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U.S. House of Representatives,
Subcommittee on Domestic and International Monetary Policy,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Michael N. Castle, [chairman of the subcommittee], presiding.

    Present: Chairman Castle; Representatives Fox, C. Maloney of New York and Hinchey.

    Chairman CASTLE. Good morning. The hearing will come to order. We are here today because the Secret Service, the Treasury, and the United States of America are facing an alarming new challenge to the integrity of our national currency. Over the past two to three years, the face of counterfeiting has changed dramatically. The classic movie cliche of the ink-stained master engraver painstakingly touching up his counterfeit printing plates has now given way to amateurs, often suburban and teenaged computer hackers, or drug-dealing urban street gangs. The price of admission to commit the felony of counterfeiting has suddenly dropped from years of skilled apprenticeship and access to expensive professional printing equipment to anyone with the inclination, a personal computer and a color inkjet printer. All that is required to produce passable bills may be computer equipment no more advanced than what 40 percent of American families already own, plus a printer that can be purchased for as little as $200.
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    The new series $100 and $50 notes with the enlarged off-center portraits and the multiple anti-counterfeiting features are more challenging to the PC counterfeiter because scanners and printers cannot reproduce these features. Nevertheless, if people do not look at their money, they become vulnerable to counterfeiters. Anticounterfeiting features only work if we are aware of their existence. PC counterfeiters have their best success with older series bills, especially the $20, $10 and $5 notes that have not yet been redesigned. Consumers and businessmen risk personal loss if they do not routinely scrutinize the currency that they spend and receive.

    Misuse of color copiers to defraud can already be traced, resulting in apprehension and conviction of many would-be counterfeiters. We must consider whether or not it will be practical and realistic to tag scanners and printers so that criminal use can be neutralized.

    We should also look into toughening laws and sentencing guidelines for this very serious crime. Otherwise we may find ourselves in a situation where PC counterfeiters are only given a slap on the wrist and can reclaim the computers used in the crime because only a few notes were actually confiscated, notwithstanding evidence of images that may exist on CD ROM or hard disk memory devices. PC counterfeiting has become a ''print to order'' crime, and previous sentencing guidelines based on total amounts of counterfeit notes seized should not apply. I look forward to hearing what our witnesses believe they need in the way of additional legislative support to successfully combat this serious crime.

    We will have two witnesses this morning. The first is Dennis F. Lynch, Special Agent in Charge, Secret Service Counterfeit Division. He will be followed by Thomas Ferguson, Acting Director, Bureau of Engraving and Printing.
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    We welcome all of you here, especially those who are going to be witnesses, and I understand, I think, Mr. Lynch, you are going to have a demonstration after you speak; is that correct?

    Mr. LYNCH. Yes, Mr. Chairman.

    Chairman CASTLE. And we will turn off the lights for that little demonstration, in case anybody is paranoid about dark, and have the demonstration, and then we will go to Mr. Ferguson's testimony.

    Chairman CASTLE. So with that, Mr. Lynch, the time is yours.


    Mr. LYNCH. Mr. Chairman, Members of the subcommittee, thank you for giving me the opportunity to speak to you today about counterfeiting in general and counterfeiting using computer-related technology in particular.

    Less than $32 million in counterfeit U.S. currency was passed in the United States in fiscal year 1997. Over $40 million was seized before being passed on to the public. Although any amount of counterfeit currency is a serious concern to the United States Secret Service, the total amount of counterfeit currency passed domestically represents less than 1/100th of 1 percent of the $450 billion of the genuine U.S. currency in circulation worldwide.
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    Advances in computer technology have dramatically changed the nature of production used in counterfeiting. Operations have evolved from using the traditional method of offset printing to using personal computers connected to scanners or digital input devices, together with inkjet printers and full color copiers. Inkjet printers and copiers are relatively inexpensive, readily available, easily transportable, and user-friendly. When using the technology currently available, these devices are capable of producing high-quality counterfeit currency.

