In­dia’s en­counter with coun­ter­feit cur­rency

De­mon­eti­sa­tion and in­tro­duc­ing new cur­rency notes have so far yielded mea­gre re­sult in war against ter­ror­ism.

Alive - - News - By De­bamoy Ghosh

In­dia’s fight against coun­ter­feit cur­rency has shown the world a di­rec­tion to counter fi­nan­cial ter­ror­ism. Even so the in­ci­dents of Fake In­dian Cur­rency Note (FICN) de­tec­tion and seizure in the coun­try’s bank­ing chan­nel have touched an alarm­ing high.

Our pol­icy mak­ers had to ac­cept an un­com­fort­able re­port pub­lished by Fi­nan­cial Ac­tion Task Force (FATF) in 2013 that the In­dian Ru­pee (INR) had be­come one of the most coun­ter­feited cur­ren­cies in terms of its value and num­ber. The re­port of FATF was an em­bar­rass­ing statis­tics for Gov­ern­ment and Re­serve Bank of In­dia (RBI).

So a rapid counter ter­ror­ism mech­a­nism had to be launched through law en­force­ment and in­tel­li­gence agen­cies. Af­ter four years from FATF re­port, it can­not be said that na­tion has suc­cess­fully ad­dressed the ‘cur­rency set­back’, as coun­ter­feit­ing has taken a large shape in com­par­i­son with ear­lier sce­nario, but gov­ern­ment’s des­per­ate ac­tions against emerg­ing threat of cross-bor­der fi­nan­cial ter­ror­ism have started pro­duc­ing re­sis­tance. Sleuths of top-class In­dian in­tel­li­gence agen­cies – Na­tional In­ves­ti­ga­tion Agency (NIA), Direc­torate of Rev­enue In­tel­li­gence (DRI), Fi­nan­cial In­tel­li­gence Unit-In­dia (FIU-In­dia) and In­tel­li­gence Branch (IB) have

busted many rack­ets from dif­fer­ent parts of the coun­try, but they be­lieve it was only the tip of ice­berg that they have touched.

Fright­en­ing num­bers

The FATF re­port had pointed out that In­dia was ninth among the ten most vul­ner­a­ble coun­tries in terms of coun­ter­feit­ing by dif­fer­ent coun­tries.

In­dia also had come third among top ten coun­tries in terms of num­ber of the notes re­ported as coun­ter­feit by dif­fer­ent coun­tries.

Back home, statis­tics from our own agen­cies will also not give you a mere re­spite. The de­tec­tion of coun­ter­feit cur­rency in bank­ing chan­nel is tech­ni­cally de­fined as Coun­ter­feit Cur­rency Re­port (CCR), which sug­gests it was 8580 in 2007-08. This num­ber dras­ti­cally in­creased to 353837 in 2014-15 – till the last re­port came in.

The CCR was made on the ba­sis of re­ports sent by all the pub­lic, pri­vate and for­eign banks in In­dia to FIU-IND. The bank­ing in­sti­tu­tions are man­dated to send re­port to FIU un­der Prevention of Money Laun­der­ing Act (PMLA). How­ever, CCR does not fur­nish the amount of FICN which has been de­tected.

The lat­est re­port shows that the FIU re­ceived a to­tal of 58646 Sus­pi­cious Trans­ac­tion Re­ports (STRs) -- most of which are made for fund­ing ter­ror­ism, par­tic­u­larly cross-bor­der ter­ror­ism. The sleuths an­a­lyse these trans­ac­tions, which were found dur­ing 2014-15 from all types of banks, fi­nan­cial in­sti­tu­tions like in­sur­ance com­pa­nies and stock bro­kers, non­fi­nan­cial busi­nesses, pri­vate lock­ers and pro­fes­sion like casi­nos and oth­ers.

In­ves­ti­ga­tors are also con­cerned about Cross-Bor­der Wire Trans­fer up to the value of Rs 5 lakh and above or its equiv­a­lent for­eign cur­rency, where ei­ther the ori­gin or des­ti­na­tion of fund is In­dia. In 2014-15, FIU re­ceived over Rs 3.4 lakh Cross-Bor­der Wire Trans­fer Re­port (CBWTR).

