Exploring the Intricacies of Counterfeiting and Money Laundering

What is Counterfeit Money?

The landscape of counterfeit money has drastically changed over the past ten years. Criminal networks adopted digital printing techniques at the same time, utilizing cutting-edge technology, lasers, and inkjet printers to launder illicit funds The Mafia and Camorra in Europe and the Americas, as well as the Triads and Yakuza in Asia, have expanded their operations to include the illegal trade of counterfeit goods. At the same time, they continue to engage in a variety of criminal activities, ranging from drug and human trafficking to extortion and money laundering.

In the United States, money forgery is common. Between January and February of 2021, approximately $4,370,300 in counterfeit money was confiscated in the United States. The production of counterfeit money or forged banknotes frequently involves vast networks of professional criminals.  While some groups create their custom counterfeit notes, others engage in activities such as adding security features to counterfeit currency or distributing counterfeit currency from various networks.

Counterfeiting and Money laundering

According to the US Secret Service, there is more than $147 million in counterfeit US currency in circulation worldwide, with 60% of it circulating in the US.

The rise of counterfeit money or forged banknotes presents a growing challenge for law enforcement and regulatory agencies worldwide.  For instance, within the last two months, two people in Rotorua have been arrested on suspicion of producing counterfeit banknotes. The counterfeit banknotes were printed on easily tearable paper, as opposed to the stronger and polymer-based material used in legitimate currency.

Under FATF Recommendation 3, currency counterfeiting is designated as a predicate offense of money laundering. However, comprehensive descriptions of counterfeit currency are still lacking, covering topics such as production, trafficking, infiltration of the financial system, and money laundering.

Also, engaging in the illegal trade of counterfeit goods provides criminals with an additional revenue stream, allowing them to conduct money laundering operations. Criminals frequently introduce counterfeit products into the legal supply chain, obtaining legitimate funds in the process. This not only complicates anti-money laundering (AML) efforts but also puts consumers at risk of receiving subpar goods unknowingly.

Smurfing

The term smurfing refers to a common counterfeiting money laundering technique. Using small amounts of counterfeit money, large sums of illicit funds are deposited into multiple bank accounts. Criminal networks use these records to avoid detection and suspicion in a variety of ways. Once properly invested, the funds can be used for legal or illegal purposes without raising any concerns.

Currency Exchange

Currency Exchange is another method for creating counterfeit money. Criminals use exchange offices to exchange their counterfeit currency for foreign currency, which they then use to acquire legitimate assets or transfer money internationally to offshore accounts. This system aids in the concealment of the source of illicit funds and thwarts Financial intelligence units’ (FIUs) efforts to locate them.

Offshore Accounts

Counterfeiting in money laundering schemes has also spread through the use of shell companies and offshore accounts. Offshore accounts provide anonymity and reduced scrutiny, making it difficult for authorities to track the flow of counterfeit money. Criminals use these accounts for financial fraud across borders, complicating the AML detection process even further.

Counterfeit Detection

Detecting counterfeit money is critical to avoid significant financial fraud. The majority of modern banknote counterfeits are easily identifiable. The “FEEL, LOOK, TILT, and CHECK” Principle can be used to further clarify the differences. There are numerous methods for distinguishing between genuine and forged banknotes. Ink, watermarks, and text are physical characteristics designed to aid in the identification of real money.

Watermark:

When genuine paper is exposed to light, it has a watermark that can be seen

Obfuscating Print:

Counterfeit currency notes frequently have confusing faces, print, or text due to inaccuracies in counterfeit printing methods.

Paper:

Real currency is printed on special paper that is 25% linen and 75% cotton with tiny red and blue fibers embedded. A ledger is a fine print that can be verified by scratching the surface of the forged banknote with your fingernails. This results in a distinct texture that is not fake.

Size:

Paper money comes in a specific size. Some counterfeit detectors can detect irregularly sized bills.

Ultraviolet Glow:

When exposed to ultraviolet light, genuine banknotes glow in distinct colors, such as blue for $5 and orange for $10.

Serial Numbers:

It is critical to check the first letter of the serial number. It should be a specific year; any discrepancy indicates a forged banknote.

Moreover, counterfeit money detectors are crucial tools for spotting forged banknotes, using a variety of technologies to confirm their authenticity. To distinguish between legitimate and counterfeit currency, these detectors examine physical characteristics like magnetic ink, security strips, and infrared signatures. Despite the use of methods like magnetic, ultraviolet, and infrared sensors, no machine is impervious to the ever-evolving techniques used in counterfeiting.

The Role of AML and FIUs in Combatting Counterfeiting Money Laundering:

Anti-money laundering laws are essential for stopping and identifying counterfeit money laundering. Financial institutions must put AML measures in place to recognize and report suspicious transactions. Due diligence and strict Know Your Customer (KYC) procedures make sure that institutions have accurate customer information, which helps spot irregularities.

Financial Intelligence Units (FIUs) are also essential in the fight against money laundering and counterfeiting. These departments gather, examine, and provide pertinent authorities with financial data. FIUs assist in locating criminal networks involved in financial fraud including those related to the use of forged banknotes, by working with law enforcement organisations.

For example, The UK National Central Office for the Suppression of Counterfeit Currency and Protected Coins (UKNCO) performs critical functions such as maintaining records and conducting analyses of detected counterfeit currency within the UK, providing expert evidence for legal proceedings, engaging in operational activities and assisting partner investigations, developing intelligence on counterfeit currency production and trafficking, and providing support to both domestic and international law enforcement.

Globally we can prevent this heinous crime by

• Encouraging international cooperation among regulators, law enforcement agencies (LEAs), and financial intermediaries
• Expanding the Homeland Security Questionnaire to cover more anti-money laundering and anti-terrorist financing topics
• Encouraging effective reporting and institutional arrangements at the national level
• Prioritizing national educational projects and multidisciplinary working groups
• Extending the data retention period for monitoring systems targeting counterfeit goods.
• Training is also important. One such offering is the ‘International IP Crime Investigators College’ (IIPCIC), which is run by INTERPOL and the Underwriters Laboratories’ UL University and is aimed at law enforcement, regulatory authorities, and private sector IP crime investigators through online courses.

Bottom line

The nefarious connection between money laundering and counterfeiting poses a serious threat to the integrity of the global financial system. Financial institutions and regulators must fortify their defenses as criminal networks devise tactics to avoid detection. To unravel the web of financial fraud woven by counterfeit money and money laundering, strong anti-money laundering measures and increased cooperation of the Financial Intelligence Unit (FIUs) are essential. We can safeguard the integrity of the financial system and shield economies from the devastation that counterfeiting and money laundering cause by cooperation.