“Counterfeit Currency – Terrorism & Economic threat – Security Perspective
Counterfeiting of money is one of the oldest crimes in history. It was a serious problem during the 19th century when banks issued their own currency. At the time of the Civil War, it was estimated that one-third of all currency in circulation was counterfeit. At that time, there were approximately 1,600 state banks designing and printing their own notes. Each note carried a different design, making it difficult to distinguish the 4,000 varieties of counterfeits from the 7,000 varieties of genuine notes. The circulation of counterfeit currency poses a serious threat to national economies, financial institutions and consumers worldwide. It fuels the underground economy and finances the activities of organized criminal networks and terrorists. A strong network of partnerships between the law enforcement community and the private sector is integral to putting effective solutions into place
Traditional counterfeiters in most cases are individuals or a group who counterfeit money for their own profit. But during modern history, states involved in counterfeiting the currency of enemy states to destabilize their economy. During World War II, Hitler initiated “Operation Bernhard” and counterfeited British pounds. As a result Britain had to withdraw most of its currency notes.
Which Society segment undertakes Counterfeiting of money
Terrorist Organizations
Nexalite Groups
Drug Peddlers
Human Traffickers’
Illegal Arms dealers
The common factor in all the above categories is all of them are anti-social, anti- human & anti – national elements.
Economic Impact of Counterfeiting of money
1. A very important behavior of a currency note is the function of it to act as a legal tender. To break it down, Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. In regards to the law a counterfeit currency does not hold the above liability. Hence, it is a sunk cost for every holder or possessor of such a currency
The circulation of such currency will not just increase the circulation of money in the economy but would also decrease the real incomes of household sector of the economy. To illustrate, assume that you receive an income of Rs. 10,000 out of which the counterfeit currency includes four notes of Rs. 1000 denomination each. Now, with the detection of these currencies your real income would be lost by an equivalent amount of Rs. 4,000. This is very bad for the economy as more and more individuals lose their income there'll be a decrease in their disposable income which will lead to lack of spending in the economy
However, running on the assumption that such notes are undetectable and are completely alike to the genuine ones, there'll be an unwarranted increase in the money flow of the economy leading to high rise inflation. Also, there is no correlation whatsoever between the reporting of printing of currency by RBI and Inflation in the economy. There'll be inflation even if RBI does not account for the printing of currency
2. It makes the domestic currency lose out its credibility in the global markets, thereby triggering adverse socio-economic impacts.
Security threats due to counterfeiting of money
Organized crime networks who use counterfeit money to finance illegal activities such as trafficking in human beings and drugs, and even terrorism
Counterfeit currency is also usually associated with Terror Financing-like smuggling, aiding insurgency and left wing extremism, trade in narcotics, psychotropic substances and other contrabands, etc
Counterfeiting of money – security threat – India perspective:
The Financial Action Task Force (FATF) report of 2013 found that the Indian rupee was the ninth most counterfeited currency in terms of its value and stood third in terms of the number of FICN detected around the world. This is a grave concern to India and if not dealt with would have had serious implications as counterfeit currency can reduce the value of the currency and increase inflation.
A. Extent of the problem -
** Nayak Committee, appointed to assess the menace of fake currency, estimated the total amount of fake currency in circulation in India at about Rs 1,69,000 crores as of 2000 (in other words, eight per million were fake).
But, the latest figures could be about Rs 12, 00,000crores, more than seven times in a decade. Statistics on denominations is revealing. According to figures disclosed in Parliament by the Government of India, during the 2006-09, 7.34 lakh of Rs 100 notes, 5.76 lakh of Rs 500 notes and 1.09 lakh of Rs 1000 notes, all fakes, have been seized (a total of Rs. 47.04 crores). This clearly establishes that 100 rupee note is a popular denomination for counterfeiters. The above set of figures is considered only as a “tip of the iceberg” when compared to the total unseized notes that are floating in India. Also, the number of reports (a single report is an instance of counterfeit currency detected) filed by banks and other financial entities on detection of counterfeit currency has increased manifold in the recent years. Overall, the magnitude of the problem is immense.