A study of RBI Working Pa­per Series in 2013 – Es­ti­ma­tion of Coun­ter­feit Cur­rency Notes in In­dia – Al­ter­na­tive Method­ol­ogy by San­joy Bose and Ab­hi­man Das, two direc­tors in the depart­ment of Statis­tics and In­for­ma­tion Man­age­ment, Re­serve Bank of In­dia has re­vealed more sta­tis­ti­cal fea­tures of coun­ter­feit­ing.

They said in their re­port: “Per­sis­tent stock of cir­cu­lat­ing coun­ter­feits with an in­creas­ing trend in a dis­persed man­ner is the bane for the in­tegrity of the cur­rency note, coinage sys­tem and pay­ment sys­tem stan­dards. But, there is lot of un­cer­tainty about the ac­tual level of coun­ter­feit­ing, which at times gets height­ened be­cause of ru­mours.”

Bose and Das also ad­mit­ted that it was ac­tu­ally a dif­fi­cult task to de­ter-

mine the pa­ram­e­ter on the ex­tent of coun­ter­feit­ing in In­dia. Only data avail­able in pub­lic do­main are the num­bers of the coun­ter­feits re­cov­ered or de­tected in the bank­ing sys­tem in­clud­ing the note pro­cess­ing sys­tem of RBI, which are pub­lished reg­u­larly in RBI an­nual re­ports.

Af­ter 2007-08, how­ever RBI has stopped dis­sem­i­nat­ing statis­tics on coun­ter­feit­ing by de­nom­i­na­tions. So, for re­cent pe­riod, one can only an­a­lyse the ag­gre­gate num­bers, Bose and Das have sug­gested in their study.

By ex­am­in­ing the data on coun­ter­feit­ing re­ported through the bank­ing chan­nel, one can ac­cess the threat to some ex­tent only, but quan­ti­ta­tively it could be an un­der­es­ti­mate of the re­al­ity.

Vol­ume of fake cur­rency

RBI an­nual re­ports sug­gest that to­tal num­ber pieces of coun­ter­feit cur­rency notes de­tected in coun­try’s bank­ing chan­nel (from March to April) were 488273 in 2013-14. It was 594446 in 2014-15 and 632926 in 2015-16. These fig­ures do not in­clude coun­ter­feit notes seized by the law en­force­ment agen­cies, in­tel­li­gence, BSF and po­lice.

How­ever, the above chart may not con­sti­tute a cred­i­ble es­ti­mate as it does not give a fair idea about the ac­tual in­ci­dence of coun­ter­feit­ing that re­mained float­ing and un­de­tected in the sys­tem.

An­other key fea­ture is the emerg­ing trend in in­creased share of high de­nom­i­na­tion coun­ter­feit cur­rency – Rs 2000 (in re­cent times) and old 1000 and 500 ru­pee notes which are now de­funct, have been re­cov­ered in the bank­ing chan­nel. The pro­por­tion of old 1000 and 500 ru­pees coun­ter­feit notes were in­creased from 0.12 per cent in 2003-04 to 5.17 per cent in 2007-08.

Over one third of coun­ter­feit de­tected in the bank­ing chan­nel in 200708 were in the de­nom­i­na­tions of old notes of Rs 500 and Rs 1000 – be­came one of the real rea­sons for Naren­dra Modi gov­ern­ment’s de­mon­eti­sa­tion.

The lat­est RBI re­port shows that coun­ter­feit old 500 ru­pee was 273923 in pieces in 2014-15 and then the num­ber had de­creased to 261695 in 2015- 16. The old 1000 ru­pee note was 131190 in pieces in 2014-15 which later had in­creased to 143099 in 2015-16. The to­tal num­ber of coun­ter­feit de­tected in 2014-15 was 594446 in pieces and it was 632926 in 2015-16.

All these fig­ures are cal­cu­lated from the collaborative statis­tics gath­ered from coun­try’s bank­ing chan­nel. These num­bers do not in­clude coun­ter­feit seized by po­lice.

The re­searchers of­ten say that the re­cent world­wide ad­vance­ment of print­ing tech­nol­ogy has greatly aided pro­duc­tion of coun­ter­feit notes. This tech­no­log­i­cal ad­vance­ment has been in­creas­ingly pos­ing chal­lenge to the cur­ren­cies across the world, In­dia is not the ex­cep­tion. This form of ‘fi­nan­cial ter­ror­ism’ has greatly poses threat to the fi­nan­cial sys­tem of the coun­try. The gov­ern­ment and RBI have taken var­i­ous steps against the coun­ter­feit­ing, but it seems a lot more to do.

