------------------------- Appendix III:0.3
Copying genuine notes on office copier machines is one of the
simplest methods employed to produce counterfeits. Office machine
copiers, which include black and white, monochromatic, and color
copiers, use an electronic transfer of toner to paper. Black and
white copiers apply black toner only; monochromatic copiers apply one
color of toner at a time; and color copiers use a simultaneous
combination of yellow, light blue, bright pink, and sometimes black
toners to produce all colors.
(See figure in printed edition.)One defect in this monochromatic
counterfeit note is the break in the borderline of the portrait oval
(B).
Source: U.S. Secret Service.
(See figure in printed
edition.)
The result is an image resting on the surface of the paper. Under
magnification, these counterfeits sometimes reveal small, individual
particles of toner outside the image area. Also, the portrait image
tends to be less distinct in these notes. For example, in the sample
color machine-copied note in figure III.3, A, shading lines are
missing in the face and hair. In the sample monochromatic note,
there is a small break in the lower borderline of the oval (shown on
the lower right of fig. III.3, B).
Figure III.4: Raised Note
(See figure in printed edition.)In this raised note, corners have
been cut off a $10 note and pasted on a $1 note (A).
Source: U.S. Secret Service.
(See figure in printed
edition.)
RAISED NOTES
----------------------------------------------------- Appendix III:0.4
Raised notes involve one of the most simplistic counterfeiting
methods. Using this method, a counterfeiter cuts numerals from
higher denomination notes and glues them to the corners of lower
denomination notes (see fig. III.4, A). To detect these counterfeit
notes, a comparison of the arabic numbers in the corners with the
text number at the bottom of the note or under the appropriate
portrait can be made.
THREE CASE EXAMPLES OF
HIGH-QUALITY COUNTERFEITS
========================================================== Appendix IV
Figure IV.1: The Canadian Note
(See figure in printed edition.)Two defects in this counterfeit note
are the lack of microprinting around the portrait (A) and the break
in the borderline of the portrait oval (B).
Source: U.S. Secret Service.
(See figure in printed
edition.)
Three cases, the first two provided by the Secret Service and the
third primarily by the House Republican Research Committee's Task
Force on Terrorism and Unconventional Warfare, illustrate recent
troublesome cases concerning the counterfeiting of U.S. currency
abroad; all involve high-quality counterfeit notes produced by using
the offset printing method.
In Canada, an individual linked to organized crime produced
counterfeit U.S. $100 notes using offset plates and a printing
press. The "Canadian Note" case took almost 2-1/2 years to
solve, despite the good relations that exist between the United
States and Canada and their respective law enforcement agencies,
according to Secret Service officials. During that period, the
Secret Service detected over $10 million worth of these
counterfeit notes. The Canadian Note, as opposed to a genuine note,
had the red and blue fibers printed on, rather than embedded within,
the paper. When these fibers on the counterfeit were scratched, they
would not pull from within the paper as those in a genuine note would
do. Also, for 1990 series and subsequent notes, another security
feature, the microprinting around the portrait that reads "The United
States of America," was added. This feature is missing from the
Canadian Note shown in figure IV.1, A. Finally, one overt defect in
the Canadian Note is the break in the right-hand lower border of the
oval (see fig. IV.1, B).
Figure IV.2: The Colombian
Note
(See figure in printed edition.)One defect in this counterfeit note
is a black dot near the outer border of the portrait (A).
Source: U.S. Secret Service.
(See figure in printed
edition.)
In Colombia, organized criminals bleach low denomination U.S.
notes and then use the bleached paper to print higher
denomination bills. According to Secret Service officials,
these criminals use the same distribution points as those for
drugs to circulate the "Colombian" or "South American Note." In
addition, according to Secret Service officials, this note is
especially disconcerting because the paper is often genuine, a
large number of variations exist in this counterfeit family,\12
and the number of counterfeits detected for this note is large.
From the time that the note was first detected in 1981, through
fiscal year 1994, over 100 varieties of these counterfeits,
amounting to almost $36 million, have been detected. One overt
defect in the Colombian Note is a black dot near the outer
border of the oval on the right-hand side, as shown in figure
IV.2, A.
