Desktop Counterfeiting
By Doug McClellan

In 1989, members of an international counterfeiting ring swindled three-quarters of a million dollars from First Interstate Bancorp of Los Angeles, one of the nation's largest banks, with a single counterfeit check. After stealing a legitimate corporate dividend check issued on a First Interstate account, the counterfeiters scanned an image of the check, including the authorized signature, into a computer, electronically altered the amount and the name of the payee, and printed the fake with a laser printer. The result was good enough to pass unnoticed through First Interstate's clearinghouse, where checks are authorized for payment. When the check cleared, the thieves whisked the money overseas with a wire transfer and disappeared before the bank or the corporation issuing the check uncovered the fraud.

In 1992, a New York woman was accused of impersonating a military officer and fleecing a series of banks, jewelers, and exclusive shops of more than a half-million dollars with counterfeit checks. She used laser printers and embossing machines to forge identification cards, fake letters of credit, and the checks. When she was caught and incarcerated, her accomplice bailed her out of Rikers Island prison with a certified check for $30,000 - which was also a fake.

In 1993, Ahmed Abdullah al-Ashmouny, an Egyptian citizen, was indicted for counterfeiting thousands of visas on a color copier and selling them to other Egyptians, including followers of accused terrorist leader Sheik Omar Abdel Rahman of Jersey City, enabling them to illegally enter the United States. According to Andrew Laney of the U.S. Department of State, the fakes were almost indistinguishable from actual visas.

Such incidents are just a few reminders of what has become America's fastest-growing means of fraud: desktop counterfeiting. Using low-cost personal-computer-based publishing systems, counterfeiters have forged virtually every kind of paper document or certificate, including checks, banknotes, passports, Social Security cards, birth certificates, stock and bond certificates, automobile titles, bus and rail passes, food stamps, even grocery store coupons from the Sunday newspapers.

Of these, checks and currency are perhaps most vulnerable. An American Bankers Association survey found that banks reported more than 1 million cases of fraud and lost $813 million from counterfeit checks in 1993, a 43.5 percent increase from the $568 million in losses reported in 1991. While the majority of cases involve such time-honored techniques as writing checks on nonexistent funds, the banking association contends that a significant and rapidly growing percentage is due to desktop counterfeiting. Similarly, the US Secret Service, which is charged with protecting American currency, estimates that computer-aided banknote forgery could balloon from today's modest levels into a $2-billion-per-year economic sinkhole by decade's end. The National Research Council, the research arm of the National Academy of Sciences, concurs. A report issued by the NRC's Committee on Next-Generation Currency Design called desktop counterfeiting the biggest threat facing U.S. currency today.

Counterfeiting was once the domain of skilled crooks who needed expensive engraving and printing equipment. But as the prices of desktop-publishing systems have dropped, counterfeiting has gone mainstream. Personal computers with the graphics needed for counterfeiting are now available for a few hundred dollars. While in 1989 an Apple laser printer that reproduced 300 dots per inch (dpi) cost $3,900, today such printers sell for less than $500, and printers delivering 600 dpi, the current standard, cost well under $1,000. A counterfeiter can purchase a color ink-jet printer - the fastest-growing tool of choice for desktop counterfeiting - for less than $500. By 1995, an estimated 4.9 million color printers will be in use with personal computers in the United States, with another 4 million overseas. Similarly, five years ago a color scanner capable of reproducing 600 dots per inch would have set a forger back $10,000; now they too cost less than $500.

Counterfeiting has flourished for as long as there has been something worth forging. China, which invented paper money in the tenth century, once carried the grim warning on its currency that whoever forged or circulated counterfeit notes would be beheaded. England treated counterfeiting as a hanging offense, as some 600 unlucky forgers discovered before the law was repealed in 1832. Dante, in The Inferno, had such a poor opinion of counterfeiters that he placed them in one of the lowest circles of hell. And the Roman Catholic Church now includes check fraud and forgery as sins in its new catechism.