    Paramount to the process, once the image of a Federal Reserve note is scanned or digitally captured, a personal computer may be used to enhance its quality. The image can then be transmitted electronically, computer to computer, over the Internet, and printed by individuals who lack any specialized computer or graphics knowledge. As a result, today's counterfeiter is able to produce counterfeit currency using a high-quality inkjet printer that can cost as little as $300.

    In fiscal year 1995, $174,924, which represented .5 percent of all of the counterfeit currency in the United States, was inkjet-produced. In comparison, $6,121,292 of all counterfeit currency passed in the United States during fiscal year 1997 was inkjet-produced. That represented 19 percent of the total. This represents an 805 percent increase in domestic inkjet-produced counterfeit notes from fiscal year 1995 through 1997. For the first five months of fiscal year 1998, $7,224,712 of all counterfeit currency passed in the United States was inkjet-produced. That represents 43 percent of the total of counterfeit currency passed in the United States.

    The increase in computer-generated counterfeiting represents not only a threat to our law enforcement interests, but also seriously threatens the integrity of our U.S. currency. Maintaining confidence in U.S. currency is essential to preserving the benefits derived from the dollar's status as a world currency. U.S. bearer obligations serve as a stable and accepted medium of exchange and store of value that is often preferred to local currencies worldwide, particularly in the former Soviet Union, Eastern Europe, and Latin America. In addition to the investment and trade benefits associated with the dollar's position as a reserve currency, the demand for U.S. paper currency provides direct economic benefits for the United States Government.
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    According to the Federal Reserve's estimate, approximately $270 to $300 billion in U.S. currency is circulating overseas. Applying the 5.7 percent average interest rate on the Federal Reserve's portfolio of Government securities during 1996, overseas currency holdings of this magnitude will generate approximately $16 billion in interest earnings per year. A 10 percent reduction in overseas holdings of U.S. currency arising, for example, from concerns over counterfeiting would decrease interest earnings and have a negative effect on the budget, and, therefore, increase Treasury's borrowing requirements by about $1.6 billion per year for as long as the reduction in holdings persisted.

    Any toleration of counterfeiting would seriously undermine the broad Government interest in maintaining the integrity of U.S. currency. Therefore, the Secret Service has adopted a zero tolerance policy for counterfeiting crimes; every case is investigated and pursued.

    However, the growth in computer-generated counterfeiting cases creates serious enforcement problems. In contrast to offenders using offset presses, and we have an example of offset presses right here, my colleague would like to show you a couple of photographs showing what these presses typically look like. In contrast to offenders using offset presses, computer counterfeiters can easily develop or obtain counterfeit images, print them without specialized equipment in batches of any size, and transmit the images to anyone instantaneously. Traditional law enforcement methods, as well as sentencing guidelines, must be modified to meet the challenges created by this ever-changing technology.

    The current sentencing guidelines provide for sentencing enhancements based on the amount of counterfeit currency that is produced and/or passed. One of the issues that is not adequately addressed in the existing guidelines is the specific difference between counterfeiters who use the offset printing press, which historically has been the method of choice, versus the advanced technology related to the inkjet printer. A counterfeiter using an inkjet printer to produce counterfeit notes with a computer can run off currency on an as-needed basis and does not need to maintain a large inventory of counterfeit currency. This differs markedly from the more traditional offset printing method, where the cost of a single production run, and other factors, caused defendants to create large inventories of counterfeit currency at one time. And we have a photograph demonstrating that as well. This is a seizure from the same counterfeiting operation using the offset technology that was shown in the previous photograph, and as you can see, large stockpiles of counterfeit currency accrue in some of these offset printing operations.
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    As reflected in the investigative files of the Secret Service, cases involving computer-generated notes rarely involve seized currency in excess of $2,000, much less $5,000. As a result of the low seizure amount, the guidelines provide little, if any, sentence enhancement. A typical defendant faces less than a year in prison. Indeed, if the amount of counterfeit currency seized is less than $5,000, and a defendant accepts responsibility for his actions, under the current guidelines he may be eligible for a sentence of straight probation.

