Counterfeit Currency Menace: An Overview - Cmde SL Deshmukh, NM (Retd)
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Counterfeit Currency Menace: An Overview
Cmde SL Deshmukh, NM (Retd)
OCCASIONAL PAPER
Counterfeit Currency Menace: An Overview
Cmde SL Deshmukh, NM (Retired)
© Chennai Centre for China Studies (C3S) 2021. All rights reserved.
No part of this publication may be reproduced or transmitted in any part or by any
means without the prior written permission of C3S.
Attribution: Cmde SL Deshmukh, NM (Retd), COUNTERFEIT CURRENCY
MENACE: AN OVERVIEW, August 2021, Chennai Centre for China Studies, 2021.
Cover photo courtesy: Wikimedia Commons
Introduction “Delhi police bust fake currency racket operated by Dubai-based kingpin with links to Pakistan” proclaimed a headline in a reputed newspaper (Chatterjee, 2021), on 23 Aug 2021. This is not the first time that such a headline has appeared. Circulation of Fake Indian Currency Notes (FICN) has been a menace Law and Order authorities in India have been fighting, for more than two decades now. The menace has serious implications not only on the economy but also the security of India. Unfortunately the art (?) of counterfeiting the currency is as old as currency itself, and has been used to target both low- and high-value denominations (Fig: 1). Many countries in the world including India are victim of this menace. In some cases, counterfeiting could be for personal gains, but many times it is used as a ‘political weapon’ to destabilise rival countries (Finlay and Francis, 2019). India seems to have been a target for the second aspect. In that, multiple agencies have been found operating the FICN rackets, with motives of destabilising economy of the country, funding unlawful activities etc. Undoubtedly ISI (Pakistan) has been a major player in FICN racket. But to India’s alarm China’s indirect role in this menace has also emerged (PTI, 2014). This indirect role has many facets to it, which would be analysed in the article later. It is understood that many countries including powers like UK and USA are victims of Counterfeit currency problem, making counterfeiting a global issue- making it a matter to be examined from that angle. But as India’s problem with FICN is graver, in comparison, it needs to be examined in little more details. Accordingly, this ‘Issue Brief’ will examine historical background of fake currency, its genesis and generic impacts, countries suffering from this problem worldwide, some global measures initiated to fight this problem for analysing the global dimension, and examine roots of FICN, probable agencies involved, specific impacts for India and remedial measures which have been /need to be initiated by Indian Authorities and role for Indian Citizens ( for controlling this menace) for analysing India specific situation. Counterfeiting and Anti-counterfeiting Measures - Historical Background Historical review has shown that the money has been counterfeited for as long as physical existence money .The reasons for counterfeiting, in the past and in present, has been fairly straightforward- the possibility of having money for (almost) nothing, albeit against likelihood of getting punished if caught and destabilising the economy or jeopardising security of rival country by clandestine means. However, the process of counterfeiting has changed over the period, rapid technological advances making counterfeiting comparatively easier and reducing the time span that a currency remains resilient to counterfeiting. As a result, currency issuers have tended to release new currencies in shortening time intervals in order to stay ahead of counterfeiters (Finlay and Francis, 2019a).
Early Counterfeiting- Coins
Counterfeiting has predated the most common forms of physical currency used today-
coins and banknotes. Though it is difficult to pinpoint the very earliest form of money used
and counterfeited, Cowrie shells (Fig: 2) were a best contender. Cowrie shells were used
as currency as far back as 3300–2000 BC; and they were imitated using ivory, bone, clam shell
and stone, and later bronze (Davies, 1994; Peng & Zhu, 1995).
Figure 2: Cowrie Shells
Photo Courtesy: Getty Images
Focusing on comparatively well-known forms of money, early coins were subjected to
counterfeiting via a range of different methods. Around 400 BC for instance, Greek coins
were commonly counterfeited by covering a less valuable metal with a layer of precious
metal (Markowitz, 2018). Another method used was to make a mould from a relatively
low-value genuine copper coin, which was then filled with molten metal to form a
counterfeit. The widespread practice of counterfeiting coins led to the rise of official coin
testers, who were employed to weigh and cut coins to check the metal at the core.
More ingeniously, coin ‘shaving’ or ‘clipping’ was another commonly used method for
early coin counterfeiting, whereby the edges of silver coins were gradually shaved off and
melted down. To cite an example, in 17th century England witnessed weight of properly
minted money, reducing to half the legal standard and one in ten British coins was found
to be counterfeit (Levenson, 2010). To remedy the situation, by mid-1690, all British coins
were recalled and reminted, and famous scientist known for formulation of Laws of
Motion and Gravity - Sir Isaac Newton – who was also the warden of the Royal Mint –
was tasked with stopping the recurrence of the menace. By the end of 1699, he successfully
identified the lead counterfeiter ‘William Chaloner’, who had produced counterfeits with
a face value of £30,000 (worth around $10 million today) and was ultimately hanged for
his crimes.Counterfeiting-Bank Notes
Not to be left behind, the early paper banknotes were also counterfeited. Some of the first
banknotes to be issued appeared in the ‘Song Dynasty’ in China, towards the end of the
10th century, and were known as ‘jiaozi’ (Von Glahn, 2010). Initially jiaozi notes were
issued privately- by various entities, but in1005, the right to issue jiaozi was restricted by
the authorities to 16 merchant houses. Complex designs, special colours, signatures, seals
and stamps on specially made paper (as is done now) were used to discourage
counterfeiters. Those caught counterfeiting faced the death penalty. Despite that,
counterfeiting increased phenomenally leading to oversupply of jiaozi and runaway
inflation. To control this chaos, the right to print and issue currency was reverted to the
government alone in 1024. Further, those officially issued notes ‘expired’ after two years
(thus demonetisation too has its history), and they were redeemed for a 3 per cent fee. This
policy – perhaps the first ‘clean note’ policy in the history – was in part aimed at preventing
circulating currency becoming too worn and tattered. Further, having a higher quality of
notes made it easier to distinguish counterfeits from the genuine article. Some aspects of
the evolution of the Song Dynasty's approach to note issue, such as moving from multiple
issuers to just the government, having increasingly complex banknote designs and
implementing a clean note policy – can be seen in modern banknote policy evolution
1,000 years later- being used by many countries even today.
