currency, financial instruments, accounts

This page considers forgery and fraud relating to currency, financial instruments (such as bonds and cheques) and accounts.

It covers -

• introduction
• state forgery
• political counterfeiting
• responses
• how much phony paper?
• cheque forgery
• credit card fraud
• frequent flyers
• cooking the books
• property deeds and securities
• postage stamps

Questions about exchange and currency in the digital environment are explored in the Money guide elsewhere on this site.

     introduction

For many people forgery equates to counterfeiting. In 2004 criminals try to be cute with digital scanners, colour photocopiers and bits of foil; two millennia ago they forged their own coins or 'improved' existing currency. Pre-industrial forging is discussed in Classical Deception: Counterfeits, Forgeries & Reproductions of Ancient Coins (London: Kraus 2001) by Wayne Sayles.

The invention of paper currency - banknotes, bills of exchange, cheques - offered new opportunities. Randall McGowen suggests that one-third of all the capital statutes passed in the UK between 1700 and 1830 dealt with forgery.

That is illustrated in The Perreaus and Mrs. Rudd: Forgery and Betrayal in Eighteenth-Century London (Berkeley: Uni of California Press 2001) by Donna Andrew & McGowen, supplemented by his 'Making the 'bloody code'? Forgery legislation in eighteenth-century England' in Law, Crime & English Society, 1660-1830 (Cambridge: Cambridge Uni Press 2002) edited by Norma Landau. The Perreaus also feature in Sarah Bakewell's The Smart: The True Story of Margaret Caroline Rudd & the Unfortunate Perreau Brothers (London: Chatto & Windus 2001).

Andrew Motion's factive Wainewright the Poisoner:The Confessions of Thomas Griffiths Wainewright (London: Faber 2000) and James King's Faking (Toronto: Simon & Pierre 1999) offer accounts of TG Wainewright, sometime Australian colonist, forger and recurrent murderer.

Unauthorised manufacture of currency continues. In 2004 for example a raid by the UK National Crime Squad uncovered about £170,000 worth of €50 notes and printing equipment. Europol, the European Union's police agency, helped dismantle 20 clandestine print shops in 2003, with one raid involving seizure of 22,000 counterfeit notes. In 2006 Colombian authorities raided two private residences in Bogota, seizing a printing machine, printing plates and an estimated $650,000 in almost completed Australian $100 notes along with 8,000 sheets of partially printed polymer (with a potential face value of $5 million). During the following year an international counterfeiting gang tried to con the Bank of England out of £28 billion with 'special issue' £500,000 notes (which had never existed) and thousands of forged £1,000 notes (a denomination that had not been legal tender for over 60 years).

     state forgery

Damage to an enemy's economy through counterfeiting under official auspices has been a feature of warfare throughout history.

Milan sought to undermine Venice by debasing the Venetian ducat from 1470 to 1476. Napoleon counterfeited Austrian and Russian notes. Frederick the Great had earlier dumped several counterfeit currencies on his opponents in the Seven Years' War. During the US struggle for independence the UK counterfeited Continental currency to the extent that it became worthless, reflected in the expression "not worth a Continental".

The UK went on to counterfeit French Assignats in the 1790's. During the US Civil War the North and South sought to print each other's notes, supposedly inspired by Mexico's counterfeiting of Texan notes during the 1846 War.

The 1914-18 War was marked by British counterfeiting of Ottoman currency, with indifferent success. In 1926 Hungarian notables such as the Budapest Chief of Police and Prince Ludwig Windisch-Graetz were arrested after revelation that they had been involved - with tacit endorsement by the government - in manufacturing 30 billion counterfeit French francs, allegedly either to finance a Habsburg coup or gain vengeance on France for territorial losses through the Treaty of Trianon. The embarrassment was followed by the 1929 International Convention for the Suppression of Counterfeiting Currency (here).

During the 1939-45 War Germany's 'Operation Bernhard' involved production of bogus Allied notes by slave labour in the Sachsenhausen concentration camp, equivalent to US$7 billion in today's currency. Notably, prisoners in concentration camps - such as Salomon Smolianoff - were used to forge more pound notes than those in the vaults of the Bank of England, equal to about 15% of all genuine UK notes in circulation.

Berhard is described in Anthony Pirie's Operation Bernhard (New York: William Morrow 1962) and Krueger's Men: The Secret Nazi Counterfeit Plot and the Prisoners of Block 19 (London: Little Brown 2006) by Lawrence Malkin. The US and UK counterfeited the Reichsmark.

