Counterfeiting

SIGNIFICANCE: The counterfeiting of currency has been a problem in the United States since the founding of the nation in the late eighteenth century, but modern technology has made it so much easier for criminals and foreign enemies to duplicate currency that the U.S. government has been forced to redesign its currency and find new methods of countering the problem.

The counterfeiting of a national currency is a process used by governments and individuals for different goals. Governments sometimes attempt to undermine the financial and political stability of other countries by debauching their currency and weakening their political and financial stability. On the other hand, individual counterfeiters usually engage in the crime to take advantage of existing instability to make profits. For these reasons, incidents of counterfeiting tend to rise during periods of economic or political instability.

History

During the American Revolutionary War, the Continental Congress attempted to create a single currency for the new republic. The British government responded by printing large amounts of counterfeit continental dollars and dumping them into the American market. This made the American government’s valid currency worthless and had a devastating impact on the colonial economy during and after the war. Counterfeiting continued even after the Revolution ended as states struggled to fix their own economies and were unable to protect their individual currencies from local counterfeiters.

During the first seventy years of its history, the United States suffered through chaotic and tumultuous financial conditions. The new federal government was given the exclusive power to issue a currency and punish counterfeiters, but no single currency was recognized throughout the country until the Civil War. Meanwhile, individual states issued bills of credit that could be used to pay off debts. These documents were easily copied by counterfeiters, and the counterfeit versions were used to defraud both individuals and the government in purchases of land and other commodities.

Enforcement of counterfeiting laws was left to the states and localities as the federal government itself had no law-enforcement agency to investigate or prosecute counterfeiters. Catching counterfeiters was made more difficult by the ease with which the paper money could be copied and the variety of bills of credit offered by states and their banks.

The counterfeiting of currency became a national problem during the Civil War, when more thousands of different legal currencies were in circulation. The high cost of the war ended the country’s dependence on coins and the gold standard for currency and forced both the Union and Confederate governments to issue paper money to pay their bills. As paper became the main currency, criminals seeking to make quick profits began to print counterfeit federal currency and distribute it in order to undermine the war effort.

Federal Counterfeiting Laws

In response to the growing problem of counterfeiting, the federal government created the Secret Service on July 5, 1865. The agency was given the task of tracking down and prosecuting counterfeiters. At the same time, one of the first federal laws punishing counterfeiters was passed as Title 18 of the United States Code. Title 18 remains in force in the twenty-first century and is used by the Secret Service as counterfeiting has again become a more frequent practice.

One of the earliest cases prosecuted by the new Secret Service involved an instance of insider involvement in a counterfeiting scheme. The Bureau of Engraving and Printing is part of the Treasury Department, the same department that originally oversaw the Secret Service. A clerk in that bureau stole the metal plates used by the bureau to print currency. He then gave the plates to two professional counterfeiters, Tom Hale and Charlie Adams, who printed large quantities of unauthorized currency and distributed it into the economy.

Hale and Adams were eventually caught in the first instance of the Secret Service’s protection of U.S. currency. The service spent much of the rest of the nineteenth century tracking more amateurish counterfeiters, who did not have access to government plates. However, it was not until creation of the Federal Reserve Bank in 1913 that the mass production of U.S. currency made counterfeiting a truly lucrative crime and one that could be used by other countries to undermine the U.S. economy and political system.

During World War II, counterfeit currency was used by both the Allied and Axis Powers as a tool for weakening the economies and war-fighting abilities of their enemies. The U.S. government itself printed and distributed counterfeit German currency, while the German government sought to flood the American economy with millions of fake U.S. bills. Neither effort succeeded, however. Germany’s fake American dollars were destroyed at the end of the war before they could be distributed in the United States.