Generic Impacts - Circulation of the Fake Currency
Economic Impacts
The circulation of counterfeit money- as a state planned operation or by unscrupulous
elements in a target country- and its use by unsuspecting citizens in the market(s)
undoubtedly affects the national economy in a considerable manner. For example, it
deceives people and they tend to lose confidence in their money and their nation’s
economy – the worst thing that can happen to any country (Opinionfront. ND). It has
been pointed out that circulation of counterfeit currency can have the following adverse
effects on the economy:
a) Devaluation of Currency and Inflation- As counterfeit money makes its way into
the markets; there is undesirable influx of money in circulation. This artificially
increases the purchasing power of people, leading to rise in demand for goods
and services. This in turn kicks in the demand and supply law, creating shortage
of goods and consequential rise in prices, i.e., inflation. The people are forced
to pay more money for purchasing the same amount of goods. This is called
‘currency devaluation’. If allowed to go unchecked, this can lead to collapse of
economy. Collapse of Romanian Empire in 1621 is a classic example of this
phenomenon (Urban, 2012)
b) Black Marketing and Corruption - The shortage of supply that is created in the
market due to extensive circulation of forged currency, gives rise to anothergrave problem, that of black marketing. Goods and services, which should be available to people at established and reasonable rates, get sold illegally -at elevated prices. As a consequence, only the select few can afford to buy commodities, leaving the poorer strata to starve. All this, in turn gives rise to the vicious circle of corruption. c) Dumping of Goods at Cheaper Rates- Inflation, debasement of currency and black marketing prevalent in a particular country can all collectively benefit some other country, which may then dump inferior quality goods in the market, obviously at cheaper rates. Because these goods are much cheaper than those which are produced within the country, they naturally capture a sizable market as more and more people opt for them owing to their affordability. This further weakens the country’s economy. d) Non-reimbursement by Banks- This is one of the destabilising issues that is associated with the circulation of counterfeit currency in the economy. Due to use of fake currency, big businesses and industries in that country tend to incur huge losses. When the banks are informed about fake currency being involved in some significant business transactions, it gets confiscated with immediate effect, but most of the time, the businesses do not get reimbursement for their money. This leads to considerable losses that may affect them-either immediately or in the long run. e) Loss of Public Confidence- This is the greatest consequence of circulation of counterfeit money. People tend to lose faith in the economy of their country and the money that they hold. So, in order to avoid any kind of encounter with counterfeit money, they may start making demands of their payments to be made in some other, more stable currency. This tends to further destabilize the country’s overall economy. f) Impact on Global Economy- Counterfeit money also impacts the global economy to a large extent. There have been instances wherein nations have tried to destabilize the economies of their political and economic rivals by counterfeiting their currency in enormous amounts, and transporting it into their market. This not only weakens them economically, but also socially and politically. Weakening of economy of a stable country as above, impacts economies of its neighbours too, as a domino effect. g) Impact on Economy of Country Circulating Counterfeit Currency- Countries which produce counterfeit currency of other country- for whatever purpose, can sometimes get affected by ‘boomerang effect’. The agencies involved in counterfeiting may use the means to counterfeit their own currency for personal gains. A FATF Report has brought that sometimes local Organised Crime
Groups (OCGs) get roped in to deal with currency counterfeiting. Such groups
mostly work independently; but have to exist alongside and compete with other
well established OCGs. These independent OCGs are required to establish their
own criminal networks, generally comprising low profile and inexperienced
criminals. The structure of such groups is also normally not bound by rigorous
internal rules, making the whole network porous, weak. Owing to overall
limited resources and skills of such groups, their members are constantly
running out of money and thus become easily susceptible to disloyalty (FATF,
June, 2013).
Counterfeiting Currency- A Tool for Terrorism
It has also been seen that counterfeiting has become an attractive tool for terrorists and
their sympathisers, as it yields high profits at comparatively low risk , as compared to risks
associated with other activities such as drug trafficking . While organised criminal groups
have been carrying out currency counterfeiting throughout the world, as one of many
criminal activities, currency counterfeiting- for the purpose of financing terrorism- has been
seen only in certain regions. One Academic research has suggested that terrorist
organisations active in Europe, Asia, and Latin America, have been relying on common
criminal activities such as extortion, kidnapping, narcotics Money Laundering also to
generate funds, in addition to main activity of Terrorist Financing through use of
counterfeit currency. Counterfeiting has evolved from a mere criminal activity generating
proceeds that are then used to fund terrorism, into an activity intended to replace real
currency (FATF, 2013a).
Examples- Use of Counterfeiting as an Economic Weapon by State Actors
There have been many instances throughout history in which counterfeit money was used
as an economic weapon; to bring about devastating economic consequences (Cho, ND).
Some examples are:
a) British Operation- It has been established that Britain counterfeited ‘Continental
Currency’ during the American Revolution. In those days, America had to fund its
Revolutionary War, and as a new country- without a central bank, unfortunately
had to rely on paper money to raise funds. Public trust in Continental paper money
plummeted to incredibly low levels as it essentially amounted to bonds that were
payable after an American victory - an outcome considered nearly impossible by
many. Adding fuel to this economic fire, in January 1776, Britain began
counterfeiting Continental currency. This counterfeiting of Continental paper
money was the first recorded instance of wartime financial sabotage. It was widely
reported that the British government began undermining American independence
by attaching the American economy by circulating sham American money in vast
quantities. It was so blatant that even advertisements appeared in New York's Torynewspapers stating "Persons going into other Colonies may be supplied with any
Number of counterfeit Congress-Notes- for the Price of the Paper per Ream”.
b) Operation Bernhard- It is well known that Germans used ‘Concentration Camp’
Prisoners to counterfeit British Banknotes. Initially, the operation was titled
‘Operation Andreas’ and the goal were to use counterfeit British banknotes to
weaken the British economy. With the change in operation leadership, the name
was changed to ‘Operation Bernhard’, and the goal was changed to counterfeit
money in order to finance German intelligence operations; the counterfeit money
was laundered for money and other assets. British banknotes were successfully
counterfeited until 1945 and it did have an adverse impact on war efforts of the
Allies.