It has been alleged that the US subsequently sought to destabilise the Castro regime by producing Cuban pesos for distribution as part of the Bay of Pigs invasion and printed North Vietnamese dong. More recently, North Korea has been accused of counterfeiting US dollars.

Alves Reis, profiled in The Man Who Stole Portugal (London: Secker & Warburg 1967) by Murray Teigh Bloom, forged documentation in 1924 authorising printing of Portuguese banknotes equivalent to US$125 million. That fraud - one of the masterpieces of social engineering - involved use of the same English printer who printed the authorised Portuguese notes, with the same paper, plates and ink. The proceeds of Reis' scam allowed him to become the largest depositor in some Portuguese banks, owner of the Bank of Angola & Metropole and - before unexpected disclosure - a serious contender for control of the Bank of Portugal. Teigh Bloom is also responsible for Money of Their Own: The Stories of the World's Greatest Counterfeiters (New York: Scribners 1957)

Forgery by governments is explored in Currency Wars: Forging Money to Break Economies (London: Constable 2008) by John Cooley.

Stephen Jory (1949-2006), head of the so-called Lavender Hill mob in the UK, served time in prison for what was described as a "£300m international perfume fraud" and counterfeited UK notes, eventually admitting to manufacture of £50 million worth of counterfeit £20 notes (some of which featured a watermark in which Elizabeth II appeared to have a beard). He provided an engaging account in Loadsamoney: The True Story Of The World's Largest Ever Counterfeiting Ring (London: Trafalgar Square 2005).

     political counterfeiting

What better way to fund a revolution than to print your own currency?

In 1848 Hungarian activists in London counterfeited Austrian notes. In 1896 Frederico Mora used the Spanish-American Printing Company in New York to manufacture US$1 million of Costa Rican notes for a coup against president Iglescias. The plan failed when customs officials discovered the loot hidden in a sofa.

Thirty years later Austrian royalist Ludwig Windischgraetz organised printing of 100 million French Francs to finance restoration of the Habsburgs to the throne of Hungary.

     responses

Government responses to counterfeiting have essentially taken three forms -

• elaboration of legislation, often with capital punishment provisions
• adoption of new technologies such as watermarks, thread paper and polymer-based notes - discussed in more detail here
• establishment of anti-counterfeiting agencies to enforce the regime.

David Johnson's Illegal Tender: Counterfeiting and the Secret Service in Nineteenth-Century America (Washington: Smithsonian Institute Press 1995) notes that during the US Civil War up to 40% of the notes in circulation were counterfeit. That is unsurprising given the absence of a central bank and the enthusiasm with which over 1,200 banks issued their own notes, much of which approached the status of a private currency and like many private currencies had limited acceptance. A response under President Lincoln was creation of a national currency, underpinned by the establishment of the Secret Service as the federal agency responsible for protecting the integrity coins and notes.

An Australian perspective is provided by Willibald Kranister's The Money Makers international (Cambridge: Black Bear Publishing 1989) and Les Coventry's 1998 Australia's Counterfeiting Experience (PDF), highlighting the move to polymer-based notes after a counterfeiting scare in the 1960s following introduction of decimal currency.

     how much phony paper?

In 1994 the US Treasury estimated that US$208.7 million of the US$380 billion of notes in circulation was counterfeit, with foreign-produced notes representing around 66% of total counterfeits in circulation detected domestically.

Ten years later 58,807 counterfeit Scottish banknotes - with a notional value of £1,166,724 - were discovered and removed from circulation (down from 106,335 in 2002, 31,287 in 2003 and 65,363 in 2001. The number of counterfeit notes represented 0.016% of the 367,874,146 genuine Scottish banknotes on issue at the end of 2004. During the same year the Japanese government reported detection of around 30,000 fake notes, out of over ten billion Japanese banknotes in circulation. In 2004 Canadian authorities seized some 552,980 notes with a nominal value of C$12.96 million.

     cheque forgery and fraud

Cheque forgery and fraud takes a variety of forms, from counterfeiting forms to faking signatures.

The vast numbers of cheques in circulation (particularly in jurisdictions such as the US, where consumers have proved more resistant than Australian counterparts in uptake of electronic payment systems and where there are over 70 billion cheques each year from a large number of cheque-issuing institutions) means that counterfeiting of cheque forms (eg by using scanners and digital printers) still occurs. Theft of unused cheque books, in particular through the post, with forgery of the account holder's signature, also occurs.

Forgers have been known to alter legitimate cheques, eg by using solvents or mechanical erasors to remove information that is then replaced with new payee details: one reason why you shouldn't use pencil on a personal or commercial cheque.

