Counterfeiting of Bank Notes: A Menace to Economy

Counterfeiting of Bank Notes: A Menace to Economy

By Ajay S Singh, ICAS, Controller of Accounts, Central Pension Accounting Office, Ministry of Finance, Government of India, was GM, Security Printing and Minting Corporation of India Ltd., singhasd@yahoo.com .Views are personal.

The counterfeiting of coins / currency had been going on since ages when the coins started being issued by rulers / governments the world over.  Counterfeiting is probably as old as money itself. The paper currency came into being during the middle of the 19th century. Before the introduction of paper money, the most prevalent method of counterfeiting involved tinkering with metal composition of the coins or use of inferior metal to make look alike coins. During World War II, the Nazis attempted to forge British pounds and American dollars.

The term generally used for counterfeits of Indian bank notes is “Fake Indian Currency Notes’ (FICN). Some of high quality counterfeit banknotes with likeness to US dollars are called Superdollars. The presence of FICN or Superdollars in the economy has severe consequences such as erosion of value of legally earned money of citizens, fuelling inflation by oversupply of money, creating law and order problems through funding of terrorism and other unlawful activities.

The counterfeiting has ordinarily two motives, (i) to earn profit; and (ii) to sabotage an economy.  The counterfeiting for profit is done by individuals as well as organized criminals but such counterfeits are comparatively easy to detect.    In the case of India, the main problem is the counterfeiting being done to destabilize our economy by operators across our borders.   In this case, profit is a lesser motive.  Such counterfeit notes are of high quality and difficult to detect especially by the common man. Big consignments come to India from across the border through various routes (land, air as well as sea) via, Nepal, Bangladesh, Dubai, Colombo, Singapore, Pakistan etc.

Intelligence sources suspect that most of these FICN are printed in Pakistan. Thus, it is a national priority for India to contain; making and circulation of counterfeit notes. Fake or counterfeit is a bank note which is not printed in the authorised printing presses and is not issued with the legal sanction of the state or government. It is an imitation of the official form of currency close enough that it may be confused for genuine currency and usually it is made with the intent of fraudulently passing it off as genuine. The form, material and design of the Indian bank notes has to be such as approved by the Central Government after consideration of the recommendations made by the Central Board of RBI as provided vide Section 25 of the Reserve Bank of India Act, 1934. Bank notes are printed by the printing presses authorised by the Central Government or the RBI for the purpose and are issued for circulation by the RBI.

Magnitude of counterfeit Notes:

Seizure of counterfeit notes in India has become very common. There is frequent reporting of such seizures in media. The counterfeiting of currency is a universal problem. As per RBI, 0.4 million bank notes were detected as forged during 2010-11. Out of this more than 90% were detected at bank branches using Note Sorting Machines. This clearly reflects that use of machines is necessary to identify eliminate forged notes the moment it enters in the normal banking channels. As per figures collated by the RBI, the counterfeits seized/recovered per million notes in circulation is much lower for India (about 8 notes per million) as compared to USA (570+), Euro (55+), UK (340+) and Canada (100+). This difference may be partly due to less counterfeiting of Indian bank notes and partly due to better intelligence, policing and reporting in developed countries. The other reason for difference could be the nature of counterfeiting which different currencies are subjected to.

Containing Counterfeiting:

The counterfeiting needs to be contained through various measures such as improvement in design, security features, withdrawal of old notes, intelligence, vigilance, investigations and prosecutions as well as public awareness about genuine notes and counterfeits. In addition to above steps to check the menace of counterfeit banknotes, training to banks and other organisations, rationalisation of procedure for dealing with counterfeit currency and improvements in the area of mechanised processing of notes are also essential. These measures are to be taken in a well-coordinated and synchronized manner. It is with a view to keep counterfeiters at bay that the design and material of bank notes are modified from time to time.  Special materials and exclusive designs are incorporated in the bank notes, which are known as ‘security features’ of bank notes. Security features are those aspects of currency notes, which make it difficult to counterfeit. These are very complex, difficult to access and too difficult to duplicate because of requirement of special machines, software and skills.

The replacement/dropping of old security features and addition of new security features is decided keeping in view how closely existing security features have been reproduced or imitated by the counterfeiters. This is determined on the basis of forensic reports in respect of the counterfeit notes seized by law and order authorities or those recovered at various bank branches. Another indicator for review of existing security features is the trend of volumes of FICN seized and recovered over a period of time.