Today's counterfeiters have little reason to worry about prison, much less hell, since desktop forgery is a crime that often goes unprosecuted. Unlike traditional counterfeiters who leave a lot of tracks because of the specialized lithographic printing equipment they require and the quantities of forgeries they produce, desktop counterfeiters are much harder to catch because the systems they use are ubiquitous and the number of forgeries they produce are typically small. Moreover, prosecutors feel they must place more of a priority, and limited funds, on crimes of violence rather than fraud. Consequently, according to the FBI, banks currently recover only about 13 percent of their losses from check fraud. And some enforcement officials simply give up. Gregory Litster, senior vice-president at Imperial Bank in Los Angeles, points out that several southern California prosecutors have disbanded their check-fraud offices because of budget restrictions.

Banks, corporations, and the U.S. Treasury are therefore realizing that the best way to stop counterfeiting is to prevent it from happening in the first place, and as a result they have begun to undertake aggressive counterfeit-proofing measures.

Deterring Check Fraud

Checks are perhaps the most lucrative target for the desktop counterfeiter, given that billions of them circulate every year through the U.S. banking system and that they are easily forged. ``What is dumbfounding to me is that if you took every bank robbery that occurred in the United States in 1992 - every bank, every savings and loan, every credit union - there were $63 million in losses. But in the same year, those same financial institutions lost $4.2 billion in fraud,'' says Frank Abagnale, a former counterfeiter and con artist who now advises financial institutions on avoiding check fraud. ``The person who steals money with a pen steals far more money than the person who steals with a gun.

``When you went out 25 years ago to forge a check issued by a corporation, the first thing you needed was a four-color press that cost a quarter of a million dollars, used,'' Abagnale says. You also needed a great deal of skill to operate the press and a great deal of patience, since it took several months to create a plate, he says. ``Now, using just a personal computer, scanner, and printer, you can sit in a hotel room and produce a check from any major company.''

For five years until he was 21, Abagnale pulled off a series of audacious scams, passing himself off as a pilot, pediatrician, college professor, assistant attorney general, and stockbroker and cashing $2.5 million in fraudulent checks throughout Europe and all 50 states. After serving many years in French, Swedish, and U.S. prisons, he decided to use his talents to help corporations thwart white-collar crime.

Abagnale outlines the ease with which a forger can create fake corporate checks. By stealing or ``borrowing'' a company's payroll, dividend, or refund check, the counterfeiter can quickly scan the check, with corporate information and signatures, into a computer. Using one of many popular desktop-publishing programs, the forger can then change the amounts and payee name on the check. When the fraudulent check is ready to print, the counterfeiter can stop at an office supply store and buy the basic materials for a corporate check, such as ``safety'' check paper and magnetic laser-printer toner used to print the routing numbers at the bottom of checks. (The routing code is one of those mysterious numbers on the bottom of a check that identifies the originating bank. The numbers are printed in magnetic ink so they can be sorted automatically.)

Even without a master check, Abagnale says, a counterfeiter still can use a scanner to make a passable forgery by duplicating a corporate logo from a brochure or newspaper advertisement. Desktop-publishing programs allow the forger to resize the logo to any shape and repeat a small, shaded imprint of it across the background of the check, a common design.

How can the forger fake the signature for the check? Easy, Abagnale says. Simply get a copy of the company's annual report, which usually includes signatures of all top officers, and scan those signatures into the computer.

Abagnale says a crafty counterfeiter also knows how to use time. Banks are required by law to pay local checks within two working days and out-of-town checks within five days, changes mandated by Congress in 1987 to the dismay of the banking industry. So, Abagnale explains, a forger counterfeiting a check from a major company in Boston might print the routing code for, say, the Federal Reserve branch in Honolulu. The ``mistake,'' which will pass by all but the most alert teller at one of the Boston bank's branches, will automatically send the check to Hawaii. Before the misrouted check is returned to the Boston bank on whose funds the check was drawn, the receiving branch will have had to honor the check, and the forger will have disappeared with the money.

Traditionally, the defrauded bank has shouldered the loss from a scam like this. But recent changes in the Uniform Commercial Code, the law governing commercial transactions, have placed more of the burden on corporations. These 1990 revisions, which have been adopted by a majority of states, allocate losses according to respective degree of negligence. It's the same theory that has long been used in product liability cases. For instance, under the law, a widget manufacturer could be held liable for damages caused by its products if it neglected to use a safety device that was available on the market. The effect of the changes, bankers say, is that companies now have more responsibility for using anti-counterfeiting devices, and banks now have a means to persuade their corporate customers to adopt more secure checks.

