Counterfeit Deterrence – Beating the Criminal Element
BANKNOTE COUNTERFEIT DETERRENCE AND THE ROLE OF THE CBCDG
By Antti Heinonen, Principal Advisor, European Central Bank
Call it human nature, but ever since the invention of paper money, people have tried to imitate and counterfeit it. The result has been an unending race between issuing authorities and perpetrators. This article, which is based on my contributions to the Banknote 2009 and 2010 Currency conferences, is a review of how authorities have historically tried to deter counterfeiting and how they have responded to new threats. From this perspective, I will then explain the role of the Central Bank Counterfeit Deterrence Group (CBCDG) and its activities, concluding with a short assessment of recent developments in counterfeit production techniques and how to address future threats.
Development of Counterfeit Deterrence
A banknote is just a piece of paper. It has no intrinsic value. Therefore, its value depends on public confidence in the issuer. Interestingly, this crucial principle is reflected in the name of the first banknotes in the modern sense. The Swedish banknotes issued by Stockholms Banco in 1661 were called â€˜kreditivsedlarâ€™, ie. â€˜notes of creditâ€™, derived from the Latin word creditivus, meaning â€˜worthy of confidenceâ€™.
Confidence in the issuer obviously depends on how well a banknote fulfils its role as a means of payment and as a store of value, ie. can the bearer trust that the banknote is genuine and accepted by the payee andÂ that it will it retain its purchasing power in the future?
Cognizant that no sooner was the first paper money issued than the first counterfeits were discovered, authorities have conscientiously tried to address the problem. Such was the case in China, where once the government had taken over the issuance of paper money during the Song dynasty, it prohibited the private dealing of the raw material of the substrate, the bark of the mulberry tree, and punished counterfeiters by beheading.
Similarly, the security of the banknotes issued by Stockholms Banco was quickly upgraded, as early as 1666, by introducing watermarked paper. From the 1760s, a text was printed on Swedish banknotes, now issued by the central bank, declaring counterfeiting a capital offence. The Bank of England, which issued its first banknotes in 1695, began using watermarked paper as a security measure a couple of years afterwards, and in the United States early paper money issued in the 17th century bore the text â€˜To counterfeit is deathâ€™.
These examples show that from the beginning counterfeit deterrence was based on two pillars, banknote security and law enforcement. However, even more noteworthy in relation to todayâ€™s debate is the fact that the early issuers of paper money applied not only the stick, but also the carrot. Thus, along with the notice that anyone caught using counterfeits would be beheaded, the text on the 1 kuan note (Ming dynasty in the 14th century) stated that â€˜the informer will be rewarded with 250 taels of silver in addition to the confiscated property of the convictedâ€™.
Similarly, the Swedish central bank printed on its banknotes, besides the notice that counterfeiting was a capital offence, a note stating that â€˜a reward of 40,000 dalers was payable for information leading to the conviction of the counterfeiterâ€™.
The French assignats issued in the 1790s had, in addition to the text (in the left margin) â€˜La Loi Punit de Moret le Contrafacteurâ€™, the encouraging message (in the right margin) â€˜La Nation RÃ©compense le DÃ©nonciateurâ€™.
Societal thinking and the payment landscape have changed in many respects from those days! But the interesting question remains: what kinds of incentive can issuing authorities offer the public today to engage them in recognising counterfeits?
Besides imposing heavy penalties and rewards to deter counterfeiting, and upgrading the security of their banknotes with watermarked paper, early issuers used different typefaces and ornaments, reliefs, seals and vignettes in printing their banknotes. In the course of time new printing methods more suitable to high volume security printing were developed, as well as new methods for engraving plates that made the notes more difficult to imitate. A new printed security feature â€“ the guilloche â€“ was introduced in the early 19th century.
These measures were reasonably successful against counterfeiting until photography was invented and photographic techniques were brought into play by counterfeiters. These techniques forced a paradigm change in banknote security in the second half of the 19th century. Print colours which were more difficult to imitate were introduced, together with special inks, and coloured fibres were incorporated into the paper. As before, counterfeit deterrence was based on two pillars, banknote security and law enforcement, although penalties generally became less severe.
The second paradigm change in banknote security became necessary after the launch of colour copiers in the 1980s, the proliferation of ink jet printers, and innovations in digital imaging and printing technology in the 1990s.
Traditionally, counterfeiting had been dominated by the lithographer and plate engraver, and reproducing banknotes required substantial capital investment and expert skills. The introduction of colour copiers changed the landscape, making it possible for a counterfeiter to purchase equipment, use company equipment or visit a copy shop to produce low or medium-volume counterfeits of a reasonable quality.