c) CIA Operations- It has also been reported that CIA counterfeited ‘Other Countries’
Currencies as a method of weakening economies of those countries. In the 1980s,
the CIA gave the religious guerrilla force, the Mujahedin, an estimated amount of
$ 2 billion, in counterfeit Afghan money to fund the force with ‘money’ and to
introduce it into the local economy. This was done with a tacit goal of weakening
the Afghan government and the Soviets, who had a dominant presence in the
region, through high inflation.
d) Yemeni Crisis- On November 20, 2017, the U.S. Treasury Department imposed
sanctions on 2 individuals and 4 companies for counterfeiting hundreds of millions
of dollars’ worth in Yemeni money, in an attempt to fund Iran's already-sanctioned
Islamic Revolutionary Guards Corps (IRGC) and destabilize Yemen (RFERL,
2017).
e) Pakistan- Pakistan’s nefarious activities, to pump in counterfeit money in India,
especially for terrorism financing operations can be cited as a glaring example
(MHA-GOI-2018, ANI, 2019).
Most Counterfeited Currencies in the World
As we have seen, the Counterfeit Currency issue is not new. It’s an issue that has plagued
most currencies — from the U.S. dollar to the Mexican peso to the Chinese yuan — forcing
governments to consider a more secure design as well as getting rid of some bills
altogether. In the world of counterfeit money, the most common culprits are the 20s, be
they pounds, dollars, euros or pesos. The seven (UK accounts for two- Coins and Pound
notes) most counterfeited currencies are (Kasperkevic, 2017):-
a) UK - In the U.K., counterfeiters have honed their skills for counterfeiting the coins.
The Royal Mint has estimated that about 2.5 percent of 1.6 billion of 1 pound coinsare fakes that means there are millions of pounds in fake coins in cash registers and wallets across the U.K. The most commonly counterfeited UK banknote is the 20 pound note. In 2016, 297,000 forged 20 pound bills were removed from circulation. b) United States- Here counterfeit problem is mostly limited to its paper bills, with coin counterfeiters mostly focusing on collectible coins. The $20 bill is the most commonly counterfeited banknote in the U.S., while overseas counterfeiters are more likely to make fake $100 bills. According to one of the reports, the US Secret Service had suppressed 145 counterfeit manufacturing plants, arrested 796 counterfeit criminals and seized $58 million in counterfeit currency in 2015 (latest statistics not violable). c) Europe- It’s not just the dollar and pound that are plagued by counterfeiters. In 2015, about 999,000 euro banknotes were counterfeit. According to European Central Bank, the 20 euro and 50 euro notes are the most counterfeited banknotes. The investigations are ongoing. d) Mexico- Even Mexico has not been spared. According to Bank of Mexico, about 71 banknotes out of every million are fakes. It might not seem like a lot, but in 2015, the bank detected 306,063 counterfeit bills amounting to 99.1 million pesos. That’s equivalent to $5.4 million. The most common bills counterfeited were 20, 100 and 500 peso bills. e) India – India also had considerable problem of dealing with counterfeits, especially INR 500 and 1,000 bills. The two denominations were commonly replicated by counterfeiters and/or hoarded by workers, who did not want to declare their income. It has been reported that during the last decade, the Reserve Bank of India (RBI) has detected a total of 4.27 million counterfeit notes. Of those, about 1.3 million were 100 rupee notes, about 2 million were 500 rupee notes and about 701,002 were 1,000 rupee notes. INR 500 and 1000 denomination notes were demonetised in 2016. However, the problem has started recurring with counterfeiting of current INR 2000/500/100 and some lower denomination notes, which needs to be tackled. f) China - The People’s Bank of China, China’s central bank, in 2015-16, unveiled a new 100 yuan bill in an effort to crack down on counterfeits. According to the Wall Street Journal, Chinese police confiscated 532 million yuan, equivalent to $85.6 million, in fake bills in 2014-15. The most commonly counterfeited notes were 50 yuan and 100 yuan bills. The problem still continues.
Some Global Measures to Check Counterfeit Currency
Counterfeiting is a major economic problem, called “the world’s fastest growing crime
wave”. Many physical and analytical measures have been adapted world over to fight the
counterfeit currency problems. Some of the important measures have been highlighted in
succeeding paragraphs.
Physical Security Measures for Notes -A series of security features have been incorporated
into the banknotes to avoid counterfeiting and also to ensure establishment of authenticity
under scientific scrutiny. The banknotes generally contain the following security features
(Fluer de coin, ND):
a) Intaglio printing
b) Watermarks
c) Security thread
d) See-through register
e) Special foil/special foil elements
f) Iridescent stripe / shifting colours.
Figure: 3 – Safety Feature in Bank Notes (for Illustration only)
Security Iridescent stripe/shifting Special foil elements
thread colours
Image Courtesy: fleur-de-coin
Analytical Measures - In addition to physical features many analytical measures are also
used. Some of them are (Quercioli and Smith, 2014):-a) The Pairwise Matching Model: This model depends on analysis based on notes of
fixed value (∆ > 0) and genuine ∆ notes in fixed supply (M > 0).
b) Optimization and Equilibrium Model- This process works on the assumption that a
verifier would lose the value ∆ of the note when three independent events
simultaneously happen: (aa) he is handed a fake note, and (ab) given such a fake
note, his verifying efforts miss it, and (ac) given that he passes a fake note, but gets
caught.
c) Cat and Mouse Game Theory: This theory depends on zero profit loci. It has been
observed that a greater verification rate reduces expected revenue and so zero
profits require lower quality but brings in extra risks.
d) Predictions about Counterfeit Money- The application works on ‘Passed and Seized
Money’ concept which uses two steady state approximations: first, new counterfeit
production replenishes the outflow of seized and passed money, and second, new
counterfeit production passing into circulation balances passed money outflows.