While counterfeiting is usually undertaken for profit, there have also been instances in which counterfeiting laws have been used to prosecute people who publish photographs of currency to promote stories or products. For example, a 1981 issue of Sports Illustrated magazine used a cover picture showing currency to dramatize the rise of money in professional sports. The Treasury Department responded by charging the magazine’s publisher, Time Inc., with violating Title 18, which prohibited the copying of currency. However, in its Regan v. Time Inc. (1984) ruling, the U.S. Supreme Court struck down that portion of Title 18 as a violation of free speech. Nine years later, Title 18 was revived in a ruling prohibiting the copying of currency under certain specific conditions.

New Counterfeiters

Through the nineteenth and most of the twentieth centuries, professional counterfeiters were generally experts at printing and engraving. Some counterfeiters created metal printing plates that were nearly identical to the plates used by the government to print currency. High levels of expertise in engraving and printing were usually required for successful large-scale counterfeiting operations. However, as advanced computer technology and digital printing reached consumer markets during the late twentieth century, the levels of knowledge required to counterfeit currency declined. By the twenty-first century, any person with a computer and a good color printer could make counterfeit U.S. currency that many people—especially in other countries—would accept.

During the 1990s, the Secret Service handled counterfeiting charges against high school and college students who used public copy machines to print and distribute fake US currency. Meanwhile, as small-scale counterfeiting became more prevalent at the individual level, it grew to nearly epidemic proportions at the international level, as foreign states and organized groups began counterfeiting American currency to fund their political schemes. The federal government responded by redesigning currency notes to make them more difficult to duplicate.

In the early twenty-first century, the Secret Service reported that the $20 bill was the most counterfeited piece of US currency in the United States, followed by the $1 bill. Overseas, the $100 bill was the most counterfeited US currency. In the United States, larger denominations were less frequently counterfeited because changes in their designs were making it more difficult to duplicate them. However, as the lower denominations have been redesigned, counterfeiting of those bills has declined.

International Dimensions

As US currency has been adopted as the currency of some other nations, it has increasingly become the target of foreign counterfeiters, particularly in Central and South America. At the turn of the twenty-first century, the largest producers of counterfeit American currency were in Colombia. With narcotic drug production and distribution a central part of the Colombian economy, the drug cartels and Marxist rebels in the country have attempted to use counterfeit American currency to advance their own ends. South America is also a convenient part of the world for counterfeiting of U.S. currency, as several South American nations, such as Bolivia, have used American dollars as their own currency. Another South American state, Chile, was the second-largest producer of counterfeit American currency at the turn of the century. Bulgaria, in Central Europe, is another major source of counterfeit currency, as are Russia and Mexico.

Although billions of dollars in counterfeit US currency is produced abroad, only a small portion of it enters the US economy. In 2023, the US Department of the Treasury estimated that between $70 million and $200 million in counterfeit money circulates around the world at any one time. The amount of counterfeit money seized by US law enforcement officials has declined into the 2020s, as counterfeit-prevention methods have become more effective and many people have switched to electronic forms of payment.

Counterfeiting is expected to remain a problem so long as paper currency is a medium of exchange in modern economies. Making counterfeiting more expensive and time consuming to undertake reduces the profits to be made in counterfeiting. However, as counterfeiting technology continues to advance, governments must also develop new methods of combating the crime.

Investigation

One of the first American attempts at stifling counterfeiting was made by the North American colonies’ most famous printer, Benjamin Franklin. A prolific inventor, Franklin was assigned the task of printing notes by the colonial government and created a system of raised leaves on the documents that made copying them nearly impossible. However, the expenses associated with such printing also made it nearly impossible for the governments to afford printing the notes on a large scale. During the American Revolution, the continental government was unable to prevent the mass counterfeiting of its currency by criminals in the colonies and by the British government. Counterfeiting again became a major problem during the Civil War. To combat the fake currency being distributed, the federal government created the Secret Service to investigate and prosecute counterfeiters.

