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Assault on the Dollar

This article originally appeared in the February 1995 issue of ASIA, INC.

For more than a century, Hong Kong has been a conduit for cash flowing in and out of China, and colony bankers rarely bat an eye when presented with bundles of banknotes. But late last June a veteran teller in the Hong Kong branch of the Republic National Bank of New York sensed something was amiss when $100,000 worth of U.S.$100 bills from Macau caught his eye. The notes had passed through several hands -- certainly the paper and ink looked genuine. But further examination revealed minute flaws on half the bills.

Counterfeiting is relatively common in Hong Kong. Less than six months earlier, the colony's Independent Commission Against Corruption and the Commercial Crime Bureau seized $900,000 in fake U.S. dollars from a printing company in the Chai Wan district that had been selling bogus bills at bargain prices. Some forging attempts have been downright comical: Wrong pictures or misspellings have appeared on bills. But no one is laughing at the newest funny money now in circulation. The Republic National Bank discovery set alarm bells ringing around the world because it marked the long-dreaded arrival of a "super bill" largely indistinguishable from a legitimate one.

The entrance of such high-quality forgeries on the market could undermine confidence in the U.S. greenback, says University of Wisconsin economist Edgar Feige. "It's the psychological perception of the quality of the dollar that's crucial," says Feige, who studies how underground economic factors such as crime affect the economy. "If people perceive bogus notes to be widespread, then the value of the currency could be threatened."

Within hours of the Hong Kong discovery, special agents from the U.S. Secret Service, the organization responsible for catching counterfeiters, were on a speedy jetfoil to Macau. Their first stop: Banco Delta Asia, the modest financial establishment through which the notes had passed. There they learned that the money in question had come from the local North Korean community, which is extensive in Macau because Lisbon permits Pyongyang to use the Portuguese enclave as a trading base. Was the incident an isolated one? Not likely, the agents concluded when they discovered an additional $200,000 worth of counterfeit hundreds on deposit at the Bank of China.

That night officers from Macau's Judicial Police raided a number of apartments belonging to North Koreans. By the end of the week five people were in temporary custody. The investigation stalled, however, when the alleged North Korean ringleader fled across the border to Zhuhai, and Beijing refused to give assistance. None of the North Koreans were charged and the case was dropped. What's worse, the origin of the super bills remains a mystery.

For law-enforcement officials, the presence of counterfeit bills that slip by less-vigilant bank tellers every day is a continuing source of concern. Sighs Jose Dias Azedo, head of the Macau Judicial Police counterfeit and fraud detail: "Only a forensic expert with special equipment can distinguish between these fakes and real bills."

Ever since 1944, when the Bretton Woods Conference established the primacy of American currency, the U.S. dollar has been the recognized monetary unit that international banks use to measure economic activity. From the steppes of Central Asia to the mountains of Peru, it is the favored medium of exchange in countries with inefficient banking systems. Traveling executives carry U.S. notes because their unspent dollars retain value between business trips. Roughly 55 percent of the $360 billion presently in circulation is held by people outside the U.S. And demand is increasing as more developing nations embrace capitalism. Indeed, according to Richard Porter, deputy associate director for monetary affairs at the Federal Reserve Board in Washington, up to 70 percent of newly printed U.S. banknotes go directly overseas.

The sheer ubiquity of U.S. currency, which has had essentially the same size, color and configuration since 1929, makes it a primary target for counterfeiters. Nearly $135 million worth of bogus bills were confiscated outside the U.S. in 1994, up from just $30 million two years earlier. The problem is especially severe in Asian cities like Hong Kong, where seizures have increased four-fold since 1990. The $100 bill accounts for 60 percent of the U.S. currency in circulation, so invariably it is the note counterfeiters choose to reproduce.

Counterfeiting's real victims, of course, are people in the retail, hospitality and service industries who must instantly decide whether to accept a seemingly genuine banknote. In Phnom Penh, merchants who can ill afford cash registers are investing in counterfeit-detection equipment. But with more than $10 billion worth of phony bills estimated to be in circulation, the likelihood of being stuck with worthless paper is greater than ever.

In the past, counterfeiting rarely affected the value of money because even excellent forgeries were quickly identified. Since all the phony money was printed off a single engraved plate, each bill ended up with the same serial number. Today, technology is tipping the balance in favor of the criminal. Color copiers, laser printers and sophisticated graphics software make banknotes easier to copy, and computer programs can be written to generate random or sequential serial numbers.