Number of Counterfeit Currency Incidents Reported
B. Cross-border nexus -
Fake Indian currency notes principally originate from Pakistan, but smuggled through various routes, using different modalities. Directly, smugglers make best use of train services and commercial trucks that run between Pakistan and India to push counterfeits into India. The most popular indirect routes are via UAE, Nepal and Bangladesh. Fake notes from Dubai are transported through air with the help of bonafide passengers or couriers appointed for the purpose. Thailand, Malaysia, Myanmar and Sri Lanka are also used as transit points. International airports in Bangalore, Chennai, Calicut, Cochin, Hyderabad, Mangalore, Mumbai and New Delhi are identified as main landing points of counterfeits from abroad. Porous and weak land borders respectively with Nepal and Bangladesh are utilized by organized gangs to smuggle fake Counterfeiting of money – security threat – India perspective: The Financial Action Task Force (FATF) report of 2013 found that the Indian rupee was the ninth most counterfeited currency in terms of its value and stood third in terms of the number of FICN detected around the world. This is a grave concern to India and if not dealt with would have had serious implications as counterfeit currency can reduce the value of the currency and increase inflation. A. Extent of the problem - ** Nayak Committee, appointed to assess the menace of fake currency, estimated the total amount of fake currency in circulation in India at about Rs 1,69,000 crores as of 2000 (in other words, eight per million were fake). But, the latest figures could be about Rs 12, 00,000crores, more than seven times in a decade. Statistics on denominations is revealing. According to figures disclosed in Parliament by the Government of India, during the 2006-09, 7.34 lakh of Rs 100 notes, 5.76 lakh of Rs 500 notes and 1.09 lakh of Rs 1000 notes, all fakes, have been seized (a total of Rs. 47.04 crores). This clearly establishes that 100 rupee note is a popular denomination for counterfeiters. The above set of figures is considered only as a “tip of the iceberg” when compared to the total unseized notes that are floating in India. Also, the number of reports (a single report is an instance of counterfeit currency detected) filed by banks and other financial entities on detection of counterfeit currency has increased manifold in the recent years. Overall, the magnitude of the problem is immense. currency into India. It is also carried by infiltrators from Pakistan. Making use of weak maritime security, counterfeits have also been routed through sea. Once smuggled, the fake money is exchanged for original notes at roughly 2:1 ratio or even higher. Interestingly, there has been a spurt in fake currency circulation especially since 2006, roughly when Pakistan intensified its proxy war against India**
C. Why all fingers are pointed at Pakistan
1. To distinguish between fake and real currency notes has become increasingly difficult mainly due to the fact that counterfeits are now printed with state of the art technology using security paper that is made available only to state actors. This clearly indicates involvement of government agencies in the neighborhood
2. Pumping fake currencies is one of the sub-conventional warfare strategies pursued by Pakistan against India. The objectives behind are to subvert Indian economy and to fund terror networks
3. According to a Planning Commission Report, “the fake currency enables the adversary to obtain the services of individuals and groups in this country to act against our security interests at very low cost to itself. Once such conduits are established, they are used to push in drugs, explosives, weapons and trained terrorists.”
4. For instance, investigations reveal that Rs 50 million that was incurred by the terrorists to trigger blasts in Hyderabad in 2007 and Rs three million spent on the attack on the Indian Institute of Science, Bangalore, in 2005 were generated mainly through fake currency
5. Apart from security, fake currency poses huge socio-economic problem. Its impact on general crime on society is serious as more and more educated unemployed youth are attracted towards the counterfeit racket.
D. Counterfeiting of money & legal provisions
1. Sec 489(A) of IPC – “Whoever counterfeits, or knowingly performs any part of the process of counterfeiting, any currency-note or bank-note, shall be punished with 2[imprisonment for life], or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.
For the purposes of this section, the expression "bank-note" means a promissory note or engagement for the payment of money to bearer on demand issued by any person carrying on the business of banking in any part of the world, or issued by or under the authority of any State or Sovereign Power, and intended to be used as equivalent to, or as a substitute for money
2. Section 489(B) of IPC-Using as genuine, forged or counterfeit currency-notes or bank-notes.
3. Section 489(C)of IPC-Possession of forged or counterfeit currency-notes or bank-notes
4. Section 489(D)of IPC-Making or possessing instruments or materials for forgoing or counterfeiting currencynotes or bank-notes