These new threats triggered the development of new security features, in particular optical security features and innovative substrates.
Furthermore, it became necessary for central banks to extend counterfeit deterrence to two new areas, namely informing and educating the general public and professional cash handlers about banknote security features (see my article in Currency News, December 2009) and managing the cash cycle.
As regards the latter, the quality of banknotes in circulation has gained in importance, making it easier to identify potential counterfeits, and the increased recycling of banknotes by third parties has necessitated rules and frameworks to prevent counterfeits from recirculating.
As a consequence, counterfeit deterrence was extended from two to four pillars.
The CBCDG Mandate
Because of the new threats created by colour copiers and digital imaging and printing technology, counterfeit deterrence philosophy required yet another dimension. It was perceived as no longer sufficient for each central bank to respond to the new threats solely using its own conventional wisdom. As a result, the question was raised of central banksâ€™ ability to coordinate joint international responses to deter production of counterfeits with the new technology.
The appropriate body to decide on such global central bank cooperation was the Group of Ten (G10) central bank governors, which convenes at the Bank for International Settlements in Basel. At their meeting in September 1992, the G10 governors examined the problems raised by colour copiers in relation to banknote counterfeiting and were informed of the efforts of some colour copier manufacturers to build security devices to deter counterfeiting. For the purpose of international cooperation, a Special Study Group on Modern Reproduction Technologies (SSG-2; â€œ2â€ given that a smaller group reporting to the European Banknote Printersâ€™ Conference had convened earlier) was established. Based on the development work done by the industry, a system to deter banknote counterfeiting with colour copiers was first incorporated into products that began to ship in 1997.
The SSG-2, later named the Central Bank Counterfeit Deterrence Group (CBCDG), is mandated by the G10 governors with the mission of identifying emerging threats to banknote security and ensuring that, where needed, common international responses are developed for implementation by issuing authorities.
The CBCDG works with law enforcement and industry to assess threats to currency. It promotes and supports the use of anti-counterfeiting technologies by manufacturers of products that enable counterfeiting. Furthermore, it sponsors the development and deployment of technologies that deter the use of digital equipment to counterfeit currency by creating features that can be added to banknotes at a low integration/performance cost for vendors.
Currently, the CBCDG has 31 member central banks; in addition, it has licensed its systems to several non-member central banks. The member central banks meet annually at a plenary meeting. CBCDG projects and programmes are overseen by the Executive Committee, which consists of seven senior central bank representatives and provides policy direction to the work on counterfeit deterrence.
The CBCDG office is hosted by the Bank of Canada in Ottawa, and the technical centre, the International Counterfeit Deterrence Centre (ICDC), by the European Central Bank in Frankfurt. The most important CBCDG working party is the Technical Working Group, which together with industry partners develops new deterrence systems.
In addition, a Law Enforcement Advisory Group advises the CBCDG on counterfeit practices and threats, as well as the organisation and behaviour of counterfeiters.
Another CBCDG anti-counterfeiting technology, the Counterfeit Deterrence System (CDS) for deterring PC-based banknote counterfeiting, was first incorporated into products that began to ship in 2000. The CDS prevents personal computers and digital imaging tools from capturing or reproducing the image of a protected banknote. Several leading personal computer hardware and software manufacturers have voluntarily adopted the CDS in recognition of the harm that counterfeit currency can cause.
When a PC user attempts to reproduce a protected banknote, the process is stopped, the user alerted by means of a dialog box stating that the application does not support the unauthorised processing of a banknote design, and the user is directed to the CBCDG website www.rulesforuse.org.
Addressing Future Threats
Even though the counterfeiting landscape has changed since the introduction of colour copiers and the development of digital imaging and printing technology, the counterfeiting threat posed by traditional printing methods is still real.
There are, however, big differences in the evolution of counterfeit production techniques at the country level. For the euro and pound sterling, the majority of counterfeits are traditional printed counterfeits, whereas in the US and in Canada the great majority are ink jet counterfeits.
Therefore, the CBCDG monitors technology developments, in particular developments in digital technology, and assesses a very wide range of future threats. Based on the ongoing threat assessment, the CBCDG identifies gaps in current shared systems, and analyses and proposes new solutions.
This article has benefited from the work of my predecessor as Chairman of the CBCDG Executive Committee, Bonnie Schwab, and from the comments of my CBCDG colleagues. The CBCDG can be contacted through Maureen Carroll, Director CBCDG Office, c/o 234 Wellington Street, Ottawa, Ontario, Canada, K1A 0G9;Â email@example.com.
Captions: The rulesforuse.org website, part of a solution developed by the CBCDG to prevent counterfeiting of banknotes using PCs.
The changing environment of reproduction devices and tools