More crudely, some criminals exploit lax record-keeping, with forgers for example using cheques from inactive accounts. Incidents of identity theft have involved criminals opening personal or corporate accounts (using legitimate or forged official documentation), receiving a cheque book which is then used to defraud people and organisations. The individual whose identity was stolen has in some instances had significant difficulty repairing a damaged reputation.

Estimates of the prevalence and significance of cheque fraud vary. The American Bankers Association reported in 2000 that there were US$679 million actual losses and US$1.5 billion potential losses in the preceding year. Ian Woods' 1998 paper Fraud & the Australian Banking Industry (PDF) suggests that comparable Australian figures haven't been disclosed.

Insights are offered by Edward Potter's Customer Authentication: The Evolution of Signature Verification in Financial Institutions (PDF).

In 1840 the London Times exposed a million pound plot to defraud continental bankers by forged lettres circulaires (letters of credit) purportedly issued by the Glyn, Mills bank. The scheme involved the Marquis de Bourbel, Baron Louis d'Arjuzon and Cunningham Graham ("an anonymous partner in the house of Bogle, Kerrich"). Allan George Bogle sued John Joseph Lawson, printer and publisher of the Times, for defamation. The result of Bogle v Lawson was that Bogle was awarded a derisory one farthing damages.

     credit card fraud

In 2001 we noted one of the Financial Times's more mordant articles claiming that "online credit card fraudsters were almost as rare as profitable dotcoms last year".

Online credit card losses in the EU in 2000-01 rose £2m to £7m, an unexpectedly small proportion of the near-£300m total fraud losses, witha slower growth rate than other types of card swindles. Canadian authorities reported that around 50.4 million credit cards were in circulation at the end of fiscal year 2003, with overall losses of around C$200 million for the twelve-month period ending December 2003.

Europay, the Mastercard's European arm, had forecast that 6% of all EU card fraud was internet-related. The UK-based Association for Payment Clearing Services (APACS) dissented, saying that internet fraud "is not a very serious issue" and the biggest losses now come from organised crime. The rise in old-world postal theft of cards, at £2.7m, outstripped the increase in internet fraud.

APACS spokesman Richard Tyson-Davies said the involvement of organised gangs had led to "frightening" losses from counterfeiting of cards. £102.8m went to swindlers copying cards in 2000, more than double that in 1999.

We had expected a bigger figure from the internet ... The figure is not a lot out of line with what we guess turnover in the sector increased by. There are other things we really need to concentrate on.

Caribbean-based pornography websites, which generated half of the online fraud, are being targeted in an effort to improve internet security. APACS members are also investing heavily in counterfeit-resistant 'smart' cards. Visa for example has accelerated its plans to introduce chip cards throughout Europe, investing £107m to subsidise replacement of terminals and upgrade bank systems by 2003.

The report is in line with The Phantom Menace document and other government reassurances highlighted in our Security & Infocrime guide.

     frequent flyers

Currency surrogates such as frequent flyer schemes have also attracted forgery and fraud.

In a 2003 example Satbal Singh, a check-in agent at Heathrow airport, 'siphoned' five million air miles from passengers. He established 13 bogus accounts in his own name, adding the free air miles of Air Canada, Virgin Atlantic and other airlines when their passengers checked in. Apart from his own travel, Singh converted some miles to tangibles such as cameras, provided trips for associates and apparently sold some of the miles.

     cooking the books

The very clever accountants at Enron had an almost magical ability to make troublesome numbers move from one column to another or transmute negatives into positives. We should all be so lucky, particularly at tax time. Some past financial scandals had simpler foundations, based on pen, ink, photocopiers and the observer's willingness to believe.

One example was US derivatives group Equity Funding, whose employees dealt with pesky auditors by manufacturing fake insurance policies and other documentation - all carefully filled out by different people and using different pens. It is lovingly described in The Great Wall Street Scandal (New York: McGraw-Hill 1974) by Raymond Dirks & Leonard Gross and The Impossible Dream: The Equity Funding Story, the Fraud of the Century (New York: Putnam 1975) by Ronald Soble and Robert Dallos.

US carpet cleaning to insurance group ZZZZ Best (founded by 16-year old Barry Minkow) went public in 1986 with a market capitalisation of US$200 million. Its staff responded to pre-flotation financial wobbles by whiting out "inconvenient" parts of legitimate bank statements and then inserting new numbers, names and addresses before photocopying the documents for provision to the auditors. Those auditors who requested confirmation from the new addresses duly received the requisite data. As Joe Domanick notes in Faking it in America: Barry Minkow and the Great ZZZZ Best Scam (New York: Contemporary Books 1989) over 22,000 documents had been 'massaged'. The fraud is also discussed in Daniel Akst's Wonder Boy: Barry Minkow (The Kid Who Swindled Wall Street) (New York: Scribner's 1990).