In the Middle East, a group, allegedly a foreign government, is
sponsoring production of the Superdollar. While many
allegations have been made about the Superdollar, little
evidence in support of these allegations has been made public.
According to the report by the House Republican Task Force on
Terrorism and Unconventional Warfare, the Superdollar is printed
in the Middle East on "high-tech state-owned presses with paper
only acquired by governments." Also according to the task force,
the Superdollar is "designed for direct infiltration into the
U.S. banking system and has become a major instrument in
facilitating the flow of militarily useful nuclear materials and
equipment and various weapons systems." A few of the foreign law
enforcement and financial institution officials we spoke with
believed the Superdollar was being circulated through various
terrorist organizations around the world, on the basis of
reports of detections involving individuals with links to
terrorist organizations. According to the Treasury Department,
no evidence exists to show that the note is printed with paper
acquired only by governments or that the note is designed for
direct infiltration into the U.S. banking system. Treasury
also maintained that support for the remaining allegations
concerning the Superdollar is inconclusive. Furthermore,
although the Task Force reported that between $100 million and
billions in Superdollars is in circulation, no evidence has been
provided to support these allegations. Since the Superdollar
was first detected in fiscal year 1990, Superdollar detections
have represented a small portion of total counterfeit currency
detections, according to Treasury and the Secret Service. (Due
to the sensitivity and ongoing nature of this case, defects in
and pictures of the Superdollar were not included in this
report.)
--------------------
\12 According to Secret Service officials, a "family" is a grouping
of variations of counterfeit notes made by the same counterfeiters
using the same process. A family can include any number of
variations.
TREASURY DEPARTMENT TO INTRODUCE
CURRENCY REDESIGN
=========================================================== Appendix V
To deter counterfeiters both domestically and abroad, the Treasury
Department plans to issue newly designed U.S. currency with more
internal security features. According to Treasury officials, the
redesign is a preemptive step to protect U.S. currency from
high-tech counterfeiting. Some U.S. and foreign officials agreed
that the change is overdue because the current U.S. currency design
is outdated and easy to counterfeit. The new design incorporates a
number of new security features and will be periodically reexamined
and updated because no one security feature alone is sufficient and
no single currency design can deter counterfeiting indefinitely. The
U.S. strategy for introducing the new currency includes the
replacement of old currency as it goes through the Federal Reserve
system and the encouragement of exchanges of old currency for the
newly redesigned currency. The U.S. strategy does not include a
recall of old U.S. currency. Finally, to facilitate introduction
and maximize the effectiveness of the redesigned currency, Treasury
has initiated a worldwide public information campaign. Through this
campaign, Treasury and Federal Reserve officials plan to emphasize
and thus increase the effectiveness of the new security features,
make the public aware that the old currency will retain its value,
and encourage individuals to exchange their old currency for the
redesigned notes.
THE CURRENT U.S. CURRENCY DESIGN
IS OUTDATED AND EASY TO DUPLICATE
Some officials in the United States and abroad agree that the current
design of U.S. currency is outdated, making it particularly
vulnerable to counterfeiting. The U.S. currency has had only two
changes in over 50 years, both in 1990. According to a June 1, 1995,
Treasury Inspector General's report,\13 despite the 1990 addition of
a security thread and microprinting, the lack of more major changes
to the U.S. currency has apparently left the United States with a
less technologically advanced currency than those of other
industrialized nations. For example, the report pointed out that
Japan has already incorporated special ink to deter counterfeiters,
and Finland and Australia have added features similar to holograms
(three-dimensional pictures) to their currency. The Treasury
Inspector General concluded that, because of the advances made by
other nations and the lack of similar changes by the United States,
the U.S. currency has become one of the easiest to duplicate. This
conclusion was further supported by reports contracted by the Bureau
of Engraving and Printing\14 and the Committee on Next-Generation
Currency Design.\15
During our overseas visits, officials from the Swiss, German, and
Hungarian central banks told us that the United States should
consider improving the security features within its currency. The
Hungarian central bank and the Swiss bankers association commented
that the counterfeiting of U.S. currency was particularly egregious
because the design of the dollar is technologically out of date.
German and English law enforcement officials noted that U.S.
currency could be widely counterfeited because it is so easy to copy.