The new age of counterfeiting began a year ago when randomly numbered $100 bills began appearing throughout the Pacific Rim. Those passed in Macau may be the best counterfeits ever, since their intaglio printing -- a process by which ink from incised lines etched into a metal plate leaves a raised impression on paper -- makes them feel like the genuine article. A U.S. congressional task force says the bills are printed by Iranians using U.S. equipment and American-trained engravers and printers. The Iranian-printed cash is supposedly taken to Syria where it is divvied up and sent around the world, claims the House Republican Research Committee's Task Force on Terrorism and Unconventional Warfare. Such notes are said to be used by North Korean diplomats and, on occasion, make their way into the hands of Chinese political operatives working outside the mainland. "We can speculate about China's involvement, but we don't know anything for sure," says Albert Joaquin, the special agent in charge of the Secret Service in Asia. "Only one thing is certain: If we don't curb this problem now, there could be extensive damage in the future."

Even more disturbing is a second series of notes from Montreal. The offset printing method used to make these bills does not create the embossed feel of those produced in the Middle East, but the rate of production and distribution network used are such that they have the potential to devalue U.S. currency. Purchased in the Canadian city for about $25 each, the $100 notes normally change hands in Toronto, where they are resold for half their face value. From there the fakes are sent directly to Asia and South America or allowed to percolate south across the lightly guarded U.S. border. Masterminding the distribution are the Big Circle Boys (a.k.a. Dai Huen Jai), a loose association made up mostly of former Chinese Red Guards that police in North America grudgingly concede to be "criminally brilliant."

The name Big Circle Boys (BCB) refers to Chinese-made maps that use a dot inside a circle to mark metropolitan areas. When the uneducated veterans of China's Cultural Revolution descended on Hong Kong in the late 1970s, earlier Cantonese immigrants dismissed them as rural hicks. "Not so," said the young criminals. "We're Big Circle Boys." Rejected by the locals, the young criminals found solace in solidarity. Bound by language and a love of military weaponry, the BCB is not a conventional triad. Today many of its members, who number about 1,000 in Canada, resemble avuncular commodity traders whose products -- heroin, prostitution, fake credit cards and now counterfeit money -- just happen to be illegal.

The BCB's logistical skills became apparent last March when a civilian informant working for a special task force of Toronto's 14th Police Division arranged to purchase $250,000 worth of illegal currency. The goal of the sting was to destroy the Montreal counterfeiting organization, or at least cripple its distribution network. But after three months of work the only people apprehended along with the money were a pair of lowly street hoods.

"There was no centralized gang to break up," explains Peter Yuen, a Hong Kong-born detective with the Toronto Police Department. "The courier from Montreal, the delivery boy in Toronto, the person who accepted the introduction and the men who delivered the money were all different people. Their planning was meticulous. They even did surveillance on us. As a criminal group it's impossible to infiltrate because the personal relationships go back more than 25 years."

By last summer, briefcase-loads of BCB-forged $100 bills were popping up all across America. In late July, three Vietnamese high rollers checked into Harrah's Casino and Hotel at Lake Tahoe, Nevada, and immediately began playing pai gow poker. On their second day at the tables, a casino pit boss noticed that the three were surprisingly sanguine about their losses and called the Secret Service in Reno. When an agent arrived later that day he found a duffel bag containing 250 bogus hundreds in a room occupied by suspected gangster Tony Lai. "The Secret Service agent was quite concerned," remembers John Babcock, Harrah's director of security. "I believe he said the bills that turned up here were from Canada."

In August, the Secret Service sent a formal notice to casino cashiers across Nevada, warning them that 11 permutations of a near-perfect $100 bill were flooding the state. But the increased vigilance in the western U.S. didn't bother the Flying Dragons, a Chinese gang selling fake bills on the streets of New York City. Four of its members simply headed for Mississippi, a southern state with less-experienced croupiers, where they partied for four days before being arrested.

By October the flow of funny money, estimated by the Royal Canadian Mounted Police to exceed $5 million a week, was inundating Secret Service agents like Dale Pupillo in Detroit. "The images are sharp and the ink is perfect on these bills," he says. "These people know what they're doing. No clerk in America could spot this stuff as counterfeit."

The degree to which counterfeit money subsidizes organized crime is open to debate. Many investigators persuasively argue that organizations that print and distribute quality fakes have a vested interest in controlling them so they won't get burned by their own bogus bills. Individuals desiring counterfeit banknotes from the BCB must buy a minimum of $100,000 and agree to immediately move the stash out of Canada. It's a logical request, since BCB's old-boy network controls much of Canada's illegal gambling. "Big Circle Boys are criminals, but they're also the world's greatest capitalists," says Toronto Police Detective Ken Yates, one of Canada's leading authorities on Asian organized crime.

An intriguing link between counterfeiting and the smuggling of Asian aliens into North America was established inadvertently last June when police in Windsor, Ontario, interrupted what they thought was a midnight narcotics buy only to find that the paper bag passed between two parked cars contained $104,000 in counterfeit $100 bills. For what was the money intended? Neither Leung Tak On, a known narcotics trafficker, nor counterfeit credit card dealer Yao Junmin would say. But when the two men were taken to jail and searched, police found a telephone bill listing more than 2,000 brief calls to four telephone numbers.