Imperial Bank of Los Angeles, California's tenth-largest bank, recently began marketing checks with several counterfeit-deterrence features. Imperial attracts as customers many title and escrow companies, which are enticing targets for counterfeiters because their checks are typically for large amounts. One deterrent in the new checks, sold under the name SafeChecks, uses halftones, the groups of thousands of small dots commonly used to print photographs in newspapers and magazines. When viewed at reading distance, the dots blend together into a continuous image. While the dots are typically one size, halftones can also be composed of big dots interspersed with little ones. If the little dots are small enough, they fall below the resolution threshold of most copiers and scanners and cannot be accurately reproduced. Designers can use this feature to make patterns that will spell out the word VOID on copies that do not appear on the original.

The check paper also includes a watermark, an image formed by varying the thickness of the paper during its manufacture. These images become part of the paper and are difficult to reproduce, because they cannot be seen with reflective light - the kind used by scanners and copiers to make reproductions. The check will feature a warning banner that tells the recipient to look for the watermark. They will also include some fluorescent ink that will appear only under ultraviolet light.

The counterfeiter who attempts to modify a legitimate SafeCheck will run into other problems. A special chemical coating on the paper reacts to ink eradicators, so any attempt to change the payee or dollar amount brings out the word VOID in three languages. Imperial's Gregory Litster says check fraud losses have been cut by 90 percent since the bank introduced SafeChecks in 1993.

Like many other banks, Imperial offers its corporate customers another form of protection known as Positive Pay, under which the corporation notifies the bank, either electronically or in writing, of all checks it has issued, including serial numbers and amounts. The bank then compares checks presented for payment against the list and rejects those that do not match.

Check clearinghouses are also adopting new techniques to identify bad checks more quickly, according to the American Bankers Association. Some receiving banks scan the image of a check, or at least the information encoded in a check's magnetic ink, and electronically transmit that information to the bank at which the check originated. This process enables the originating bank to quickly verify a check by phone rather than waiting for the checks to be transferred by mail.

Safeguarding Currency

While banks and corporations fret over counterfeit checks, the U.S. government has a bigger concern: its money. The greenback, the world's most popular currency, is also its most counterfeited. ``The reason the dollar is counterfeited so often is because it is so universally accepted; it is considered the world's currency,'' says Thomas Ferguson, deputy director of research and development for the Federal Bureau of Investigation. The amount of counterfeit currency is significant, though not huge as a percentage of the more than $9 billion in banknotes produced each year by the U.S. Bureau of Engraving and Printing and the nearly $300 billion per year that are processed through the Federal Reserve system. According to Secret Service statistics, $19.6 million in counterfeit notes made their way into the commercial money stream during fiscal year 1993. Agents seized another $24.2 million before it could be circulated, and detected another $120.8 million in counterfeit U.S. notes overseas.

About 90 percent of counterfeits are produced the old-fashioned way, by skilled printers who use engraved plates and sophisticated lithographic printing equipment. These counterfeiters are relatively easy to catch. But the Secret Service is most worried about the other 10 percent produced by desktop counterfeiting, a segment that is doubling every year. Faced with this prospect, the Bureau of Engraving and Printing realized it had to act, and this summer announced plans for the first major redesign of U.S. currency since 1929. Beginning in 1996, the new design will appear in a new denomination every year, starting with the $100 bill, says Ferguson.

To determine appropriate modifications, the bureau not only did its own research but sought help from the National Academy of Sciences, which convened the Committee on Next-Generation Currency Design. The new banknotes, drawn from the recommendations of both groups, will incorporate a host of new deterrents.

The change most users will notice are in the portraits. The subjects won't change - Benjamin Franklin will still grace the $100 bill, Alexander Hamilton the $10, and so on. But their portraits will be larger, although still done in classic banknote style, and accompanied by additional portraits of the statesmen done in watermarks, which cannot be reproduced in a copy. (The watermark, a centuries-old technique invented in Italy, will actually be making its second appearance in U.S. currency. The first was during the Civil War, when an estimated one-third of all paper money in circulation was fake. The counterfeiting epidemic of the 1860s led President Lincoln to create the Secret Service, whose original charge was to track down counterfeiters. Congress later standardized the host of local banknotes by instituting a single national currency incorporating watermarks, but these were dropped in 1879 when the Treasury deemed that a new kind of linen paper that used bands of colored threads provided a sufficient safeguard.)