Security features are incorporated at paper making, ink making and print/design base. Review of existing security features is must as counterfeits are always on a look out of imitating the overt features. Thus more and more secure features are needed in the currency to make it tough for counterfeits. There are overt, semi-overt and covert security features in bank notes. Overt features are expected to be known to public and it is these features which are used to decipher about the genuine ness of the notes. Covert or semi-overt features are generally not disclosed to public because of security reasons. Some overt features of Indian Currency are:

• Mahatma Gandhi watermark in the Mahatma Gandhi series of bank notes with a light and shade effect. Rs 1000 notes introduced in October 2000 contain readable, windowed security thread alternately visible on the obverse with the inscriptions ‘Bharat’ in Hindi, 1000 and RBI when held against the light.
• The security thread on Rs 1000, Rs 500 and Rs 100 can be seen is one continuous line.
• The security thread appears to the left of the Mahatma’s portrait, but totally embedded on the reverse.
• On the obverse side of Rs 1000, Rs 500, Rs 100, Rs 50 and Rs 20 notes, a vertical band on the right side of the Mahatma Gandhi’s portrait contains a latent image showing the respective denominational value in numeral.
• The latent image is visible only when the note is held horizontally at eye level.
• Number panels of the notes are printed in fluorescent ink. The notes also have embedded optical fibres. Both can be seen when the notes are exposed to ultra-violet lamp.
• The portrait of Mahatma Gandhi, the Reserve Bank seal, guarantee and promise clause, Ashoka Pillar Emblem on the left, RBI Governor's signature are printed in intaglio i.e. in raised prints, which  can be felt by touch, in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 notes.
• The numeral 1000 and 500 on the obverse of Rs.1000 and Rs.500 notes respectively is printed in optically variable ink viz., a colour-shifting ink. The colour of the numeral 1000/500 appears green when the note is held flat but would change to blue when the note is held at an angle.
• The small floral design printed both on the front (hollow) and back (filled up) of the note in the middle of the vertical band next to the Watermark has an accurate back to back registration. The design will appear as one floral design when seen against the light.

There is a need to continuously upgrade security features so that counterfeits are not able to catch up easily. There is move to change security features by adding not only overt but covert features as well. Holographic films and foils are being considered to be introduced in the bank notes. It is however, very important to ensure that old notes with old security features are gradually withdrawn from the market, as counterfeit will always find it easier to print notes with weak features, if the old design notes are continued in the market. It may be feared that such move may lead to public uproar and resistance as it will cause inconvenience to people. However, it may be managed by wide publicity and by facilitating exchange of withdrawn old notes through banks and post offices without any questions asked about the source of money. This needs to be handled with extreme care as rumors may damage economy by casting doubts about credibility of currency.

Upgrading of security features is just one of the measures to check counterfeiting and the other aspects such as intelligence, vigilance, investigations and prosecutions are equally, if not more, important. CBI is only the nodal agency for investigations transferred to it by the State Governments and now the big counterfeiting cases perceived to have terrorism connections are being investigated by the National Investigation Agency (NIA).

Printing and/or circulation of forged Indian Currency Notes is an offence under Sections 489A to 489E of the Indian Penal Code. As per Section 39 of the Criminal Procedure Code, every person, aware of the commission of or of the intention of any other person to commit certain offences, including those relating to counterfeiting of currency, is required to immediately give information about such commission or intention to the nearest magistrate or police officer. RBI has also prescribed a detailed procedure for the commercial banks to handle counterfeit notes detected by them. They have been advised to impound such notes and send them to the police for lodging an FIR in accordance with the law. With the increase in incidence of counterfeit notes, individuals may come in possession of a counterfeit note without their knowledge of it being a counterfeit and unintentionally become a conduit for its circulation by presenting it to a bank or business establishment. Existing procedure of FIR is not at all supportive to person who brings the FICN to the notice of authorities. There is an urgent need to streamline the procedure and make it conducive to reporting and impounding of FICN. In this direction it may be appropriate to consider designating one nodal police station at each district for registration of cases of forged note offences. Correspondingly, banks should designate one nodal officer in a district with responsibility of registering such cases with police. In case of recovery of 5 or more pieces in a single transaction separate FIR should be filed and matter shall be referred to NIA. Many states have come up with designated nodal police stations but simplification of reporting system is still waiting to come out of clutches of un-reasonable and complex procedures.

Also, the intelligence and vigilance part is being coordinated by the Intelligence Bureau. Prosecution is primarily a state police subject and is dealt at local levels. Thus, there are many agencies handling these issues and there is lack of coordination among them. Further, people fear reporting fake notes as it puts a lot of burden on the person who reports it apart from loosing the money.

The general public, even the well educated one, finds it difficult to distinguish a fake note from a genuine one due to ignorance about its security features. RBI had been doing media campaigns in this regard from time to time, recent campaign named as “Paisa Bolta Hai” has been found to be educative and informative. However, there have been reports that campaigns of RBI lack in intensity and outreach. Its campaigns never reached the rural and remote areas, which are outside the coverage range of both print and electronic media, either totally or partially.

It may be quite possible that FICN circulating there seldom get detected. There is need for a sustained and widespread multi-media campaign to educate the general public to enable them to easily distinguish genuine bank notes from the fake ones which should be prepared by engaging best creative talent available to be effective with lasting impact. For reaching rural and remote areas, field publicity by involving post offices, Panchayats, other local bodies and NGOs could be considered.

End.