Additionally, officials of a currency exchange business in Italy
stated that, if the United States did not protect its currency by
adding deterrence features, then increases in counterfeiting could
lead to the devaluation of the dollar.
CURRENCY REDESIGN INCORPORATES NEW
SECURITY FEATURES, WITH MORE TO BE
ADDED OVER TIME
After the 1990 security features were added to the U.S. currency
design, the Advanced Counterfeit Deterrence Steering Committee formed
the New Currency Design Task Force to analyze and recommend new
security features. On the basis of the task force findings, the
steering committee presented its recommendations to the Secretary of
the Treasury on changing U.S. currency. In 1992, the task force
contracted with the National Research Council to recommend overt
counterfeit-deterrence features. The study was completed in 1993 and
was used by the task force to recommend the new security features.
The new U.S. currency maintains its traditional appearance while
incorporating new security features. The redesigned notes retain
their familiar size and colors, with portraits of the same historical
figures on the front and the same buildings or monuments on the back.
The greatest number of new security features are incorporated in the
highest denomination bills, with fewer features built into the lower
denomination bills that are less likely to be counterfeited. The new
security features include overt features easily recognized by the
public and covert features for use by the banking system. The most
obvious changes are a 50-percent larger portrait that is off-center
and the inclusion of a watermark that is visible when the note is
held against a light source (see fig. V.1).
Figure V.1: New Overt Security
Features of the Redesigned U.S.
Currency
Source: U.S. Department of
the Treasury.
(See figure in printed
edition.)
Production and distribution of the newly redesigned currency will
take several years to complete. The new $100 note will be introduced
in 1996, with lower denomination notes following at 9- to 12-month
intervals,\16 according to Federal Reserve officials. The $100 note
will be produced first because it is the note most widely
counterfeited abroad. The Bureau of Engraving and Printing has
estimated that the first-year production costs for the $100 note will
represent an increase of between $7.5 million and $10 million from
current levels because of the addition of the new security features.
Although these new deterrent features represent a significant change
to the currency, these changes will not be the last. According to
Treasury Department officials, the combination of rapidly advancing
technology, the continued worldwide demand for U.S. currency, and
the ability of counterfeiters to compromise deterrents over time will
necessitate future currency redesigns. Therefore, the Advanced
Counterfeit Deterrence Steering Committee will continue to review, on
an ongoing basis, the need for future deterrents. Treasury has also
established the Securities Technology Institute at The Johns Hopkins
University's Applied Physics Laboratory to develop new materials to
be used in U.S. currency to further deter counterfeiting.
Additionally, the Secret Service has begun to develop more
comprehensive evaluation methods for the currency's
counterfeit-deterrence features. The Treasury Inspector General's
office, which evaluated the security features added in 1990, has
recommended that the Treasury Department develop a comprehensive
system of performance measures for past and future deterrents.\17
The Secret Service plans to develop a performance measurement method
that will include a more detailed computer classification system.
The system would allow for categorization of different counterfeit
notes according to the features and series that they attempt to
simulate. Moreover, the Bureau of Engraving and Printing may pursue
the development of a classification system through its contract with
the Securities Technology Institute.
TREASURY'S INTRODUCTION OF THE
REDESIGNED CURRENCY WILL NOT
INCLUDE A RECALL
Although officials in some countries believe a recall should be
issued in conjunction with the introduction of newly redesigned
currency, Treasury and Federal Reserve officials believe they have
developed a more appropriate strategy for the United States. The
strategy calls for the withdrawal from circulation of old or worn
notes as they go through the Federal Reserve system and their
replacement by the redesigned currency, as well as the publicizing of
the new notes to encourage the public to exchange old currency for
new. In this way, Treasury and Federal Reserve officials expect the
number of old notes in circulation to diminish over time, eliminating
the need for a recall. Treasury officials have concluded that this
strategy will be more cost-effective and less risky to the stability
of the U.S. dollar.
Some foreign law enforcement and a few foreign financial organization
officials suggested that the United States might wish to consider
recalling all old currency after distributing the new currency.