"Three of the numbers are in Tokyo, Fujian (China) and the Netherlands," says Willard Myers, director of the Center for the Study of Asian Organized Crime. "The fourth, in New Jersey, belongs to Cheng Chui Peng, an infamous smuggler who rebounded from an 1989 arrest and today owns at least one building in Manhattan." A Fujianese who goes by the nickname "Big Sister," Cheng is a master at finding loopholes in U.S. law and is suspected of using bogus bills from Canada to finance her smuggling operations.

In the early 1980s, the U.S. Senate amended the immigration code to allow foreigners who worked 90 days in agriculture to obtain a green card and remain in the U.S. legally. The intention was to ensure a permanent supply of cheap Latino labor for California. But Cheng seized the moment and bought a New Jersey farm, which she used as a safe house for smuggled Fujianese destined for the sweatshops of New York. Today Cheng has three farms, which supply much of Chinatown's produce. Within a few days of the Windsor arrest Big Sister was on a plane to China where, in the space of a month, she was arrested in Fuzhou, bribed her way out of prison and escaped to Hong Kong.

One result of counterfeiting is that a growing number of countries are imbedding security devices in their currency. In 1988, Australia began printing plastic banknotes. Japan's 1,000 and 10,000 yen bills are printed with a special ink that commercially available copiers can't reproduce. Singapore and others have woven plastic fibers into some of their large-denomination bills.

After decades of delay, the U.S. finally will begin issuing tamper-resistant bills in 1996, starting with the $100 note. Among the 14 features incorporated into the new design will be an enlarged portrait of Benjamin Franklin, a polyester security thread running through the paper, iridescent windows, a translucent watermark and new inks that change color when viewed from different angles.

Federal prosecutors applaud the changes but doubt they will eliminate counterfeiting. Because of lenient sentencing guidelines, a person caught with more than $120,000 rarely draws more than 12 to 18 months in jail. First-time offenders with $2,000 or less could be released after four months. "It's easy to flip a drug courier (have him testify against co-conspirators) because if he's caught with more than a kilogram of heroin he's looking at a minimum of 10 years," says Christopher Johnson, an assistant U.S. attorney with the Organized Crime Strike Force in Los Angeles. "There's no impetus to cooperate if you're looking at only 18 months. These guys know that if they just keep their mouths shut they'll be rewarded with greater responsibility when they get out."

Because the average life of a $100 note is nine years, counterfeiters in theory can continue copying the existing bills for at least another decade. Recalling the old bills upon release of the new ones would stop counterfeiters cold, but Washington insists this will not happen. "A recall would inconvenience people who use dollars legitimately and possibly threaten the savings of those who can't exchange their currency easily," explains Darcy Bradbury, the U.S. Treasury's deputy assistant secretary for federal finance. "Asians who save dollars should know that those dollars will always be good. The U.S. has never recalled its currency and has no plans to do so."

Maintaining the dollar's desirability makes fiscal sense. "If people no longer wanted dollars, Washington would have to borrow another currency to pay for its imports," explains economist Feige. "The American taxpayer would pay the interest on that loan. The global acceptance of dollars means taxpayers each year save $15 billion in taxes because no loan is necessary."

U.S. prosperity depends on continued global demand for the dollar. "The nation that can establish its currency as the world standard has a great advantage when it comes to acquiring resources cheaply," says Feige. The prospect of Asian entrepreneurs rejecting the dollar because of its suspect value is a nightmare that few Americans wish to contemplate.

To ensure the dollar's primacy, the Secret Service soon will receive an additional $5 million to pursue counterfeiters. The U.S. Treasury also plans to elevate its obscure Financial Crimes Enforcement Network to a full-fledged governmental agency with responsibility for curtailing financial crime outside the U.S.

"There's a natural reluctance to create a new bureaucracy, but if something's not done now, counterfeiting and other financial crimes will cripple our economy," says Cordell Hart, the network's Mandarin-speaking director of Asia-Pacific affairs. "America's tired of being a financial target. This cow's been milked too long."

But one of the region's leading economists says the U.S. dollar faces bigger problems. "Asians may want to change from U.S. dollars because of the worry that they may decline further in value, not so much from counterfeiting," says C.H. Kwan, senior economist at Nomura Research Institute in Tokyo. "There will be a day when the U.S. dollar is not the dominant currency in Asia, but it will probably take decades. It won't be in the next five years."

Meanwhile on Hong Kong's crowded Nathan Road, as on other Asian thoroughfares, U.S. dollars, both fake and real, circulate through a chaotic chain of use. Seated in a cramped money-exchange booth in Tsimshatsui, money-changer Choi Chun Ming contemplates his position on the front line in the war against counterfeiting. "We usually know who to look out for. There are a lot of bad people in this part of Hong Kong -- traders from China mostly," says Choi, looking at the crowds outside his booth. A wise smile crosses his face. "But really, you have to watch everyone."

© 1995 by Asia Inc. Ltd.

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