A re­cent study – Es­ti­ma­tion of the Quan­tum of FICN in Circulation, con­ducted by the In­dian Sta­tis­ti­cal In­sti­tute (ISI) Kolkata along with Na­tional In­ves­ti­ga­tion agency (NIA), which has asked the gov­ern­ment to take im­me­di­ate steps against coun­ter­feit­ing as this num­bers are only in­dica­tive of the ex­tent of the men­ace. Their find­ings have been ac­cepted by the Min­istry of Home Af­fairs (MHA).

The study of ISI Kolkata pointed out that FICN worth Rs 70 Crore are in­serted into the In­dian mar­ket ev­ery year. But law en­force­ment agen­cies have only man­aged to in­ter­cept only one-third of them. The study also re­vealed that 250 in ev­ery 10 lakh notes in circulation are fake and Rs 400 Crore worth of such fake cur­rency is in circulation.

The fake 1000 ru­pee notes alone were cap­tur­ing the 50 per cent of the to­tal value of FICN. The rate of de­tec­tion of fake 100 and old 500 ru­pee notes were al­most same and their de­tec­tion rate was col­lec­tively 10 per cent higher than the de­tec­tion rate of ru­pees 1000 in the pre-de­mon­eti­sa­tion pe­riod.

There is an­other as­pect of coun­ter­feit­ing to take into ac­count. The de­fec­tive notes which were mis­tak­enly printed and cir­cu­lated by RBI are also taken as coun­ter­feit cur­rency. Ac­cord­ing to some media re­ports, pub­lished in 2016, RBI had re­port­edly ad­mit­ted that it had printed Rs 30,000 Crore worth of Rs 1000 cur­rency notes without the sil­ver thread. It was also re­vealed in those re­ports that notes worth Rs 10,000 Crore had al­ready been cir­cu­lated.

It was the sec­ond time that the cen­tral bank had printed faulty cur­rency notes. In 2015, Comptroller and Au­di­tor Gen­eral (CAG) of In­dia had re­vealed that the Se­cu­rity Print­ing and Mint­ing Cor­po­ra­tion of In­dia Lim­ited had been print­ing Rs 20, Rs 100 and Rs 500 de­nom­i­na­tion notes with for­mer gov­er­nor Duvvuri Sub­barao’s sig­na­ture in 2014 af­ter he had re­tired from the or­gan­i­sa­tion.

The mul­ti­ple vari­ants of new notes of Rs 500 have re­cently sur­faced. Although RBI has said that it is print­ing mis­take due to rush and peo­ple could use these notes or re­turn them to RBI.

De­mon­eti­sa­tion: A mas­ter­stroke or big blun­der?

We should start dis­cussing this topic men­tion­ing Prime Min­is­ter Naren­dra Modi’s words, which he had said on 8 Novem­ber 2016, while ad­dress­ing the na­tion to an­nounce de­mon­eti­sa­tion.

This is what PM had said: “Ter­ror­ism is a fright­en­ing threat, so many have

PRINTED FAULTLY RBI had re­port­edly ad­mit­ted that it had printed Rs 30,000 Crore worth of Rs 1000 cur­rency notes without the sil­ver thread. It was also re­vealed in those re­ports that notes worth Rs 10,000 Crore had al­ready been cir­cu­lated.

lost their lives be­cause of it...En­e­mies from across the bor­der are run­ning their op­er­a­tions us­ing fake cur­rency notes.”

Peo­ple close to the devel­op­ment of­ten say that the strate­gist PM had played a mas­ter­stroke phas­ing out high value notes to pro­claim war against Pak­istan-backed fi­nan­cial ter­ror­ism. The low-in­ten­sity war by the en­e­myneigh­bour has been pinch­ing In­dian econ­omy for a decade.

De­mon­etis­ing old cur­rency notes of Rs 1000 and Rs 500 will leave the ter­rency ror­ist or­gan­i­sa­tions high and dry. It will also hack down a big por­tion of ter­ror-fund­ing. But it was never too late for the coun­try­men to ask the gov­ern­ment that how se­cured is the newly launched cur­rency notes?