Above mentioned are some of the important measures, used globally, to control fake
currency menace, but success has been comparatively limited, and the problem still
persists, demanding newer approach.
Summary
In summary it could be said that today there are several counterfeiters of currency,
functioning in the world, printing and circulating false currencies all over. Though
Governments and security agencies have been taking measures to control these illegal and
criminal rackets, and punish the wrongdoers, none of them seem to be adequate as the
number of counterfeiters has been steadily rising. It is high time that an effective solution
is found for this menacing problem, that too on priority.
India too has been suffering from circulation of Fake Indian Currency Notes (FICN) and
its ill effects since long. It would appropriate to analyse fake currency problem specifically
in context of India.
India Specific Analysis
FICN- Brief History
India has been suffering from fake currency problems since ages. We have seen above the
Cowrie shells (3300-2200 BC) were counterfeited (Finlay and Francis, 2019a). However,
the devastating effects of FICN circulation were experienced from the year 2005 onwards.
In 2005, FICN worth over INR 07 Crores was seized. The seizures amounted to INR 10
Crores in 2007; and R 25.89 Crores in 2008, R 22.98 Crores in 2009. During 2010, 1,850
cases of the circulation of significant quantities of FICN were detected and fake notes to
the tune of INR 25.83 Crores were seized, and 1,265 persons were arrested. The problem
has just multiplied thereafter.As per one report India, in November 2010, had raised the charge of printing and
circulating FICNs against Pakistan at various international forums. According to
government sources, armed with concrete evidence against Pakistan, India first
approached the Financial Action Task Force (An inter-governmental body whose purpose
is the development and promotion of national and international policies to combat money
laundering and terror financing). The matter was also subsequently raised with the World
Bank, IMF and Interpol as well (Biswas, 2011).
India’s FICN problem was conformed and did receive international attention when US
State Department’s International Narcotics Control Strategy Report- 2011, confirmed that
India faced an increasing inflow of counterfeit currency, produced primarily in Pakistan,
and that terrorist and criminal networks used this money to finance their nefarious
activities in the country.
India continued to face increasing inflow of high-quality counterfeit currency, which was-
and is- being produced primarily in Pakistan, smuggled to India through multiple
international routes, the US State Department’s Report noted (Us Dept. of State, ND).
Impacts on India
The problem of FICN did become serious and India experienced adverse impacts from the
same. Major impacts were:-
a) Economic Impacts – The US State Department’s report (ibid) also revealed that
criminal networks exchanged the counterfeit currency for genuine notes, which not
only facilitated money laundering, but also posed a serious threat to the Indian
economy (US Dept. of State, NDa). It was also reported that increase in fake notes
has shot up counterfeit money in the system, which reduced the value of real
money. It also increased inflation, i.e. price of the articles and commodities, due to
more supply of money in the country (Sharma, 2019).
b) Increase in Terrorism- It has been observed that the Counterfeit currency has long
been a source of funding for terrorism in India. Reports have brought out that at
least three cases — the Hyderabad bombings of August 2007; the attack on the
Indian Institute of Science in Bangalore in December 2005; and the 26/11 terror
attacks on Mumbai — had such a link. In the first case, Police had arrested a four-
member gang- including a Dubai national during immediate crackdown after the
explosions. The police recovered fake currency of INR 2.36 Crores. The Police
Commissioner disclosed that FICN in the denominations of INR 500 and INR
1,000 had been brought in from Pakistan via Dubai. Intelligence sources found that
INR 30 Lakh of the INR 50 Lakh spent on the attack on the Indian Institute of
Science in Bangalore, in December 2005, was obtained through the fake currency
racket. In the Mumbai 26/11 attacks, a significant part of the money, to fund the
preliminary operations, was obtained through fake currency rackets and hawala
(illegal money transfer) channels. The terror funding via Pakistan (in Mumbaiattack) was confirmed by US Government in May 2011. The US government had
named a serving ISI officer, Major Iqbal, as a key conspirator charged with
providing funds to Pakistani-American Lashkar-e-Toiba (LeT) operative David
Coleman Headley. Major Iqbal, posted in Lahore during 2007 and 2008, was
handling Headley on behalf of the ISI. He provided USD 25,000 and fake Indian
currency notes to Headley, to meet the latter’s expenses during surveillance
operations in India- preceding the 26/11 attacks (Biswas, 2011a). Many terror
activities and stone throwing incidences, in Jammu and Kashmir, have also been
funded by FICN pumped by Pakistan (Ramachandran, 2017).
Problem of FICN, Routes, Counter Measures and Future Course of Action
Estimated Quantum of Fake Currency in Circulation
As is well known the government had banned INR 1,000 and 500 notes on 08 November
2016, with an aim to curb black money and eliminate fake Indian currency notes. The
government had detected over 7.6 lakh fake notes in the banking system in 2016-17 and
the same fell to about 5.2 lakh in 2017-18 and 3.17 in 2018-19, according to data by the
Reserve Bank of India (Financial Express, 2020).
There has been a sharp rise in the detection of fake notes of INR 200 and INR 500
denominations in 2019-20, despite the security features in them. Data from the RBI report
for the period has stated that counterfeiting of currency notes still remains a problem for
India. In 2019-20, as many as 30,054 fake notes of new INR 500 series were discovered in
the banking system, as against 21,865 in 2018-19- an increase of 37 per cent. Similarly,
there was a 151 per cent rise in the detection of fake INR 200 notes. Data showed that
banks and RBI together detected 31,969 fake INR 200 notes in 2019-20, as against 12,728
in 2018-19. The number of fake INR 2,000 notes detected fell 22 per cent to 17,020 in
2019-20, from 21,847 in the year ago period. This data only reflects detection of fake notes
by banks and RBI, and not those counterfeit notes seized by the police and other
enforcement agencies (Nair, 2020). This shows the magnitude of the problem being faced
by India.