5. Section 489(E)of IPC-Making or using documents resembling currency-notes or bank-notes.
Author wish to suggest that these age-old provisions w.r.t. counterfeiting of money in Indian Penal Code needs a revamp and should be made more effective and should be integrated with The Information Technology Act, 2000 – which needs suitable amendment- treating ‘counterfeiting of money’ as cybercrime with severe punishment. Government has taken a positive step by making Money Laundering Act more forcefu
Terrorism – triggered thru’ counterfeiting of money – its Economic impact – India perspective
A theoretical myth that is often committed is viewing terrorism as a political weapon. A deeper look into the subject reveals that the impact of terrorism is more economic than political. Especially in democracies like India, terrorism may shake the foundation of democracy a little but it would take a lot more than that to completely uproot the political structure. What terrorism does successfully though is instil fear and uncertainty and hatred among people and as a result, dampen the economy. World Economic Forum calculated the cost of terrorism to the world to be $52.9 billion in 2014, the highest since 2001, according to the new 2015 Global Terrorism Index. The calculation accounts for the direct (and some of the indirect) costs of terrorism, and is conservative in its approach
As highlighted in the chart, the cost of terrorism reached its highest point in 2014, surpassing the economic impact felt in 2001. This represents a tenfold increase on the figure in 2000, and a rise of $20 billion on the previous year
The economic effects of terrorism have been analysed from two perspectives
Macro perspective
Micro perspective
*****Macro-economic impact of terrorism:
Moody’s Investors service carried out a study to measure the impact of terrorism on several countries and identified four major areas:Country’s economic growth, investment growth, government expenditure and Government cost of borrowing
It took 2013 as its base year of research and came up with the following findings:
These findings are extremely significant.
A country that has been inflicted with terrorism sees its economy affected drastically.
The drop in investment is a natural effect as foreign investors fear pumping money into a country that is terrorism prone and as a result, is susceptible to economic breakdown. Thus, there is a significant decline in FDI’s as well as FII’s immediately after a terrorist even
Next is the rise in government expenditure. The government has to divert its funds from welfare and growth related projects towards rebuilding and restoring damaged infrastructure
Some expenditure is required on the care of those injured and suffering traumas due to lost family members
A worthwhile investment for the government is also in improving its defence and security along with intelligence gathering capability. Thus, because of increased government expenditure in non-growth related areas, economic growth of the country slips
Another effect is felt in the stock market. After the terrorist attacks in 2008, for example, BSE had to be closed down entirely for a day. Surprisingly on the next day, markets flared up in patriotic defiance, with the benchmark Sensex index closing up 66 points on a day when most expected it to drop. However, with GDP growth slowing to 7.6% and foreign institutional investors withdrawing more than $13 billion from its equity markets, India’s economy already yielded defeat, leaving its Sensex at less than half where it stood a year ago
Micro-economic impact of terrorism
The impact that a country feels is immense. However, the decline in economic growth of a country because of the impact on individuals can be much more devastating. Terrorist attacks, it is said, are diverse in terms of the personal and property damage inflicted
For example, for 3 days after the 2008 attacks, trains ran empty, schools and offices remained closed, and Bombay’s residents, heeding a call from the government, stayed indoors. On the next Friday afternoon, when some of the fear started to fade away and considerable public activity was witnessed, a false alarm about more armed gunmen at train stations sent back the city’s residents into quivering fear. Imagine the financial capital of India shutting shop and not making any money for 3 days!
All offices being closed down did not do any business for 3 days straight.. It is difficult to put a number to the opportunity loss in earnings but one can be sure that it is enormous. Plus there is the lost income earnings of those who lose their lives. So there’s that much less contribution towards the GDP but more importantly, it affects individual families in much destructive ways
A research paper from ICSSR Journal of Abstracts and Reviews provides a comprehensive pictorial representation of this topic
The perspective of Narco-terrorism:
Having looked at terrorism as an individual event, we will now analyse drug trafficking in India and its implications. There is a symbiotic relationship between drugs trafficking and terrorism which at first sight look like two totally different forms of crime. However, the two most often exist in combination, somewhat like a horse and carriage. Sponsoring terrorism is an expensive affair and money for killing, kidnapping and sabotage does not come through legal means but from illegal and unofficial channels. Terrorism needs huge sums of money to carry out its operation. Since it is difficult to acquire that sum from official and legal sources, terrorists approach drug syndicates and underworld dons for cooperation. This phenomenon is known as Narco-terrorism. The term was used for the first time in the US when drug smugglers in Bolivia, Colombia, Peru, Nicaragua and other Central American which funds terrorist activities in Pakistan and Afghanistan.