Some media re­port based on high level gov­ern­ment and RBI sources claimed the newly launched Rs 2000 and Rs 500 notes are only look­ing dif­fer­ent by their de­sign fea­tures, but the se­cu­rity fea­tures are ex­actly sim­i­lar with the old notes. The sources also claimed that the de­ci­sion to in­tro­duce the new Rs 2000 and Rs 500 notes was taken only six months be­fore the an­nounce­ment of de­mon­eti­sa­tion.

There was no time to al­ter the se­cu­rity fea­tures, thus only de­sign was changed and the se­cu­rity fea­tures re­mained same as the old notes. Ac­cord­ing to some other media re­ports, chang­ing se­cu­rity fea­tures of the cur­rency note is a huge ex­er­cise and it takes be­tween five to six years. Wa­ter marks, se­cu­rity threads, fi­bre, la­tent image and other things com­prise se­cu­rity fea­tures and these re­quire a cab­i­net nod.

The last time such an ex­er­cise was car­ried out in 2005 when cur­rency notes of all de­nom­i­na­tions with new se­cu­rity fea­tures were in­tro­duced. So gov­ern­ment had no other op­tion to take the short term path to be­fool fi­nan­cial ter­ror­ists across the bor­der, rather to wait five-six years to see the econ­omy erod­ing.

The cur­rency note pa­per comes to In­dia from Ger­many, United King­dom, Swe­den, France and Nether­lands. In 2015, MHA has black­listed a Ger­man firm from sell­ing bank note pa­per to RBI af­ter it was found that the com­pany was also sell­ing same note pa­per to Pak­istan.

The min­istry had strong ev­i­dence that the high qual­ity fake In­dian cur- notes were be­ing pro­duced in Pak­istan’s gov­ern­ment-run mint and pumped into In­dian mar­ket through Gulf coun­tries via Malaysia, Thai­land, Myan­mar, Bangladesh, Nepal, Sri Lanka and Viet­nam. The avail­abil­ity of com­mon sup­plier could be one of the rea­sons be­hind coun­ter­feit­ing.

In 2011, an UK-based firm came un­der the scan­ner af­ter the com­pany had ad­mit­ted that it had sup­plied pa­per that failed to meet cer­tain qual­ity spec­i­fi­ca­tions. In­dia had also black­listed two Euro­pean firms in 2014 amid re­ports by se­cu­rity agen­cies that the se­cu­rity fea­tures on bank note pa­per, were com­pro­mised and pro­vided to Pak­istan.

It was de­cided that all the new Rs 2000 notes would be pro­duced in In­dia and the Bank Note Pa­per Mill In­dia Pri­vate Lim­ited (BNPMIPL) in Mysuru, which started func­tion­ing in 2015 was given the re­spon­si­bil­ity for pro­duc­tion.

Curb­ing ter­ror fund­ing

Crit­ics say de­mon­eti­sa­tion has un­de­ni­ably pro­duced a se­vere blow to the black money, cor­rup­tion, tax eva­sion, but ter­ror­ism has largely re­mained un­af­fected. Above all, the en­emy-neigh­bours will soon repli­cate the new vari­ants of cur­rency which will boost their con­fi­dence. These new notes only have a dif­fer­ent look com­pare to the older notes but the mech­a­nism of pre­par­ing INR re­mains un­changed.

Thus, de­mon­eti­sa­tion has proven to be a costly game only to change the colour vari­ant of the cur­rency note. It is ei­ther an eye­wash or the gov­ern­ment has driven by a hasty and ar­bi­trary de­ci­sion and un­doubt­edly com­mit­ted a big blun­der.

The ter­ror fi­nanc­ing can be seg­re­gated into two cat­e­gories. The tac­ti­cal part is fund mo­bil­i­sa­tion which is needed for car­ry­ing out an op­er­a­tion. The crit­ics ar­gue that the de­mon­eti­sa­tion will be un­able to stop these funds gen­er­at­ing as ter­ror op­er­a­tions come in un­be­liev­ably cheap rates.

It can eas­ily be funded by the le­git­i­mate re­sources like the neigh­bouren­emy’s own ex­che­quer. A ter­ror at­tack like 26/11 in Mumbai can be com­pleted

WHAT PM MODI SAID... Ter­ror­ism is a fright­en­ing threat, so many have lost their lives be­cause of it...En­e­mies from across the bor­der are run­ning their op­er­a­tions us­ing fake cur­rency notes.

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