Probable Routes through which FICN is coming to India
Pakistan’s Role
Indian Government report has cited the instances where in very substantial seizures of
fake Indian currency notes (FICN), not only for from Pakistan-linked couriers but also
from Pakistan Embassy staff. India's Ministry of Home Affairs has reportedly found that
"the ISI” has managed to get access to the configuration, specifications and other secret
codes of the genuine Indian currency notes from six European companies- that supplyIndian currency papers fitted with security features, and another company in Switzerland that supplies the security ink used in printing these currency notes in India. A Central Bureau of Investigation (CBI) report to the Finance Ministry had also reiterated the claim that Pakistan government Printing Presses in Quetta, Karachi, Lahore and Peshawar, were churning out large quantities of FICN. Reports indicate that the paper for the fake notes is sourced from London. Indian investigators also believe that the Pakistani government imports currency-standard printing paper far in excess of official needs. The extra quantum is handed over to the ISI for FICN production. The ISI pushes large chunks of FICN into India directly from Pakistan, as well as through Nepal, Bangladesh, Sri Lanka, Malaysia and Thailand. Pakistan International Airlines (PIA) has been used to transport counterfeit currency to conduits in Nepal, Bangladesh and Sri Lanka. The modus operandi was revealed by two Nepali counterfeit currency traffickers who were arrested by the Thailand Police in October 2007. The Uttar Pradesh (UP)-Bihar border with Nepal is also the most prominent route for the inflow of fake currency from Nepal into India. After the neutralization of an FICN racket in UP in 2010, interrogations revealed that the gang employed a set of six women couriers from Champaran in Bihar and another set of four hailing from Nepal. The FICN travelled to Uttar Pradesh from Nepal along two routes: from Nepal to UP via Bihar, and directly to UP, particularly through the Siddhartnagar and Maharajganj routes. The Rajasthan and Punjab borders are the other corridors through which Pakistani agents push fake currency into India. Following a Police raid on an ISI cell in Delhi in 2011, the arrested operatives revealed that the Thar Express, running between Munnabao in Pakistan and Jodhpur in Rajasthan, was being used to smuggle FICN into India. Fake currency to the extent of INR 33 Lakh was seized from them. They also confirmed that the Indian currency was printed in Pakistan and illegally pushed into India through Nepal, Bangladesh, Sri Lanka, Malaysia and Thailand. FICNs are also flown in from Dubai, with the crime syndicate, D-Company, headed by Dawood Ibrahim, playing a prominent role. The D-Company has been identified as a criminal-terrorist syndicate by the US Congress, and is on the Interpol’s wanted list for organized crime, counterfeiting, and terrorist activities. The money is transported to India through regular flights, with ordinary passengers. Indian workers from Dubai are specifically targeted, and are paid the value of a return ticket that enables them to travel home, in exchange for carrying a consignment. From Dubai, the fake currency consignments reach two major transit points — Mumbai and Hyderabad. The fake currency is offered to crime networks throughout India at a ratio of 1:2 of original currency to counterfeit currency. Sea-borne consignments are also delivered to Tamil Nadu (from Sri Lanka) and Gujarat (from Pakistan).
Local criminal networks are also used for distribution, where in fake currency operations are closely linked to satta (gambling) and opium smuggling. The contacts in such rackets facilitate network building with ISI agents, who arrange for the delivery of FICNs against hawala payments, from Dubai and Pakistan (Biswas, 2011b). It is clear that if Indian Citizens decide to participate in such nefarious activities, it would not be easy for the Government to fight this debilitating menace. China’s Indirect Role in FICN Racket and Reasons To understand China’s interests in weakening Indian economy many facets in Indo-China relationship would need to be examined. Indo-China Relations Indo-China relations can be said to have been turbulent- at the best, with Tibet remaining a central point. In addition to that overarching ambitions of China to be an effective counter to USA- in post Xi Jinping era- has complicated the matters further. China realises the India is the only stumbling block, in achieving its goal of becoming a Regional Super Power first and a Global Super Power -as follow on. To achieve above ambitions China needs to be economically very strong and Belt and Road Initiative (BRI)/One Belt One Road (OBOR) project/ China Pakistan Economic Corridor (CPEC) are the facilitators for achieving that goal. It would be pertinent to focus on ‘CPEC’ here, as it is more relevant to the analysis. The China-Pakistan Economic Corridor (CPEC) - a crucial project for China- has demanded investment of billions of dollars, by China, in Pakistan, including in territories claimed by India. Security of CPEC is thus of paramount importance to China. This is where China’s latest aggression in the Ladakh region and its tacit support to Pakistan in 2019 Indo-Pak crisis finds it’s nefarious connecting to the issue. It has also been seen that Beijing had accepted Islamabad’s logic for escalating the conflict, to deter future Indian aggression. Further, China-like Pakistan- contests Indian control over parts of Kashmir and has criticized India’s August 2019 revocation of Kashmir’s special constitutional status. Using that as an excuse, China-Pakistan have formed a vile nexus to internationalise the issue, including in the UN Security Council. This has been done with an aim of putting diplomatic pressures on India. On ground level Pakistan, as usual, continues to feign its solidarity with the people of Kashmir on one hand and to train and fund separatists and terrorists, to create problems for India in the Kashmir region, on the other. This is where FICN plays a crucial role. The Financial Action
Task Force (FATF), the global watchdog that monitors terror financing, has rightfully taken note of this fact and has retained Pakistan on its ‘Grey List’ for a good reason. Pakistan’s interests remain in creating instability in Kashmir region, force India to commit its financial, military resources to combat terrorism, which in turn if not divert India’s focus from Ladakh region, will at least limit the resources India could commit in that region- a factor favourable for China and CPEC. China’s support for Pakistan is thus motivated by its nefarious design to perpetuate its own territorial grab in the Trans- Karakoram- Shaksgam Tract of Kashmir and move ahead with CPEC, without any hindrance from India (OECD, 2018). Fact that this Sino-Pak nexus has potential to pit both China and Pakistan against India is a matter of great concern and FICN could play a vital role in complicating India’s situation in the region. Another research on the subject has pointed out that growing Indo-US ties have sent Sino-Indian ties in a tail spin and strengthened the Sino-Pak relationship. China would certainly reinvigorate its relationship with Pakistan for a number of other reasons too, such as need for:- a) Pakistan’s support and cooperation in its fight against its own Uighur extremists and as a window to the larger Islamic world. b) Pakistan’s support in filling the coming vacuum (or partial vacuum) in Afghanistan. following the American exit from Afghanistan and limiting India’s role in Afghanistan. c) Pakistani logistics support and its markets and other resources as well to make a success out of any economic involvement in Afghanistan. d) Using Indo-Pak dispute in Kashmir as a valuable stick to beat India with and keep India on its toes. This is where FICN can play a vital role. (Source: Jacob, 2014) China’s Connect with FICN The nature of the China-Pakistan nexus has always been complex to decipher and that complexity has increased further due to the Afghanistan situation. What is being feared is that as quid-pro-quo to Pakistan’s support to China in strengthening its position in Afghanistan, Chin would turn a blind eye to the Pakistan supported terrorist blows in the hinterland of India. These terror blows are expected to be more sinister and having potential to ignite the subtle tinder box (Menon, 2021). Ample proofs about Pakistan using FICN for funding terror activities in Kashmir are available (Ramachandran, 2017a) and it is feared that volatile situation in Afghanistan may result in increase in terror activities kin Kashmir, funded by increase in pumping of FICN in India, by ISI (Pakistan). Reasonable doubts about China being used as a hub emerged as early as 2013, after a consignment of fake Indian Currency notes (FICN) worth INR 37 lakh, coming from China was apprehended in Delhi, causing much concern in the security establishment.