Other anti-counterfeiting measures planned for the new currency are of more recent vintage. A small section of each banknote will incorporate what is known as ``color-shifting,'' or optically variable, ink. Such inks, already used in denominations of the deutsche mark, the lira, and the Belgian franc, change color depending on the angle at which they are viewed. For example, one kind of color-shifting ink looks green when viewed from the top and black when seen from a 45-degree angle. Because scanners and color copiers can reproduce only one of the colors, fakes will be easier to spot. Moreover, because these inks are expensive and difficult to manufacture, they are beyond the reach of most counterfeiters, according to the next-generation currency committee.

As another line of defense, planchettes - colored or reflective bits of paper or plastic a few millimeters in diameter - will be randomly embedded in the paper, the FBI's Ferguson says. Looking like tiny bits of iridescent confetti, planchettes give off distinctive colors when viewed with special lights. The planchettes will join the red and blue silk fibers that paper money has incorporated since 1929. These threads have lost some of their deterrence because counterfeiters can simulate their look simply by making a good-quality color copy.

The printing on U.S. banknotes also will be enhanced with designs that use the limits on reproduction resolution to play optical tricks. Ferguson says the new notes will use moire patterns, which are intricate designs of fine lines. When they are reproduced in a scanner or copier, the lines become distorted, looking like ripples in a pond of water. That is because copiers and scanners do not have a sufficiently fine resolution to reproduce the patterns accurately. Paper currency will also incorporate the variable-dot pattern used in checks and other documents that, while undetectable on the original, causes copiers to spell out the word VOID on any copies.

The Treasury will continue to print currency using the high-pressure printing process known as intaglio, in which printed lines are slightly raised, or embossed. The effect, which cannot be duplicated by offset presses, copiers, laser printers, or other nonimpact printing processes, imparts a distinctive feel to the banknote. No other piece of paper feels quite like a dollar bill.

The Treasury will also modify two deterrents introduced in 1991. One is the ``security thread,'' a polyester strip 1.4 to 1.8 millimeters wide imprinted with metal characters. Invisible under normal, or reflected, light, the thread cannot be copied but is easily seen when a bright light shines through the paper. The thread is now placed in the same location in all denominations through the $10 bill. In the new bills, different denominations will use the thread in different places.

In addition, the new currency will modify the 1991 deterrent known as microprinting. Microprinting produces words seven-thousandths of an inch high that look like a solid line from a short distance. On the $100 bill, for example, the oval line that borders Benjamin Franklin's portrait is actually the microprinted words ``THE UNITED STATES OF AMERICA'' repeated several times. A sharp-eyed store clerk who knows what to look for can tell if the microprinting is present.

Ferguson says the microprinting will be enhanced in the new bills - though he declined to elaborate - because inexpensive scanners and printers are now advanced enough to reproduce the existing microprinting. In fact, a recent advertisement showed how well a $1,799 color scanner made by Envisions Co. could reproduce the microprinting on a $100 bill. ``No other scanner can scan a hundred bucks and capture the hidden detail as well as ours,'' the ad proclaimed.

The ad caught the attention of more than prospective customers. ``The Secret Service visited us and asked us not to use paper currency in our ads anymore,'' says Rebecca Sanders, director of business development at the company. ``You won't see that anymore.'' Ironically, she adds, Envisions itself has been a target of desktop counterfeiters; some mail-order customers have paid for scanners with counterfeit cashier's checks, causing the firm to change its policy on COD shipments.

Ferguson says the new design will add a penny to the cost of printing U.S. banknotes, from 3.8 to 4.8 cents apiece. Every cent adds about $90 million to the Treasury's annual printing bill - a price he considers reasonable given the magnitude of the threat.

Meanwhile, would-be counterfeiters may also find themselves stymied by security devices that appear on some of the equipment used to print fakes. For more than a year Canon Corp., the leading manufacturer of color copiers and a producer of printers and scanners, has quietly incorporated two anti-counterfeiting features into its business products, says David Farr, senior vice- president and general manager of Canon USA, Inc. The copiers include a specially programmed microchip that recognizes the currencies of several countries, including the United States and Japan. If someone attempts to copy the currency, the copier will print a black sheet of paper instead.

