The Counterfeiter Classification

In our February feature on counterfeiting, Duncan Reid covered adversarial analysis. In this article he reviews the classification of counterfeiters, illustrated by case studies at each level.

Central banks and research institutions have developed categories of counterfeiters. Whilst the number of groups varies between models, they have in common a classification that takes into account the counterfeiting method, materials and equipment. This review considers four categories of banknote counterfeiters: amateur, hobbyist, professional and state sponsored.

Amateur counterfeiters – maximum reward for minimum effort

The amateur generates low quality counterfeits by photocopying or scanning and printing genuine banknotes at minimum cost for casual spending. The counterfeits generated by this group are easily detectable. This type of counterfeit is also sometimes known as ‘nuisance’ counterfeits, although when large numbers of people produce a few counterfeits, amateur counterfeiting can be disruptive.

Amateur counterfeiters often work alone from their home or place of employment. Genuine banknotes are scanned and printed on plain paper using a desktop all-in-one inkjet print, copy and scan device or an office colour laser copier. Such machines normally have a duplexing capability, allowing the front and back images of the copied notes to be printed on the same sheet of paper with some degree of front-to-back registration.

The amateur will produce sufficient notes for their personal needs and pass them personally in transactions. A common operating model is to purchase low value items in shops, bars or cafes with a mid-value counterfeit denomination such as a £10 or £20, and obtain most of the face value as genuine currency in change. They will often attempt to pass their counterfeits at several premises if they are unchallenged.

Amateurs do not aim to create a high quality reproduction of a genuine note because they rely on the recipient not examining the notes closely or being familiar with the genuine notes.

That was certainly the case for a 20 year-old German woman when she visited her local car dealership in Kaiserslautern. After taking a second hand Audi A3 for a test drive she handed over a wad of €15,000 cash in counterfeit €50 and €100 notes. The dealer was taken aback by the woman’s brazen attempt to con them and asked if she wanted to play Monopoly or buy a car! He called the police when he realised the woman was serious about going through with the purchase.

When police searched the woman’s home in the nearby town of Pirmasens they found a Canon Pixma print, copy and scan inkjet printer still loaded with uncut sheets of printed counterfeits and a further €13,000 worth of counterfeit euros.

It can be seen in Figure 1 that she had printed three counterfeits on each sheet of paper. The counterfeits in this case were printed on less than 200 sheets of copier paper.

Figure 1: Counterfeits printed on a print, copy, scan device.

Hobbyists take more care over their counterfeits

The hobbyist uses similar equipment to the amateur to scan and print copies of genuine banknotes, but will spend additional time and effort to simulate some of the public recognition features to make the counterfeits more convincing. They purchase materials from craft stores or online to simulate security threads, holograms and colour changing inks.

Counterfeiting in Hong Kong peaks before the lunar new year, when it is traditional to give crisp, new banknotes in ornate red envelopes, known as lai see in Cantonese.

In January 2021, the Hong Kong Police arrested a 43 year old woman who was identified on CCTV in five cases of attempting to pass counterfeit $500 notes. When they raided her flat they also arrested her daughter and seized 54 counterfeit $500 notes together with the equipment that was used to produce the counterfeits, shown in Figure 2. This included an inkjet printer, copier paper, glitter pens and paper cutting equipment. The police inspector reported that the glitter pens were used to simulate the windowed colour-changing thread on the genuine banknotes. It is probable that the glitter was hand-painted over the copied images of the windows on the counterfeits.

Figure 2: Equipment and materials used by a hobbyist.

Professionals produce deceptive counterfeits in large quantities

Professional counterfeiters are criminals or Organised Crime Groups (OCGs) with skills in graphic design software and operating commercial printing equipment. They have resources for high end printers and additional equipment and materials, such as screen printing and foiling.

OCGs target widely circulating currencies, such as euros and US dollars. Counterfeiting is often used to finance other criminal activities such as drug trafficking.

In February 2021 Europol supported the Bulgarian authorities to take down an OCG involved in currency and document counterfeiting. The US Secret Service also supported the operation. During the operation, the Belgian authorities dismantled a print shop in a resort on the Black Sea coast that was counterfeiting euros and US dollars. Some of the suspected members of the OCG were connected with another gang previously arrested in 2018 and were using the same location for their print shop.

On the day of action 3,528 counterfeit €100 notes with face value €417,218 and 7,126 counterfeit $50 notes with a face value of €356,300 were seized. Sheets of counterfeit €50 and €100 hologram stickers were also seized. Equipment found in the print shop included an offset printing press and screen printing.

State sponsored counterfeiting is rare

This category is reserved for political counterfeiting that is intended to destabilise a hostile economy. It is capable of producing high quality counterfeits in large volumes because the hostile state has access to the materials and technologies that are used to manufacture genuine banknotes, including cylinder mould made paper and offset, intaglio and letterpress printing.