Agencies suspect that the well-established drug cartels in China and Pakistan spy agency
ISI’s influence in that country’s Xinjiang province are being used to push FICN into India.
The development poses a tough challenge as Indian agencies have little network in China
to stem this rot. National Investigation Agency (NIA) is well aware of the development
and has been investigating the matter (Tiwary, 2013).
Another report has also confirmed the above development. It was pointed out that Indian
central intelligence agencies found out that China has emerged as a new transit hub for
Pakistan-based operators to circulate fake Indian currency which was also being routed in
'diplomatic bags' to Pakistan High Commission in Colombo and via two leading courier
services (PTI, 2014).
Accordingly there is high priority that China would continue to tacitly support Pakistan in keeping
Kashmir issue on boil and perpetrate its terror activities- funded through FICN. It is, therefore,
important for India to appreciate China’s role in the whole FICN gamut and initiate appropriate
measures to curb influx of FICN form various routes including China.
Measures Initiated by India to Curb FICN Problem
RBI
Reserve Bank of India (RBI)- as the main regulator of Indian currency- continuously puts
in Anti-counterfeiting Measures in place, such as (RBI, ND):-
a) Continual upgrades of banknote security features
b) Public awareness campaigns to educate citizens to help prevent circulation of
forged or counterfeit notes
c) Installation of note sorting machines
d) Incorporating Security Features in Indian Banknotes, such as Watermark/Security
Thread/Latent Image/Micro-lettering/Intaglio/Identification
Mark/Fluorescence/Optically Variable Ink
Other Steps taken by The Reserve Bank of India
To check the menace of counterfeiting of banknotes, the Reserve Bank has initiated several
other measures, as mentioned under RBI Annual Report, Currency Management (Part
VIII), issued on 27 September, 2009 (RBI, 2009). They are as follows:-
a) All currency chest branches of banks (and certain identified non-chest branches
which are close to international borders or have heavy cash transactions) have
been equipped with counterfeit detection systems to detect and curb the
circulation of counterfeit notes, as advised by High Level Group on Systems
and Procedures for Currency Distribution, which submitted its report in August2009. This facilitated detection of counterfeit notes at the time of entry in the
banking channel itself.
b) In November 2009, RBI directed banks to ensure that all notes in the
denomination of INR. 100/- and above were processed through note sorting
machines conforming to the standards/parameters prescribed by RBI from time
to time, before issuing them over their counters or through ATMs.
c) The Reserve Bank has been co-ordinating with the investigating agencies as
well as State police authorities for information sharing. State Level Committees
headed by Director General of Police involving all agencies concerned have
been formed to deal with the issue of counterfeiting.
d) Forged Note Vigilance Cells have been formed at all the banks to pay focused
attention to counterfeiting.
e) Incorporating improved anti-counterfeiting design and security features and
promoting R&D efforts for development of new security features.
f) Conduct of regular training programs, by The Reserve Bank, for employees of
banks and other organisations handling bulk quantities of cash like Railways
etc. as well as police authorities.
g) As a part of the public awareness campaign, the Reserve Bank has placed on its
website extensive information on security features of Indian banknotes and
Posters on ‘Know Your Banknotes’ displayed at bank branches.
h) A film on ‘Know Your Banknotes’ was prepared by RBI through Films
Division, has been supplied across Issue offices/Currency Chests, public
utilities, theatres and other media for screening.
i) Making certain changes to security features, every few years, to fight the
counterfeiting problem.
Measures by the Government
Demonetisation
The Reserve Bank of India’s (RBI) annual report for 2015-2016 had stated that nearly 90.3
billion bank notes, worth Rs16.4 trillion, were in circulation in the economy at the end of
March that year. Out of the total value, higher denomination notes reportedly accounted
for a significant share of 86.4 per cent, while remaining share of 13.6 per cent was held by
smaller currency notes. The report also observed that during the period 2014-2016, there
was a substantial growth in the volume of higher denomination currency notes, wherein
Rs500 and Rs1, 000 notes experienced a growth rate of 17.4 per cent and 11.6 per cent
respectively. In contrast, the volume of smaller currency notes of denominations Rs100
and Rs50 together witnessed a sluggish growth of 9.4 per cent.
The growth of higher denomination notes was attributed to their demand -which remained
high, despite the middle class resorting to online and electronic transactions. This was
indicative of the high stash of black money. It was also reported that Pakistan waspumping in counterfeit INR 500 and INR 1000 notes in substantial volumes, for terrorism
funding. To counter this problem the Government took the drastic step of demonetising
INR 500 and INR 1000 bank notes. This was done to weed out the black money and to
curb terrorism funding. The immediate effect was seen in reduction in prices of real estate
and decrease in stone pelting incidents in Kashmir (Bhogal, 2016). Other than this relevant
mention, detailed analysis of Demonetisation would be beyond the scope of this paper.