The Secret Service is required to find counterfeiters, but another government agency, the Bureau of Engraving and Printing, is responsible for creating currencies that are difficult to counterfeit. Created in the 1870s, the bureau long used highly skilled engravers to design bills with ornate decorations, making them difficult to copy. Through much of the nineteenth and twentieth centuries, American currency was difficult to counterfeit because there were few craftsmen who could duplicate the finely designed details in government currency. Moreover, the special currency paper used by the federal government also made it all but impossible for undetectable counterfeit bills to be created. Finally, the printing technology available to counterfeiters was so primitive that only a small number of people could mass-produce counterfeit bills of any quality.

The development of computer technology, digital printing, and color copying made counterfeiting much easier for ordinary people. The ornate decorations and engraving quality on bills could be easily reproduced on photocopiers and by computers. By the 1990s, both individuals and countries were engaged in counterfeiting for profit. The Treasury Department and Bureau of Engraving and Printing responded by issuing redesigned currency notes developed specifically to prevent counterfeiting.

In 1996, new $100 bills were issued; lower denominations followed. The faces on the fronts of the bills were enlarged and given finer details that could not be copied by machines. Watermarks were added, providing another feature that machines could not copy. These changes impeded counterfeiting by amateurs and foreign governments and organized crime groups.

While the new bills were created to make counterfeiting more difficult, detecting counterfeit bills fell mainly on the efforts of the private sector. When counterfeit bills are passed to merchants, it is their responsibility to make quick determinations of the bills’ authenticity. Modern bills have several special features that allow quick and easy determination of their genuineness. People can hold them up to a light source or use special pens to mark them to see if color changes occur. In addition, many commercial establishments now utilize computer systems to read the bills by looking for such features as strips of printing down the sides of the bills.

When fake bills are suspected, local police should be contacted. Although the Secret Service is given the task of investigating and prosecuting counterfeiters, most counterfeiting cases begin at the local level. Local police usually conduct the preliminary investigations of counterfeit bills then pass their findings along to the Secret Service, which collects the evidence and makes arrests.

Punishment

The basic punishments for counterfeiting are outlined in Title 18 of the United States Code. Under this section of the law, counterfeiters can be imprisoned for up to fifteen years and fined up to fifteen thousand dollars for creating or knowingly distributing counterfeit currency.

While local law enforcement is willing to work with the Secret Service within the United States and federal law can be used to punish domestic counterfeiters, a considerable amount of counterfeiting occurs outside U.S. borders, where the Secret Service lacks authority to enforce American laws. Halting overseas counterfeiting requires cooperation from the countries in which fake bills are being created and distributed. The main foreign sources of counterfeit American currency have been Colombia, Peru, Russia, Mexico, and China. Most of these countries have been willing to work with the U.S. Secret Service, allowing the agency to establish offices in their territory and to help train local police to detect counterfeit bills. Some countries, such as China, that have closed political and economic systems have been less cooperative. However, as all the world’s nations become more closely tied to the world economy, it is becoming more difficult for any nation to allow fake American currency to be used within its own economy.

While counterfeiting remains a problem both domestically and in foreign countries, the creation of new types of currency which is harder to counterfeit and greater international cooperation has made counterfeiting easier to detect and counterfeiters easier to catch.

Bibliography

Green, Edward J., and Warren Weber. “Will the New $100 Bill Decrease Counterfeiting?” Federal Reserve Bank of Minneapolis Quarterly Review (1996): 3–10. Print.

Johnson, David. Illegal Tender. Washington: Smithsonian, 1995. Print.

Mihalek, Donald J. “How the Crime of Counterfeiting Is Making a Comeback.” ABC News, 12 Mar. 2024, abcnews.go.com/US/counterfeiting-modern-age/story?id=108005573. Accessed 25 June 2024.

Motto, Carmine J. In Crime’s Way: A Generation of Secret Service Adventures. Boca Raton: CRC, 1999. Print.

The Use and Counterfeiting of U.S. Currency Abroad. Washington: US Dept. of the Treasury, 2003. Print.