Foreign officials said that changes to and recalls of other
countries' currencies are common methods of combating counterfeiting
abroad and that, without a recall, there is nothing to stop
perpetrators from counterfeiting the old currency. For example,
foreign law enforcement officials told us that, although the United
States incorporated two new security features into its currency
issued in 1990, counterfeiters in Paris circumvented this effort by
counterfeiting 1988 notes that did not have the new features. In
addition, a U.S. terrorism expert expressed the opinion that, in
order to eradicate the Superdollar, a recall would be necessary.
Conversely, a few other foreign financial organization officials
acknowledged the cost and other concerns cited by Treasury in
choosing not to recall the old currency. Some of these officials
suggested that the amount of U.S. currency in circulation would make
a recall extremely difficult and costly. Other foreign law
enforcement and financial organizations did not comment on recalls.
The strategy as developed calls for the Federal Reserve to remove old
$100 and $50 notes from circulation as they go through the Federal
Reserve banks and to reissue only the newly redesigned currency.
Federal Reserve officials told us that it is possible that they will
not remove the lower denomination notes until they have completed
their normal lifespan, because their lifespan is usually shorter than
that of the higher denomination notes. For example, a $20 note is
generally faded and torn after 2.5 years in circulation and is thus
removed from circulation, whereas the lifespan of a $100 note is 6 or
more years.
Federal Reserve officials also told us that they expected a large
demand for the new currency and that, although the U.S. government
will not issue a recall, it will develop a publicity campaign to
encourage people to exchange older currency for new currency.
Treasury and Federal Reserve officials expected people to gravitate
to the new currency, particularly in overseas areas where older notes
are already subject to greater scrutiny. They said that, at some
point, the new currency will greatly exceed the old currency in
circulation and that by then merchants will universally prefer the
new currency and subject the old currency to even greater scrutiny.
Thus, they concluded, counterfeiting of the old notes would diminish
over time. They added that they were more worried that the demand
for the new currency would exceed the supply than that the old
currency might be counterfeited.
Treasury officials said that they have no plans for a recall of the
old currency because the costs are not justifiable and a recall could
negatively affect the stability of the U.S. dollar.
According to Treasury officials, the potential costs associated
with a recall are not warranted given the current level of
counterfeiting. The cost of a recall of all old U.S. currency
would be tremendous because U.S. currency is an international
currency that is widely held abroad. Treasury believed that,
since the legitimate use of U.S. currency significantly
outweighs the illegitimate use, imposing the enormous cost of a
recall on legitimate users would not be justified.
Treasury officials also told us that the stability of the U.S.
dollar is primarily due to the stability of the U.S. economy
and the stature of the United States around the world. They
added that a recall of U.S. currency could negatively affect
this stability. The United States has made only two overt
changes to its currency since 1929 and has never recalled its
currency. People have faith in a currency because they believe
it will retain its value. Moreover, the U.S. Treasury earns
revenues from the use of U.S. currency abroad, and a decrease
in the use of U.S. currency abroad thus would have a negative
impact on these revenues. For example, according to a Treasury
official, a 1-percent decrease in U.S. currency holdings
overseas would cost the Treasury $75 million in annual revenues.
WORLDWIDE EFFORT TO FACILITATE THE
INTRODUCTION OF THE REDESIGNED
CURRENCY
Treasury is developing and implementing a comprehensive, worldwide
public education campaign to facilitate the introduction of the new
currency. Through this public education effort, Treasury officials
hope to (1) increase the effectiveness of the new security features
by publicizing the overt ones, and (2) ensure that individuals around
the world realize that the old notes will retain their value and that
the U.S. government has no plans to recall U.S. currency. Also,
Federal Reserve officials said that they hope to encourage
individuals to exchange old notes for newly redesigned ones.
A Treasury Inspector General's report has noted that the 1990 overt
security features were not as effective as hoped, partially because
of the lack of an adequate long-term public education program. And,
with the introduction of the redesigned currency in 1996, the need to
educate the public will be even greater because three different
Federal Reserve Note designs will then be in circulation: (1)
pre-1990 notes without the security thread and microprinting, (2)
1990 and later notes with the security thread and microprinting, and
(3) the newly redesigned notes.