    It was recently brought to my attention that a defendant arrested after passing a number of computer-generated counterfeit $50 Federal Reserve notes in Virginia three months ago had a rather illuminating comment when told by Secret Service agents from our Richmond field office that he might be charged federally. He said, ''Good. Under the Federal sentencing guidelines, you can't do anything to me.'' He didn't actually say ''do anything,'' but as a gentleman, I can't repeat what he did say.

    Another problem area for law enforcement is the inability to administratively forfeit the instrumentalities of counterfeiting. Neither criminal nor administrative forfeiture of personal property used to facilitate counterfeiting is currently authorized by statute. As a result, scanners, computers and printers used to facilitate counterfeiting are often returned to perpetrators when their value does not meet minimum thresholds for civil forfeiture.

    The potential for light punitive action and the return of property used to make counterfeit currency may feed the perception that counterfeiting is relatively risk-free, considering its potential for quick profit. This is precisely the perception that we do not want to foster.
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    The strategy to attack this problem is coordinated among the Department of the Treasury, the Federal Reserve Board, the Bureau of Engraving and Printing, and the U.S. Secret Service, and it is threefold: The first initiative is to identify and implement technological fixes that should preclude, at least to a degree, counterfeiting through intervention in either the input, graphics or output phase of the reprographic process.

    The Advanced Counterfeiting Deterrence Steering Committee, which comprises senior officials of the agencies listed above, has established a solid working relationship with the computer/copier industry, and is planning a series of meetings with industry representatives to explore viable technological fixes, with an eye to both short-term and long-term solutions.

    The second initiative is legal. On March 5, 1998, Treasury Secretary Rubin wrote a letter to the Honorable Richard P. Conaboy, Chairman of the U.S. Sentencing Commission, requesting consideration of sentencing reform in the area of inkjet-produced counterfeit currency.

    On March 12, 1998, a representative of the Treasury Department's General Counsel's Office and I appeared before the U.S. Sentencing Commission and gave testimony in support of this request. Members of the Commission expressed interest in this issue, and we intend to pursue the matter further during their next amendment cycle. Your support of our efforts before the Commission would certainly be appreciated.

    Our efforts also involve close coordination with the U.S. Department of Justice. We have offered to provide all the necessary information for Federal prosecutors to respond to developments in counterfeiting together with the U.S. Secret Service.
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    The third initiative is a public education campaign identifying the security features in the new currency and stressing the importance associated with the public's scrutiny of the currency they receive, the detection of counterfeit currency, and the serious nature of counterfeiting. The Treasury Department's Public Affairs Office is working in partnership with those in the offices of the Bureau of Engraving and Printing, the Federal Reserve Board and the U.S. Secret Service to carry out a public education campaign highlighting these features. Public confidence in the U.S. dollar is so strong that most people don't look at their money. This confidence is the counterfeiter's biggest ally. The new security features can be easily recognized by the public and, once generally known, should enhance public confidence as well as make counterfeit currency more detectable.

    A comprehensive list of banks, merchants and other cash handlers has been compiled as a target audience for the dissemination of currency-related publications and for seminars highlighting security features on U.S. currency and the detection of counterfeit currency. These seminars will be conducted by Secret Service representatives in conjunction with the Federal Reserve Board.

    Additionally, the Federal Reserve banks are initiating web sites on the Internet for the dissemination of information about security features found on genuine U.S. currency.

    This public education is particularly important because the new currency design, which was the culmination of a decade-long endeavor aimed at staying ahead of the potential counterfeiting threat posed by advances in the reprographic industry, incorporated new security features. These features, along with traditional security features, are effective deterrents if the public knows about them and uses them to authenticate the currency they receive.
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    In closing, I would emphasize the importance of forceful action to deter counterfeiting. If the circulation of counterfeit currency were allowed to become widespread, it would serve to diminish the value of genuine currency, create an environment conducive to fraud, and undermine public confidence in our primary medium of exchange.

