Funny Money

by Karl Ritter

Funny Money

European Union ill-prepared for expected flood of counterfeit euros By Karl Ritter Counterfeiters are rubbing their hands in anticipation of the largest currency launch the world has ever seen. Nearly 15 billion banknotes and 50 billion coins will begin changing hands on Jan. 1 next year, as the Euro becomes legal tender overnight in 12 member states of the European Union.

"It would be foolish to think that criminals wouldn't take advantage of the fact that the currency is new and that people don't know what it looks like," says Derek Porter, one of the front men in the fight against fake Euros. Porter, who heads a money forgery task force in Europol, the EU police agency set up to combat cross-border crime, says preparations to prevent counterfeiting have been going on for years. Nevertheless, he admits that the launch of the Euro presents "a potentially big problem" for law enforcement across Europe.

The Euro will be an attractive currency to counterfeiters for several reasons. Until Europeans become accustomed to the new banknotes--which will appear in seven denominations from 5 Euros to 500 Euros, each with a particular color, size, and design--they will probably have a hard time spotting a fake. Money forgers will also seek to exploit a worldwide demand for Euros, as the currency challenges the dollar as a global form of payment. But perhaps most importantly, counterfeiters could take advantage of serious shortcomings in police readiness.

Whereas the new banknotes and coins can cross borders freely, cops cannot. That means dealing with international counterfeiters remains largely in the hands of national authorities, which may not possess the intelligence to fight cross-border crime effectively. Of course there is Europol, which can help national police forces share information. But lacking investigative powers or the authority to make arrests, the agency is about as effective on the street as a cop without handcuffs.

"What worries me is the lack of a tradition of cooperation among police departments," says law professor John Vervaele of the University of Utrecht in the Netherlands. Vervaele says there is an urgent need for common standards and trust among police departments in the member states. "I am very much afraid that the flow of police data, or information from judges or prosecutors, will be very weak," he says.

To effectively fight money fraud, Vervaele suggests European police departments must either greatly improve cooperation, for example by setting up joint investigation teams, or extend the powers of existing authorities, like Europol, which is headquartered in the Netherlands. Political realities make the second option highly unlikely. Member states are not eager to give up control over law enforcement, the bedrock of national sovereignty. However, efforts are underway to beef up cooperation by increasing the flow of information between police departments inside the EU. Europol is setting up a database that will allow national police forces to share information on cross-border crime, including counterfeiting. The database will list names, whereabouts and associates of suspected counterfeiters and the information will be available in several languages. National authorities will then use the information to track down suspects and make arrests.

"Europol does not go to Madrid and investigate a counterfeiting case," explains Porter. "The police in Madrid do that. If the case spreads to Portugal, France, or Holland, then it becomes the responsibility of Europol." But that responsibility, he adds, is limited to information gathering and analysis. By contrast, the U.S. Secret Service, which is the prime anti-counterfeiting authority in America, can both investigate and make arrests. And that, say some experts, makes a world of difference.

"If it weren't for the secret service," says Sheldon Greenberg, director of the Executive Police Leadership program at Johns Hopkins University, "you would see counterfeiting emerge as a major white-collar crime, far more extensive than it is today." Every European country, he adds, has its own version of the secret service. "The question is whether they can come together and fight counterfeiting on a cross-jurisdictional basis," says Greenberg.

The question of jurisdiction promises to become a major sticking point in the fight against counterfeiting. Technically, a crime against the Euro is a crime against all members of the EU, including the United Kingdom, Sweden and Denmark, which have not adopted the currency. That means a Portuguese counterfeiting Euros in Portugal could be prosecuted in all 15 EU countries. Not a likely scenario, but it raises concerns about differences in the criminal laws of the member states. According to Vervaele, in some countries, like Italy, defendants can be convicted without being present during trial, which has been the case in several Mafia convictions. That's not considered due process in Spain. Therefore, if an Italian counterfeiter is convicted in absentia in Italy and shows up in Spain, says Vervaele, Spanish authorities will refuse to make an arrest. In addition, if an Italian is convicted in another European country, but somehow escapes home to Italy, he or she may avoid prison time, because Italy doesn't extradite its own nationals.

Overcoming those fundamental differences in law may take years, if it happens at all. In the meantime, counterfeiters are expected to take advantage of whatever loopholes discrepancies among European judiciaries provide. With that in mind, European courts are looking at ways to quickly resolve some of the more superficial legal differences. For example, EU members are working on harmonizing the length of sentences for counterfeiting crimes.

But tightening cooperation among police and the courts within the EU may not be enough to fight money fraud, because counterfeiters of the Euro may not necessarily be operating in Europe. In fact, law enforcement officials say much of the counterfeiting activity as well as the circulation of fake Euros is likely to take place in Asia, which takes the scope of the problem to a whole new level.

European police authorities will have to work closely with foreign governments and with Interpol--the international equivalent of Europol--to monitor counterfeiting and exchange information on suspects.

A major obstacle to cooperation, which Interpol has noted, lies in the EU's strict data protection rules that complicate the sharing of information.

"Europol has to recognize data protection regulations within the countries we're dealing with," says Porter. "That's a difficult obstacle to overcome."

With all the challenges to law enforcement associated with the currency introduction, EU officials hope security features embedded in the new banknotes will help minimize the extent of counterfeiting. The Euro is one of the most difficult currencies to duplicate, according to the European Central Bank.

"The banknotes being issued are state of the art," says ECB spokesman Niels Bunemann. "They will include security features of the most efficient type." Those features include a watermark, a security thread, a hologram, and special inks. The paper and print will also have certain "tactile properties," which are supposed to help people feel the difference between real bills and fakes.

More details on the security features will become available in September, when the ECB will launch a massive advertising campaign to raise public awareness about the new currency. The bank is purposely delaying the campaign in an effort to give criminals as little time as possible to use the information to produce forgeries--an idea Greenberg finds absurd. "That's a very na?ve approach," he says. "The counterfeiters don't need much more than a day." Efforts to increase public awareness take time, he argues, and need to be in place well in advance of the launch. "You can't stop counterfeiting," he says. "What you want to do is minimize its ill effects. You want small business owners to be able to identify counterfeit money. I don't know if you can do that in 120 days."

Europol insist there has not been a single documented case of counterfeiting of the Euro. Two years ago, police in Sicily arrested seven people accused of planning to forge the currency. But apparently awaiting the final designs of the bank-notes, the suspects had not begun manufacturing. As those designs become available to the public, counterfeiters are likely to get to businesses immediately. And experts say it doesn't take a major operation to produce decent forgeries. "With a quality scanner and a printer you can do a great deal," says Greenberg. The most difficult part, he says, is getting hold of the right paper. But if people aren't familiar with the texture of the new bills, "you may even be able to fake out the paper."

Those are dangerous prospects for a currency that is emblematic of the very success of European integration. Amid currency speculation, fears of a recession, and what other economic threats the Euro may encounter in the global marketplace, the EU leadership is desperate to instill and maintain trust in the new currency. Under such circumstances, some worry attacks from criminals could spin the project out of control. Counterfeiting alone will not erode public confidence in the currency, says Vervaele. "But if there's no trust in the Euro," he adds, "then counterfeiting will not help the situation."