Other Measures
Union Minister of State for Home Affairs, Shri G. Kishan Reddy, in a written reply to a
question regarding overhauling circulation of Fake Indian Currency Notes (FICN) had
stated that the Government had taken various steps in order to eradicate this menace,
which include (PIB, 2019):-
a) Maintenance of high vigil at India Nepal border- to check the smuggling and
circulation of FICN. There has been excellent cooperation between security
agencies of the neighbouring countries to check the influx of FICN into India.
b) Conduct of Training programmes for the Nepalese Police officers on combating
the circulation of fake currency notes and to sensitize them on smuggling/
counterfeiting of Indian currency.
c) Close watch by the Intelligence and security agencies of Central and State
Governments, on the elements involved in the circulation of fake currency in the
country and take action in accordance with the law.
d) Establishment of FICN Coordination Centre (FCORD) by the Government, to
share intelligence/ information among different security agencies of the states/
central government, to counter the problem of circulation of FICN in the country.
e) Creation of a Terror Funding and Fake Currency Cell (TFFC) in NIA to investigate
terror funding and FICN cases.
(Source: MHA Report, 2019)
Another report has brought out that to tackle the challenges of security threat emanating
from FICN circulation, that too in in a coordinated manner, India’s Ministry of Home
Affairs, in March 2011, had directed States to step up their drives against FICNs. States
were also asked to share a copy of the forensic report on the seized and recovered FICNs
with the Intelligence Bureau (IB) and the RBI. The States were further asked to set up a
committee headed by the Directors General of Police, with General Managers/Deputy
General Managers of the RBI, officers of the intelligence branch of the State Police, and
the Criminal Investigating Department of the State Police, as members.MHA has also pointed out that States had been asked to designate a Police Station at each District Police Headquarters- as the nodal Police Station, for recording the offences related to FICNs recovered by banks. The banks have been told to correspondingly designate a nodal officer in each of the respective districts branches. These officers will be vested with the responsibility of reporting the seizures of the FICNs. In addition to the above, states have been asked to put in place efficient system for registration of cases, backbone for both- proper investigation and compilation of comprehensive database -to get to the root of proliferation of FICNs. The National Investigation Agency (NIA) has also been empowered to probe and prosecute cases pertaining to FICN related offences, under various provisions of the Indian Penal Code. The Centre has nominated the CBI as the Nodal Agency to monitor investigation of fake currency note cases (Biswas, 2011c). It is unfortunate that despite above measures and support from various international agencies and foreign powers to tackle the problem, FICN inflows into India remain uninterrupted. With Pakistan’s unrelenting commitment to the anti-India ‘jihad’, India is yet to find an effective solution to neutralize this tool of economic terrorism, even as it struggles to cope with Pakistan’s terrorist proxies operating on its soil. It is, therefore, important for the Government to analyse this problem in its totality and put in place some innovative measures to curb the menace. Role for Indian Citizens As has been highlighted earlier, Indian Citizens- especially those working in Dubai- are being targeted for transportation of FICN. It is imperative that Indian Citizens do not fall for petty gains to aid and abate the enemy cause or create problems for Indian economy. It is also important that Indian local population should not only resist falling prey to monitory offerings- for distribution of FICN but should also help in exposing unscrupulous people involved in FICN racket. Indian citizens should also remain vigilant about FICN and report the matter to banks/Police in case they suspect the currency. Indian government needs to educate the citizens against perils of FICN, seek their help in curbing the menace and reward the citizens who help out with the cause, as a motivation. Suggested Innovative Measures to curb FICN Nuisance Keeping in mind gravity of the Counterfeit Currency problem, any cogent measures need to function as a ‘comprehensive counterfeit-deterrence program’. For that program must contain various elements to respond to the threats discussed earlier. It would be thus important to briefly examine those elements, which could be used for formulating a comprehensive strategy- aimed at reducing future counterfeiting incidents as well as circulation of FICN in the country. Such a strategy would demand much more than a one- time incorporation of a new set of counterfeit-deterrent features in banknotes.
It would require an innovative guiding philosophy, including ability to respond to emerging threats before they become a significant problems; identification, selection, and rapid incorporation of appropriate deterrent features; use of devices to aid authentication of banknotes (i.e., using more than visual inspection alone); in depth public education for acceptance of the changes; implementation of appropriate law enforcement strategies; and continuing exchange of information with other countries of the world. Research and Development Strategies India has been employing all the traditional measures to control the problem of FICN, however, the efforts have met only limited success and the problem still haunts the nation. It is, therefore, important that India deploys some innovative strategies to curb proliferation of FICN. Some innovative measures have been highlighted, in the succeeding paragraphs, for consideration. Technology Advancements- A long-term deterrent strategy would need to anticipate and lead the evolution of reprographic systems and the level of expertise of the counterfeiting community. Technological progress in non-impacting printing would need to be driven by varies market forces, in a never-ending quest for accuracy and quality. Further, it would be imperative that the strategy must cater for keeping the concerned authorities informed of developments in ample time, to respond to a future threat. Realistic Testing and Specifications- A program would also need to be put in place for continually devising and evaluating new deterrent features. An essential part of such a program would be the re-evaluation of the testing specifications and their relevance to real- world wear and tear. This would be essential to ensure that program would not preclude use of some exceptionally effective features that may fail an overly demanding test. (Source: NRC, 1993) Implementation of Changes- A study on the subject has estimated that under normal circumstances when competitive contracting must be used, approximately 2 to 5 years are required from the time decision is taken to use a new deterrent features, until that deterrent appears in new currency. The time required for implementation can be considerably shorter, if the changes can be implemented internally, without the need for competitive contracting. Selection Of Combinations of Features- Unfortunately, there is no single visible deterrent feature that could be readily recognizable, highly durable, impractical to counterfeit or simulate, available at low cost, and easy to produce. Indeed, if a single dominating feature were employed, the currency would tend to be less secure, since that feature would present a single target for the counterfeiters. Multiple features add complexity to the counterfeiters’ task and increase the number of counterfeiting steps to the point where an average counterfeiter would ‘give up’. A determined professional counterfeiter still may attempt, but the task should be made sufficiently difficult so that the risk of getting caught would