    At this point, Secret Service Counterfeit Specialist Lorelei Pagano will give a short demonstration showing the ease and speed with which these notes can be captured and printed.

    After the presentation, we would be pleased to answer any questions from the subcommittee Members. Thank you, Mr. Chairman.

    Ms. PAGANO. Thank you, Mr. Chairman.

    One of the challenges that we face is the wide variety of technology that is available for the counterfeiter. I brought with me just one type of scenario that counterfeiters are using to reproduce our currency. Here I have a small flatbed scanner where a genuine note is placed on the glass. With a software package I can then scan the image, bringing it into my software package. At this point I could then manipulate the image. The actual images I am going to be showing today I actually downloaded from the Internet, so that is an additional example of how the counterfeiter can use today's technology.

    So here I have both front and back images in my software package, and in order to make it easier for me to pass counterfeit, what I can do is very easily change serial numbers without ever having to scan in a new genuine note. All I need to do is capture part of the image, and then move it to my working file, drop it in place, and then change the other serial number, position it, and I am now ready to print my image.
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    Additionally, these software programs are very powerful, and they can also be used to make other amendments to the image as the counterfeiter sees fit. That should be printing now. And fortunately, I have one already printed, so you can see the image here. It will take a few minutes to print, but as you can see, the manipulation of an image is quite easy, and it just depends on the imagination of the particular counterfeiter.

    I do have three samples of counterfeits made, one in the traditional offset method, one by a copier and one by an inkjet, and if I may, I would like to show those to you.

    Chairman CASTLE. We don't have any pictures of this? These are counterfeit?

    Ms. PAGANO. Yes, all of those are counterfeit. As you can see, the quality is relatively close on all three of those, so that no longer do you have to have a skilled counterfeiter to make a deceptive counterfeit, or at least one that without the observer or the taker looking for the security features, they could be readily duped.

    Again, going back to the security features, there is no true watermark on any of the notes. It has been simulated on two of the notes, and one has simulated the optically variable ink in the lower right.

    Chairman CASTLE. Before we go on to Mr. Ferguson, I would like to ask a couple of questions about the demonstration. Since we are sort of family here today, if you could go back to the microphone, just to make sure I understand all of this, and then we will go on to Mr. Ferguson's testimony.
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    First of all, what is the cost roughly of the equipment that you have just used? I assume not the photographic part of it, but the rest of the equipment, the computer and the printer, the printer and the computer are essentially what you would need for this; is that correct? What would be the cost of all of that?

    Ms. PAGANO. OK. The computer is approximately $3,500, laptops tend to be more expensive. The scanner that I purchased was $129, and the printer, $350. So this is definitely affordable, in-the-home equipment.

    Chairman CASTLE. And if you wanted to go cheap, you could probably go even cheaper. You might have a cheaper product at the end, but you could go even cheaper; is that correct?

    Ms. PAGANO. Especially with the computer, yes.

    Chairman CASTLE. How is the average person, the average merchant, supposed to be able to tell if this is a counterfeit bill? I mean. I understand the various threads and watermarks and things, you know, that a banker or somebody really looking for would spot, maybe on a one hundred dollar bill, the average merchant would be, too. But to my eye, it is the same as virtually any other hundred dollar bill. I worry about that.

    Mr. LYNCH. Well, Mr. Chairman, one of the biggest problems for us in terms of counterfeiting is that merchants do not scrutinize closely the currency they receive. As a matter of fact, we have found, through a review of our investigative cases, that money exchanges overseas are far more circumspect in terms of scrutinizing their currency, and as a result don't accept poorer quality counterfeits as much as is done domestically.
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    I would just say that the best way for a merchant or somebody handling a suspect note, the best way to authenticate that note is to compare it to a genuine note. Very often, especially in the poorer quality counterfeits, the difference in quality stands out when compared to a genuine note, but very often people fail to do just that.