There have been very few cases, the most infamous being Operation Bernhard, the plot by Nazi Germany to ruin the British economy during World War Two by flooding the country with counterfeit banknotes.

Classification of counterfeits

Central banks have developed classification systems that grade counterfeits in terms of quality and the level of risk.

For example, the Reserve Bank of Australia (RBA) operates a Counterfeit Examination Laboratory that analyses counterfeits and rates their quality. These ratings give the RBA and police an indication of how closely the counterfeiters have successfully or otherwise replicated a genuine banknote. The classification ranges from poor for copies of polymer notes made on paper to excellent.

The Czech National Bank (CNB) developed a five point security scale, corresponding to the marking system used in schools. This system considers both quality and risk. Level 1 corresponds to state sponsored counterfeiting, levels 2 and 3 to professional counterfeiters, level 4 to hobbyists and level 5 to amateurs. (see above).

Figure 3: The five point security scale used by the CNB to score counterfeits.

Volume by counterfeiter

The volume of counterfeits produced in each category is limited by the ambition of the counterfeiter and the capacity of the print method. Amateurs produce tens or hundreds of counterfeits to satisfy their needs. Hobbyists produce a similar volume because of the time taken to simulate security features on individual notes.

The volume of counterfeits produced on digital printers is limited by sheet size and print speed. Inkjet printers are not capable of high-volume printing and are slower and have a lower yield per ink cartridge than laser printers. Professional counterfeiters overcome this by using multiple printers to produce thousands of counterfeits.

The volume increases by a factor of ten or even a hundred on changing from digital to offset printing because of the larger sheet sizes and faster speed. Offset printing volumes are in the range of tens of thousands to several million counterfeits.

A core purpose of level 3 security features, covert central bank machine readable features, is for a central bank to be able to remove from circulation very high quality counterfeits in order to maintain confidence in the currency.

Counting the counterfeits

Counterfeiting rates are reported as either the number of counterfeits detected per million genuine banknotes in circulation (parts per million – ppm) or the total number of counterfeit notes passed into circulation and seized by law enforcement before entering circulation.

Ppm is easy to calculate, a good indicator of trends and allows comparisons between countries. Because ppm is a ratio, a weakness is that it decreases when the bank increases the number of genuine notes in circulation, whereas counting the number of counterfeits is not affected by the number of genuine notes in circulation. Moreover, gives no sense of the quality of the counterfeits.

Seized counterfeits are not included in ppm data but provide valuable information about current counterfeiting activity. The numbers are significant and accounted for 63% of all counterfeits in Canada in 2021, 16% of Bank of England counterfeits and 18% in Australia.

Statistics are only as accurate as the successful detection of counterfeits. A study of high quality counterfeit notes circulating in India estimated that only one third of counterfeits were detected. It is likely that counterfeits are under-reported because many recipients just accept their losses and don’t report them to the police.

Counterfeits may be retained by commercial banks for training purposes, returned to customers or held by local law enforcement agencies without being reported to the central bank. It is difficult to determine the true counterfeiting level where law enforcement agencies and the central bank have separate responsibilities and no organisation has overall control of the data.

The lifetime of a counterfeit is a function of detection and the frequency with which currency is processed. With reference to the CNB scale, level 4 and 5 counterfeits are likely to be detected by the public and retail organisations. Higher quality counterfeits at levels 1-3 will remain in circulation for longer until they are detected by banks or cash in transit companies. A study by the RBA concluded that counterfeits from high volume operations are mostly detected within the first few months after the first counterfeit is detected and almost all are detected within two years.

Culture affects counterfeiting

Bizarrely, different countries have different counterfeiting cultures.

In Canada, for example, counterfeiting is largely amateur or hobbyist while in the US counterfeiting is more organized and larger scale. The UK counterfeiter prefers litho printing.

It appears each country has its own way of doing things.

Conclusion

Amateur counterfeiters are not concerned about quality; as long as it is accepted it is good enough!

Hobbyists are prepared to spend more time producing their counterfeits and quantities will be small; tens or hundreds at most.

Professionals aim to produce high quality deceptive counterfeits in large quantities; thousands of counterfeits on digital printers and hundreds of thousands or millions on offset presses.

Incidents of state sponsored counterfeiting are very rare but when they happen they can have a devastating impact on public confidence in the currency.

Duncan Reid is a counterfeit expert specialising in the analysis of counterfeit banknotes, anti-counterfeit training, counterfeiting statistics and trends. He has over 30 years’ experience in the currency sector and has provided services to central banks globally, including forensic analysis of counterfeit banknotes and training on banknote production.