A more subtle deterrent imprints a code of the machine's serial number on every copy it produces. The number is encoded in ``microdots'' that can be printed anywhere on the page. ``Nobody even knows these features are in there,'' Farr says. The serial number can be decoded only with special equipment that he declined to identify, which the company provides to the Secret Service and other federal agencies solely for tracing counterfeits to the copier on which they were made.

Others Get into the Act

The U.S. Treasury is not the only federal agency that has had to grapple with the threat of desktop counterfeiting. A new U.S. postal money order, introduced in 1991 and modified since, has dramatically reduced alterations and counterfeiting.

The Post Office sells about 200 million money orders a year, which are almost as widely accepted as cash. The new money order incorporates some of the security features planned for U.S. currency. It is printed in multiple colors that merge from yellow to green to purple and back to yellow. Fine lines, also in different colors, run across the face of the document. A deep, richly detailed watermark of Benjamin Franklin, the nation's first postmaster, fills a large oval on the paper. Embedded within the paper is a security thread and special fibers that glow under ultraviolet light. Richard W. French, a senior forensic analyst with the U.S. Postal Service who designed the money order, says it has several other counterfeit-deterrent features, such as tamper-resistant inks, that he does not want to discuss in detail.

Because of such measures, counterfeiting of postal money orders has dropped by some 60 percent in two years, while alterations of legitimate money orders have also plunged, says Shaun O'Hara, national program manager for the Post Office's Office of Criminal Investigation. In fiscal 1993, the Post Office caught 397 counterfeits, but the number dropped to 14 for the first half of the 1994 fiscal year, O'Hara said. Alterations for the first half of 1994 were 499, compared with 1,589 for the same period in 1993.

The U.S. State Department is also getting into the act by introducing a new type of non-immigrant visa, distributed by U.S. embassies and consulates around the world to temporary U.S. visitors. The new visas use digitized photographs that are produced and stored on a computer and printed directly on the paper. Visas have typically used passport photographs, which were simply glued onto the page and easily removed and replaced with a different photograph by a skilled forger. Digitized photos are also used on driver's licenses in some states to help protect against fraud.

Gary Shaeffer of the Bureau of Consular Affairs says the new visas also incorporate raised intaglio printing that can be verified by a passport officer with a brush of the fingertips, while intricate background designs thwart most attempts to scan or copy the document. About 40 percent of the estimated 5.5 million non-immigrant visas issued in 1994 were the new kind.

The State Department is also planning to issue new passports that contain several anti-counterfeiting features, including a security thread, watermarks, security stains in the paper that turn blue when exposed to ink eradicators, fluorescent ink, and iridescent planchettes, according to Shaeffer.

State and local documents are also vulnerable, according to Gideon Epstein, chief forensic document analyst with the Immigration and Naturalization Service. Underlying the problem is a lack of standards. For example, more than 7,000 types of U.S. birth certificates are issued in this country by authorized governments and hospitals, he says. ``If everybody could agree to use the same security paper, forgers would be less able to pass off documents on different types of papers.''

Finally, even manufacturers of those ubiquitous store coupons are adopting anti-counterfeiting technologies. Forging $1 laundry-detergent coupons may not sound like a big deal, but coupon fraud could add up to hundreds of millions of dollars a year. U.S. companies annually print 320 billion coupons, of which a little more than 2 percent, or some 7 billion, are redeemed for a value of about $4.5 billion, according to Richard Krautsack, president of Comark Merchandising, Inc., a coupon printer. He estimates that as many as 15 to 20 percent of coupons redeemed are fraudulent. If he is right, that means the number of fraudulent coupons redeemed is nearly $1 billion a year. Comark sells a patented variable-dot system known as Copy-Stop that, like others, spells out the word VOID when someone attempts to copy a coupon.

No document is safe anymore, now that counterfeits are so easy to make with basic computer know-how. That's why the U.S. Treasury isn't going to wait another 60 years before it next overhauls American currency. And that's why those who seek to stop counterfeiting are trying to dream up ever more complicated and esoteric deterrents - the more the better.

``You want to have more than one feature,'' says Glenn Sincerbox, an IBM researcher who chaired the Committee on Next-Generation Currency Design, ``to outwit those who are always trying to take counterfeiting a step further.'' In an age of global computer networks, he has few illusions about the threat posed by failing to do so. ``Imagine if someone distributed a bitmap of a $50 bill over the Internet,'' he says. ``Everybody and his uncle would be printing money.''