    The security features, and especially the newer security features, are very effective deterrents, because the watermark, for instance, and the color shifting ink in the lower right corner are visible with the naked eye, and in many instances we find counterfeits that have no watermark at all. Or in some instances we find counterfeits that have a watermark that does not compare to the portrait on the front of the bill, and it is simply a matter of people just not being careful about scrutinizing their currency, and that is why our public education campaign is so critical.

    In many cases as well, the quality in the feel of the paper is not as good in the counterfeit.

    Chairman CASTLE. Let me ask one more question about that, and then I want to go to Mr. Ferguson, and then we will come back and ask other questions, and that question is about the color of the paper. What paper is used in the printing process? Are you using plain paper that picks up a copy of this through what you are doing, or are you using special paper in the actual printing process of the counterfeit money, just in the demonstration?

    Mr. LYNCH. Not special paper, Mr. Chairman, but certainly a higher quality paper than is normally used for copying, let's say. A counterfeiter that is looking to make a more deceptive note will get a higher grade paper and pay a little bit more money for it, but it is fair to say that that paper is readily available if someone is willing to pay a few more dollars.
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    Chairman CASTLE. And it is white. It is not necessarily the color as it would be as money, right? That is picked up in the reproduction process?

    Mr. LYNCH. Well, sometimes it is white, and sometimes it is an off-white, and a lot of the counterfeiters that are looking to make very deceptive notes will try and use a paper that is an off-white that has a certain tint to it, and that is readily available.

    Chairman CASTLE. Closer to the background color of the money itself?

    Mr. LYNCH. Yes, Mr. Chairman.

    Chairman CASTLE. OK. Thank you. We will come back to you. I just wanted to clarify a couple of points while we were still in the middle of the process.

    Mr. Fox here is my expert on real counterfeiting, so I will let him handle that.

    Chairman CASTLE. We will turn now to Mr. Ferguson. We welcome you back, Mr. Ferguson. We hope you are enjoying your position at the present time and keeping things going at the EP, but thank you, and we look forward to your testimony.

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    Mr. FERGUSON. Thank you, Mr. Chairman, Mr. Fox. Good morning. It is a pleasure to appear before you today to report to the effectiveness of the current counterfeit deterrent features of United States banknotes and to discuss our plans for the future in order to ensure the integrity of the Nation's currency.

    As you are aware, recent press accounts report increased counterfeiting by individuals with personal computers and inkjet printers. The United States Secret Service has designated the term ''P-Notes'' to represent U.S. banknotes counterfeited using these technologies. As the Service has testified this morning, there is a notable increase in computer-generated counterfeiting, although the absolute number of these counterfeits is still quite small.

    This activity is of concern to us, and one we anticipated more than a decade ago when the Department of Treasury requested that the National Research Council analyze and recommend counterfeit deterrent features for U.S. currency. Studies were undertaken in 1985 and 1987 and resulted in the implementation of a security thread in Series 1990 notes. It is important to note that this feature, which is present in virtually all circulating notes of five dollar denominations and higher, is an effective feature, while not foolproof, against scanner/printer counterfeiting.

    The counterfeit deterrent features added in Series 1990 were the first step in responding to advances in reprographic technologies. Although these features have proved effective and will be retained, the Department of the Treasury and the Federal Reserve recognized that additional measures were a necessity to protect against future threats posed by continued improvements in copy machines, scanners and printers. The new design, beginning with Series 1996, is the culmination of a 5-year study aimed at staying ahead of the counterfeiting threat and is part of a continuing process to protect U.S. currency. At the same time, the redesign process has provided an opportunity to incorporate features that will make U.S. currency more readily identifiable, especially to the low-vision community.
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    The additional security features selected for the new currency design Series 1996 banknotes were an off-center and larger portrait, watermark portrait, color-shifting ink, fine-line printing and microprinting. These features are effective deterrents against copier- or scanner-generated counterfeits and have enhanced the security of the currency against evolving technologies. Newly designed $100 and $50 notes were issued in 1996 and 1997 respectively. The new $20 note is scheduled for release this fall. Lower denominations are scheduled for issuance every 12 to 14 months.