The Golden Crescent, a principal area in Asia covering countries like Afghanistan, Pakistan and Iran is the largest producer of illicit opium. Afghanistan and Pakistan alone share a very large pie of the total illicit production. It is a matter of serious concern to India, because these drugs are the major source for funding Pak-sponsored terrorism in this country. The drug money is floated in an unorganized but systematic manner into the Indian money market thereby damaging financial institutions. Therefore, the illicit drug trafficking from Afghanistan and Pakistan threatens both the polity and the economy of India. Author is of the opinion that one of the root causes which leads to Narco – Terrorism is Counterfeiting of money
In the Author’s viewpoint –
Terrorism is often viewed from a very narrow lens. It is seen as an overt act of violence and destruction which destroys the social, political and economic fabric of the country. The motives and strategies behind it are also understood only conventionally. However, the abovementioned data suggests how terrorism can take various forms and how in order to curb terrorism, a myriad of issues must be addressed. Taking a one-dimensional approach will never resolve this problem. Linkages between different phenomenon must be identified in order to safeguard the country from savage attacks and preserve its national security and economy
Socio-Economic implications of NarcoTerrorism
By pumping the hard currency generated from illicit narcotic drugs trade, Pakistan’s motive is to disturb the local money market and make a dent in the Indian economy. The economic liberalization introduced in India opened a plethora of opportunities to Pakistan based drug syndicates in 1991.
There were three major fallouts of economic liberalization on the domestic economy of the country. First, government control became relaxed over banking and financial institutions. Second, it curtailed availability of loans. Third, it raised cost of borrowing. And fourth, it reduced return on deposits. As a result money launderers and drug traffickers started floating their illgotten money into the domestic money market. Similarly, the drug money laundered through Hawala or any other illegal channels deprived India of foreign exchange earnings. All these collectively affect the economy of the nation in slow process and these uncalled for inflow of illicit funds damage the financial institutions in the country
Rajnath Singh, in an interview, pointed out another socio-economic problem associated with this: the problems of drug trafficking and abuse take significant toll on valuable human lives and productive years of many people.
In short, Author is of the opinion that above pointers is nothing but a dangerous facet of ‘economic terrorism’ against India. To effectively curb multi nexus, complicated, externally state sponsored problem of Counterfeiting – terrorism – Economic threat, India should adopt multi-pronged strategy which can cover –
It is important to stay ahead of counterfeiters. The Reserve Bank of India should constantly upgrade both paper-based (security thread, water mark, fluorescent fibres and physical and chemical characteristics of the paper) and printbased (anti-photo copying feature, optically variable ink – OVI – see through effect, intaglio printing etc) security features of Indian currency. The public should be educated on these security features, which will enable them to easily distinguish fake from real notes.
Effective cooperation among the concerned agencies is essential to address the threat. The Central Bureau of Investigation is the nodal agency for coordinating and monitor cases related to fake currency; Department of Revenue Intelligence is the lead operational body at the national level; respective state police is the lead operational agency for acting against counterfeits in that particular state; National Crime Records Bureau and Central Economic Intelligence Bureau hold all data pertaining to fake currencies. These apart, the state governments, central police organizations, intelligence agencies, the RBI, Enforcement Directorate, Ministry of External Affairs, Financial Investigation Unit, and Department of Legal Affairs are other concerned agencies. External dependence on security paper and ink should be reduced by increasing indigenous production. At the same time, India should use its diplomatic leverage to make sure that international companies contracted to supply India-specific paper maintain secrecy
India should offer to train Nepalese and Bangladeshi customs and immigration officials in identifying and keeping watch over frequent travelers to Dubai, Dhaka, Colombo and other neighboring countries.
Demonetization of certain denominations of currency (8th November, 2016 – Rs 500 & Rs 1000 notes were taken out of circulation) On the eve of declaration of this historic decision – Shri Narendra Modi – Prime Minister of India said – “enemies across the border” have been responsible for the circulation of FICN in India. The decision to withdraw Rs500 and Rs1000 notes from circulation could have a massive positive impact by eliminating FICN from India’s economy. The Rs500 note in particular is the most commonly counterfeited note in India and demonetizing it is quite a remarkable move to eradicate the threats emanating from FICN to the Indian economy.
Bibliography
* The U S Secret Service – Official Website ** Financial Intelligence Unit-India, Annual Report, 2010-11.
*** Prabha Kshitija, Narco-Terrorism And India's Security, National Crime Record Bureau, R K Puram, New Delhi.
**** Lama Mahendra, Terrorism And Insurgency In India: Economic Costs And Consequences, ICSSR Journal Of Abstracts And Review
***** http://www.livemint.com/Politics/BptWaSnU2z4 y2a9OBJE4jN/Terrorism-has-longlastingimpact-on-Indian-economy-Moodys.html ******
https://www.forbes.com/2008/ 11/29/mumbai-economiccost-opedcx_ap_1129panagariya.html *******
http://timesofindia.indiatimes. com/india/drug-traffickingfeeding-narco-terrorismrajnath/articleshow/53123470. cm