Treasury's publicity campaign is expected to include the use of (1) a
high-profile campaign spokesperson, the Treasurer of the United
States, to inform the public about the newly redesigned currency; (2)
staff dedicated solely to public education who will work with the
U.S. Information Agency to encourage the establishment of foreign
focus groups, as well as an outside firm to help craft and
disseminate the message to the general public and selected target
audiences abroad; (3) U.S. embassies overseas and foreign-desk
officers at Treasury as points of contact for information regarding
the redesign effort; and (4) the Federal Reserve, which has already
begun to send information about the redesign effort to central banks
around the world. Additionally, according to the Secret Service, it
intends to conduct an extensive training program for law enforcement
and financial organization officials.
--------------------
\13 Treasury Inspector General, Treasury's Overt Changes to Currency
Enhance Counterfeit Deterrence (June 1, 1995).
\14 Price Waterhouse and The Institute for the Future, Implications
of Increased Counterfeiting (September 30, 1986).
\15 National Materials Advisory Board, Commission on Engineering and
Technical Systems, National Research Council, Counterfeit Deterrent
Features for the Next Generation Currency Design (December 1993).
\16 According to the Federal Reserve, it takes almost a year to make
a production plate.
\17 Treasury's Overt Changes to Currency Enhance Counterfeit
Deterrence (Washington, D.C.: June 1, 1995).
THE SECRET SERVICE IS ATTEMPTING
TO INCREASE ITS PERMANENT PRESENCE
ABROAD
========================================================== Appendix VI
To better combat the counterfeiting of U.S. currency, the Secret
Service has requested an increase in its permanent presence abroad.
As of May 1995, the Secret Service had the following overseas
strength: 6 permanent offices with 16 agents assigned to them, with
this permanent presence supplemented by 3 task forces, 2 temporary
assignments, and 6 domestic offices covering additional geographic
locations abroad. In February 1994, the Secret Service requested
additional positions abroad, and over a period of 5 months, the total
positions requested grew to 28. The Secret Service had hoped that
these positions would be staffed by the beginning of fiscal year
1996. However, due to uncertainties over funding and to other
Treasury priorities, as well as to the normal approval and staff
selection timeframes at Treasury and State, as of November 30, 1995,
only 13 of the 28 positions had been approved (see table VI.1.), and
only 1 agent had moved to his new post abroad.
Table VI.1
Status of Secret Service Request for
Increased Staffing Levels Abroad, as of
November 30, 1995
Under
Secret discussion
Service between
staff Treasury and
increase U.S. chief
Locations requested of mission Disapproved Approved
------------ ------------ ------------ ------------ --------------
New offices
----------------------------------------------------------------------
Canada 2 agents \a 1 agent 1 agent\b
1 support 1 support
Colombia 2 agents 1 agent \ 1 agent\b
1 support 1 support c
Cyprus 2 agents \a \c 2 agents
1 support 1 support
Hong Kong 2 agents 1 agent \c 1 agent\b
1 support 1 support
Mexico 2 agents \a 2 agents \c
1 support 1 support
Russia 2 agents 2 agents \c \c
1 support 1 support
Existing offices
----------------------------------------------------------------------
England 1 agent \a \c 1 agent\b
1 support 1 support
France 2 agents \a \c 2 agents\b
Germany 1 agent \a 1 support 1 agent\b
1 support
Italy 2 agents \a \c 2 agents\b
The 1 agent 1 agent \c \c
Philippines
Thailand 1 agent 1 agent \c \c
======================================================================
Total 20 agents 6 agents 3 agents 11 agents
8 support 3 support 3 support 2 support
----------------------------------------------------------------------
\a Discussion completed.
\b Conditional approval based on agreement with U.S. ambassador
regarding administrative support costs.
\c Not applicable.
Sources: U.S. Departments of the Treasury and State.
On February 2, 1994, the Secret Service submitted a request to the
Treasury Department for funding under the Crime bill (Violent Crime
Control and Law Enforcement Act of 1994, Public Law 103-322, Sept.