be high. Therefore, a combination of features will be required to provide a high level of practical counterfeit deterrence. Possible feature combinations may cover:- a) Colour combined with variable-sized dot pattern or induced moiré; b) Print with photo luminescent ink on security thread c) Laminated paper with watermarks on both halves to create a complex image; could also add various other transparent or low-optical-density deterrents in the same window; d) Transparent (non-metallized) hologram, kinegram, pixelgram, or zero-order submicron diffraction grating in the same window as a watermark, induced moire line pattern, or variable-sized dot pattern. Combinations of features that score high using the above criteria should be incorporated into test bank notes. These could then be subjected to ‘adversarial analysis’ to determine their deterrent effectiveness and public acceptability quotient through appropriate mechanisms. Reactive and Proactive Strategies- Clear and visible deterrent features in a bank note that are very difficult to reproduce serve as the most obvious means of authentication. However, every feature needs to be viewed as having a finite lifetime, as the threat would continue to evolve as reprographic technology advances and the social environment changes. Validation/Detection Devices- In order to accelerate and standardize the authentication process, the use of low-cost, relatively unobtrusive devices need to be considered. Just as reading the magnetic stripe on a credit card is universally accepted as normal, devices that enhance the visibility of deterrent features would facilitate the detection of counterfeits, speed up the process and overcome resistance to careful inspection. Public Education and Acceptance - An overt feature is one that can be seen in ambient light by a person with normal vision, with the unaided eye, or with a simple aid. However, the public needs to be made aware of its existence. Since there is a wide variation in the vision capabilities- within the human population, a concentrated effort needs to be made to define the appropriate metrics for what features can be seen in ‘ambient light’ by a person with ‘normal vision’. Law Enforcement Considerations- Strategies for formulation of new laws and their enforcement, to prevent counterfeiting, need to be envisioned to diffuse the threat posed by counterfeiters. An effective reward system may also be envisaged to provide an incentive for the public's interception of counterfeit notes. Information Exchange- Today almost every country in the world incorporates counterfeiting deterrents in its currency. Thus, there is a wealth of information being generated and available worldwide about effectiveness of new features, feature durability, public acceptance, counterfeiting methods, and new features under development. A
concerted effort needs to be made by every stake holder to share this valuable information
with other stake holders for collective advantage (NRC, 1993a).
It is hoped that Indian government would holistically analyse the IFCN problem and
consider measures suggested above, for effectively fighting the menace.
Conclusion and Recommendations
Counterfeit Currencies have become a problem for many countries in the world including
Europe, UK and USA. The currencies are counterfeited more for sabotaging the economy
of the enemy countries or for terror funding, rather than for the personal gains. Though
Counterfeiting has been in existence since inception of money itself, in current
economically stressed and terrorism infested world, it has assumed a humungous
proportions. History is replete with examples where in counterfeit money has been
pumped in a country for terror funding and in turn vitiate the geo-politico-economic and
security environment in that country. Most countries in the world have initiated anti
counterfeit currency measures to fight this problem. However, there is greater need for
close coordination between the countries to control this menace effectively.
India too has been suffering from the menace of Counterfeit currency, especially due to
nefarious operations of ISI (Pakistan), ample proofs for which are available. The
counterfeit currency is being used by ISI to fund the terrorist activities in India; even FATF
has taken cognisance of this fact. India had adapted many measures including
Demonetisation to control the menace. The terror activities in India had visibly decreased
post demonetisation, however influx of Counterfeit currency (especially INR 500/100/50
Bank notes), sponsored by ISI (Pakistan), has once again increased, with commensurate
increase in the terrorism.
With very fluid geo-political situation in the region and its foreseeable economic and
security impacts, it would be very important for India to undertake a holistic review of the
Counterfeit Currency circulation problem and put innovative measures in place to curb
this deadly menace.
Following recommendations are made for consideration by India for achieving the desired
goals:-
a) Immediate actions to change the design of the particular currency on detection of
the counterfeit.
b) In near term, design changes must use a combination of ‘conventional’ deterrent
technologies.
c) Security Thread, localized watermark, and variable dot-pattern-generated gray-
scale printing may be considered for the initial changes, to protect the currency.
d) Keep Design changes flexible, so that if more advanced deterrents are necessary
later, they could be added without substantial alterations in the existing design.e) Holograms, optically variable ink, diffraction gratings, multilayer paper etc. may
be considered as the long term solutions, if the present difficulties could be resolved
by research and other modifications of the substrate material.
f) Appreciable changes to the traditional note design should not be ruled out in
advance, lest the adoption of effective deterrents be thereby thwarted.
g) The currency modifications selected need to take into account their potential for
use in automatic dispensing/change machines (this was the problem India faced
during post Demonetisation period).
h) The development of inexpensive instrumental aids for counterfeit detection at
points-of-sale, facilitating use of deterrents incorporated in the currency, should be
encouraged.
i) Special emphasis should be given to the advantages associated with the control of
substrate material.
j) Immediate consideration should be given to legal, procedural, sociological and law
enforcement measures with the potential to deter reprographic counterfeiting.
k) Adequate boost should be given to research on both ‘low level’ (overt) and ‘high
level’ (covert) counterfeiting deterrence and detection schemes, both in-house and
outsourced.
l) An independent review process should be established to assess the effectiveness of
any implemented design changes, as well as the impact of advancing technologies
on the counterfeiting problem.
m) Educating the Indian Citizens and seeking their help for fighting FICN menace.
It is hoped that India would undertake a detailed study of the current situation, related to
Counterfeit Currency circulation, especially by ISI (Pakistan) and China’s indirect role in
the same, on fast track, and institute appropriate innovative measures to take this problem
head on- to find a lasting solution. Otherwise it will have to face the eternal truth to its
own discomfort:-
Image Courtesy: Money Quotes
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