India’s encounter with counterfeit currency
Demonetisation and introducing new currency notes have so far yielded meagre result in war against terrorism.
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.
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.