13, 1994). The Secret Service requested staffing for new offices in
Bogota, Colombia; Mexico City, Mexico; Ottawa, Canada; Nicosia,
Cyprus; and Hong Kong. It requested additional staffing for existing
offices in Rome, Italy; Paris, France; Bonn, Germany; London,
England; Manila, the Philippines; and Bangkok, Thailand. The Secret
Service provided justification for its request, stating that
counterfeit U.S. currency being produced and circulated overseas had
dramatically increased and that high-quality counterfeiting had also
escalated overseas. The Secret Service added that, because of its
extremely limited resources abroad, it was not always able to take
timely action to suppress counterfeiting abroad. The Secret Service
provided the examples of the Rome and Paris offices, which cover
districts consisting of over 40 countries with respective complements
of 5 and 6 special agents. Additionally, on June 6, 1994, the Secret
Service requested approval to open and staff a new office in Moscow,
Russia, stating that the office was needed due to the burgeoning
economic crimes in Russia and Eastern Europe.
As the Secret Service continued to maintain its need for 28
additional staff abroad, because of concerns over funding
constraints, Treasury was considering a plan to consolidate Treasury
Bureau staff overseas in a cost-saving effort. Subsequently, on
August 15, 1994, Treasury sent a request to State to approve 22
Treasury agents and 4 support staff to be taken from the Secret
Service and other enforcement bureaus' staffs, depending on the
greatest need at each location. The Treasury request stated that the
positions would be funded with existing resources should Congress not
approve additional funding. State responded with the request that
Treasury specify the bureau to which each position was to be
assigned.
On September 30, 1994, the Treasury, Postal Service, and General
Government Appropriations Act for fiscal year 1995 made $5 million
available to the Secret Service to combat the counterfeiting of U.S.
currency. However, according to the Treasury Department Budget
Adviser for Enforcement, Secret Service base funding was still
uncertain at that date. Thus, on November 18, 1994, Treasury sent a
letter to State requesting that 11 of the positions it had requested
on August 15 be Secret Service agents for the new offices, as
requested by the Secret Service. However, Treasury did not forward a
request for additional staffing of the existing offices at that time.
On March 29, 1995, State sent a letter to Treasury providing an
update on Treasury staffing requests, including the Secret Service
positions, asking Treasury to respond to the cables from the chiefs
of mission,\18 which had already been forwarded to Treasury. Five of
the requested agent positions had been approved, contingent on
various clarifications. Approvals consisted of two positions in
Cyprus, one in Hong Kong, one in Colombia, and one in Canada. The
majority of the concerns and questions dealt with the funding of
administrative support costs. Furthermore, State noted that it had
not yet received proposals for the additional Secret Service
positions and that the proposals were needed so that State could
forward them to the chiefs of mission concerned.
As of our exit briefings with the Secret Service, Treasury, and State
in May 1995, Treasury had not yet responded to the cables from the
chiefs of mission, with the exception of that from Nicosia, and had
not requested any additional Secret Service positions for offices
abroad. According to a Treasury budget official, funding had
remained uncertain until recently, and then other priorities took
precedence. However, the budget official also told us that a request
for the remaining positions would be forwarded to State and that the
cables would be answered shortly.
Subsequently, on June 5, 1995, the Secret Service provided Treasury
with a letter stating that it had not yet received a formal response
regarding the remaining positions and that it was willing to fund
administrative support costs. The Secret Service also asked that the
process be expedited. In a June 13, 1995, letter from the Secret
Service to Treasury, the Secret Service stated that it was moving
ahead with candidate selection for the approved Cyprus, Hong Kong,
Bogota, and Ottawa positions and expected to have those positions
staffed in early fiscal year 1996.
On July 21, 1995, Treasury approved the remainder of the Secret
Service's 28 requested positions and forwarded the request to State.
Cables were sent to the respective chiefs of mission for approval.
Finally, as of November 30, 1995, the Secret Service had received
approval from the chiefs of mission for 13 of the 28 new positions
originally requested. Approvals had been granted for staff in
Canada, Colombia, Cyprus, Hong Kong, England, France, Germany, and
Italy. Requests for staff in Mexico and additional staff in Canada
and Germany had been denied. Requests for staff in Colombia, Hong
Kong, Russia, the Philippines, and Thailand were still under
discussion between Treasury and the chiefs of mission.