Michael Marion Emil Anacletus Pierre Savundranayagam (aka Emil Savundra) (1923-1976) engaged in shipping frauds and dodgy arms deals in Ceylon before swindling the Kredietbank of Antwerp in 1954 over a non-existent cargo of rice. After a spell in prison he posed as an economic saviour of Ghana in 1958, was deported only to perpetrate a coffee bean swindle on the Costa Rican government in 1959. He formed the Fire, Auto & Marine Insurance Company (FAM) in 1963. Although he was consistently dishonest an aggressive use of UK libel law gave him "indispensable protection" when he forged government securities worth £540,000 and invented £870,000 of 'blue-chip' shares while shipping FAM's assets to his bank in Liechtenstein. Savundra sold his FAM shares in 1966: the company collapsed within days, leaving 400,000 motorists uninsured. He is profiled in Fraud: The Amazing Career of Dr Savundra (New York: Stein & Day 1979) by Jon Connell & Douglas Sutherland.

High profile Ontario lawyer Julius Melnitzer - famous for a lavish party, complete with C$100 bottles of champagne, to celebrate the birthdays of his dogs - manufactured over C$100 million of share certificates bearing blue-chip names such as Exxon, using them to secure C$67 million loans from several banks. He had persuaded a printing company to make the certificates, claiming they were for use in an upcoming trial. Having been sprung, in 1992 he pleaded guilty to 43 counts of fraud.

     deeds and securities

US forger James Reaves (1843-1914) manufactured land titles, letters, diaries and other documents in support of increasingly preposterous claims to ownership of what is now Arizona. His career is explored in Donald Powell's The Peralta Grant: James Addison Reavis and the Barony of Arizona (Norman: Uni of Oklahoma Press 1960).

Oscar Hartzell (1876-1943), a precursor of contemporary 419 email scammers, claimed to be heir to the vast fortune of Elizabethan explorer Sir Francis Drake, persuading several thousand naive (or merely greedy) US citizens to hand over money for 'legal fees' that would unlock the supposed Drake estate. He features in Drake's Fortune: The Fabulous True Story of the World's Greatest Confidence Artist (New York: Doubleday 2002) by Richard Rayner.

Imposter 'John Lindsay Crawfurd' appeared after the 1808 death of the 22nd Earl of Crawfurd and 6th Earl of Lindsay, claiming that he was the legitimate heir with precedence over the late earl's sister Lady Mary Crawfurd. The pretender and accomplices forged documents to substantiate his claims; unfortunately a falling out saw saw members of the gang cash in by revealing the truth to Lady Mary. Crawfurd and James Bradley were sentenced to fourteen years' transportation, arriving at Botany Bay in 1813. He obtained release in 1820.

1920s 'match king' and telecommunications magnate Ivar Kreuger, whose dizzying financial manipulations are described in Robert Shaplen's Kreuger, Genius and Swindler (New York: Knopf 1960) and Karl-Gustav Hildebrand's Expansion, Crisis, Reconstruction: The Swedish Match Company, 1917-1939 (Stockholm: Liber Tryck 1985), forged US$142 million of Italian government bonds in an effort to shore up a conglomerate that encompassed Ericsson and Electrolux along with global timber and match interests.

More recently Brian Sherry claimed to be the 'administrator' of the fictive Badische Trust, supposedly granted a 'special deed of trust' by 'His Majesty King Henri Francois Mazzamba, Sovereign Ruler of the Kingdom of Mombessa' and thus worth a mere US$50 billion ... if only the administrator could find a few dollars for those final legal fees. He collected US$3 million before spending time in a New York prison.

Australian financial specialist William Wallader appeared in Brisbane District Court on charges of trying to sell counterfeit Turkish government bonds with a nominal $US900 billion. The bonds had "numerous spelling and grammatical errors" and were reportedly printed on a standard inkjet printer.

     postage stamps

For consumers in advanced economies it is axiomatic that postage stamps for day to day use - in contrast to stamps as collectibles - are not forged. That perception reflects the low value of stamps and expectations that a crude forgery would be detected by the post office, which would refuse to deliver the letter/parcel that features the forgery.

Experience in developing economies may be different. Russell Smith for example notes (PDF) that between August and November 1998 Australia Post confiscated 4.5 tonnes of advance fee correspondence (1.8 million items) from Nigeria and other countries that had counterfeit postage.





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