However, although gains appear to have been made in the approval
process, staff selection and movement of staff to their new posts
abroad still remained to be completed. According to the Secret
Service, as of November 30, 1995, only one agent had moved into his
new position abroad (in Canada); two other staff had been selected
for other positions and were preparing to move; and the selection
process was just beginning for the remaining approved positions.
--------------------
\18 The authority to determine the size, composition, and mandate of
mission staffing elements rests with the chief of mission and the
Secretary of State. Other U.S. government agencies do not have
decision-making authority with respect to the size, composition, or
mandate of missions abroad.
U.S. EFFORTS TO ERADICATE THE
SUPERDOLLAR
========================================================= Appendix VII
U.S. efforts to eradicate the Superdollar include an interagency
task force led by the Secret Service, an overseas Secret Service task
force, and diplomatic efforts between senior policy-level officials
of the involved countries. Due to the sensitivity and ongoing nature
of this investigation, we were made generally aware of these efforts
but were not given specific information. However, the Secret Service
has provided classified briefings to Members of Congress on efforts
to eradicate the Superdollar.
In a February 1994 Secret Service request to Treasury for funding
under the 1994 Crime bill, the Secret Service stated that, for the
past 4 years, it had spearheaded a multiagency effort to suppress the
most technically sophisticated note detected in the history of that
agency. This initiative has prompted an unprecedented forensic
effort, utilizing the resources of the Secret Service, other
government offices, and several national laboratories.
According to a State Department official, senior policy level
officials in the U.S. government are conducting ongoing diplomatic
efforts concerning the Superdollar with Middle Eastern government
officials. This official said that, in May 1995, our government
asked these foreign governments to provide a show of good faith in
improving relations by locating the printing plants and perpetrators
involved in producing the Superdollar. He added that these efforts
did not specifically implicate these governments in the production of
the Superdollar, but that, at a minimum, they were believed to be
tolerating this illegal activity within their borders.
U.S. and Interpol officials we interviewed stated that final
resolution of cases similar to that of the Superdollar, should such
cases occur, were beyond the purview of law enforcement agencies and
would require diplomatic solutions. According to U.S. and Interpol
officials, jurisdictional constraints may prevent law enforcement
agencies from dealing effectively with cases of foreign-condoned or
foreign-sponsored counterfeiting of U.S. currency. In such cases,
the Secret Service would be able only to identify and assist in
suppressing the distribution of the counterfeit notes. In countries
where the United States has no diplomatic relations, U.S. law
enforcement has no leverage to aid in the deterrence of
counterfeiting. U.S. and Interpol officials agreed that the
decision on how to suppress a foreign government-condoned or
foreign-sponsored counterfeiting plant would need to be made at a
senior U.S. government level.
(See figure in printed edition.)Appendix VIII
COMMENTS FROM THE DEPARTMENT OF
THE TREASURY
========================================================= Appendix VII
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
See comment 4.
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
See comment 6.
(See figure in printed edition.)
See comment 3.
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
The following are GAO's comments on the Department of the Treasury's
October 19 and November 30, 1995, letters, including the enclosures
from the Secret Service.
GAO COMMENTS
1. Treasury states that U.S. currency is not highly susceptible to
counterfeiting and that counterfeiting statistics and supporting
evidence support its viewpoint. We modified the text to delete the
word "highly" but continue to believe that the evidence supports a
conclusion that U.S. currency is susceptible to counterfeiting. For
example, the susceptibility of U.S. currency to counterfeiting is
established in a number of reports, including: (1) Treasury's Overt
Changes to Currency Enhance Counterfeit Deterrence (June 1, 1995),
prepared by the Treasury Inspector General's Office; (2) Implications
of Increased Counterfeiting (September 30, 1986), prepared by Price
Waterhouse and the Institute for the Future for the Bureau of
Engraving and Printing; and (3) Counterfeit Deterrent Features for
the Next Generation Currency Design (December 1993), prepared by the
National Research Council for the Committee on Next-Generation
Currency Design. Additionally, the State Department's Bureau of
International Narcotics and Law Enforcement Office of International
Criminal Justice concurred with this position, as did Interpol
officials we contacted. Furthermore, counterfeiting statistics
provided by the Secret Service only give reported detections and
cannot be used to reflect the actual extent of counterfeiting.
2. Treasury states that, based on its vault inspections, Federal
Reserve data, detection data, and contact with overseas banking and
law enforcement officials, there is no evidence of which it is aware
to support the statement that banks may be recirculating the
Superdollar. The Secret Service states that it is known that the
C-14342 does not circumvent detection and further states that foreign
banking institutions and currency exchange houses have consistently
demonstrated their ability to detect these notes and that there has
not been any indication of widespread recirculation of the C-14342
family by financial institutions. However, based on our interviews
with financial organization and law enforcement officials abroad,
financial organizations in some countries may be recirculating the
Superdollar. Many of the foreign law enforcement and financial
organization officials we interviewed had inconsistent and incomplete
information on how to detect the Superdollar, and some acknowledged
that in some cases it may escape detection and be recirculated.
3. Treasury confirms that the report lists countries that were
visited by the joint Treasury/Federal Reserve teams during our review
and adds locations visited as of October 1995. The Secret Service
suggests that we should increase our scope to include additional
locations visited after we completed our work in May 1995. The
report includes only visits that were completed during our review and
for which the joint teams had reached preliminary conclusions and
briefed us on their results. Since we did not review information and
conclusions from the additional visits, we did not include them in
the report.
4. Treasury states that it does not agree that U.S. currency is one
of the easiest to duplicate. We have revised the text to provide the
specific Treasury Inspector General report reference, which states
that U.S. currency is easy to duplicate, and we have added other
specific Treasury-contracted sources to the text.
5. The Secret Service states that it should be noted that well over
90 percent of all counterfeit U.S. currency is seized before it
enters circulation. This statement cannot be verified for two
reasons. First, since the total amount of counterfeit currency
cannot be determined, one cannot determine what percentage is seized
before it enters circulation. Second, for detections abroad, the
Secret Service detection data do not distinguish between detections
occurring before and those occurring after entering circulation.
Thus, it is not possible to determine what percentage of counterfeit
U.S. currency detected abroad is seized before it enters
circulation.
6. The Secret Service states that foreign-produced counterfeit U.S.
notes passed in the United States during fiscal year 1994 made up 64
percent of total domestic passes, not almost 60 percent as stated in
the draft report. However, the Secret Service was unable to provide
supporting data for the figure of 64 percent. Our analysis of
updated fiscal year 1994 statistics provided by the Secret Service
resulted in a figure of 65.5 percent, and we changed the text
accordingly.
7. The Secret Service expressed its concern over our references to
material found in the House Republican Research Committee's Task
Force on Terrorism and Unconventional Warfare reports. These reports
are the only unclassified government reports on the Superdollar.
They are frequently quoted by the media and "terrorism experts" and
thus cannot be ignored. We have not verified the information in
these reports. We have attributed all comments made by the task
force to the task force.
(See figure in printed edition.)Appendix IX
COMMENTS FROM THE DEPARTMENT OF
STATE
========================================================= Appendix VII
(See figure in printed edition.)
The following is GAO's comment on the Department of State's October
30, 1995, letter.
GAO COMMENT
1. State concludes that we concur with its finding that counterfeit
U.S. currency is not a factor in international money laundering. We
did not address this issue in the scope of this report and have not
reached this conclusion.
(See figure in printed edition.)Appendix X
COMMENTS FROM THE FEDERAL RESERVE
========================================================= Appendix VII
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix XI
HEADQUARTERS, WASHINGTON, D.C.
Shirley A. Brothwell, Senior Evaluator
Martin H. De Alteriis, Social Science Analyst
Judith K. Knepper, Senior Evaluator
Rona H. Mendelsohn, Senior Evaluator (Communications Analyst)
Donna M. Rogers, Evaluator
Katherine M. Wheeler, Publishing Consultant
OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C.
Sheila K. Ratzenberger, Assistant General Counsel
Geoffrey R. Hamilton, Attorney
SAN FRANCISCO/SEATTLE FIELD OFFICE
Kane A. Wong, Assistant Director
Kathleen M. Monahan, Evaluator-in-Charge
Pamela H. Brown, Evaluator
*** End of document. ***