    As I stated previously, the Series 1996 notes have effective counterfeit deterrent features that are difficult to successfully reproduce by copiers or scanners. These enhancements make U.S. currency easier for the general public to authenticate and much more difficult to counterfeit. While there is no such thing as a counterfeit-proof note, the newly designed 1996 notes provide multiple levels of security features that protect the integrity of the Nation's currency.

    The Department of the Treasury, in concert with the Federal Reserve, the Bureau of Engraving and Printing and the Secret Service, will continue an extensive public education campaign in order to ensure that the public is aware of the new counterfeit deterrent features and how to use them. The best defense against counterfeiting is a well-designed note with effective security features and an informed, educated, and alert public. The vast majority of P-Notes are obvious when compared to a genuine note and when the security features are checked.

    Although the Series 1990 and 1996 features are effective against current technology, we need to continue our efforts. The Bureau of Engraving and Printing and the Federal Reserve, along with the Secret Service, recognize that additional security features will be needed to enhance and protect the integrity of the Nation's currency. The Department of Treasury is committed to protecting the Nation's currency. The Bureau of Engraving and Printing will continue to seek and test new features to maintain the security of U.S. currency as technology continues to evolve. It is anticipated that currency designs will continue to change in the near future in order to stay ahead of this advancing technology.
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    Again, the best defense against counterfeiting is a well-designed note with effective security features and an informed, educated and alert public. Thank you for your kind attention and for having this hearing on this very important issue, and I am prepared to answer any questions you may have.

    Chairman CASTLE. Thank you, Mr. Ferguson.

    I have some questions, and Mr. Fox, who is the Vice Chairman of this subcommittee, probably also has questions. Actually I have a lot of questions I wanted to ask, but what you said prompted other questions. Let me try to stay with the script a little bit because I think some of these things are important to establish.

    Let me start with you, Mr. Lynch, and we may alternate going back and forth on the questions here for a while.

    I understand that the new high resolution color copiers produce a product that can be traced via a coded system of very small dots that is introduced into the copies made. Is the coding machine used in color photocopiers mandatory, or is it a voluntary act on the part of the industry? Could similar coding be put into laser and inkjet color printers without affecting the quality of the output, and if the answer to those questions are yes, any of them, should that happen?

    Mr. LYNCH. Mr. Chairman, the answer is yes. It is a voluntary act to put those tracing elements into the color copiers, and it has been quite effective, and currently we are working very closely with the reprographic industry to pursue the very initiatives that you allude to.
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    Chairman CASTLE. Is there resistance to that for other reasons, libertarian-type reasons such as, ''You are interfering with my freedom,'' or whatever it might be, and ''People can check back on who I am,'' and all of that kind of stuff?

    Mr. LYNCH. Well, sir, we are in a very embryonic stage of the process, but early-on there appears to be a spirit of cooperation between the hardware and software producers and Government interests that we feel will play out in a very successful partnership. Although if, in fact, not everybody was willing to participate in the process to make sure that there was a level playing field, so to speak, some sort of mandatory compliance might be necessary, but we don't foresee that at this time.

    Chairman CASTLE. I assume that would be, from your point of view, tremendously helpful in terms of enforcement against people using this if it was publicly known that that is why those machines worked?

    Mr. LYNCH. Absolutely.

    Chairman CASTLE. If this would happen, could a person highly trained somehow change the keying, or whatever the heck it would be, so that you could not be able to relate the particular printing to a particular machine?

    Mr. LYNCH. That is possible. Whatever is engineered can be reverse engineered, and we are in the process of building higher and better fences to deter, at least to a degree, this kind of counterfeiting, although our process is a never-ending process, it is an evolutionary process, and we feel that by collaborating with the Bureau of Engraving and Printing and the Federal Reserve, of course, with the Treasury leading the effort, and by working very closely in partnership with the experts in the private sector, that we can ultimately be successful in this battle.
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    Chairman CASTLE. OK. That is interesting. Let me go on to another subject.

    Explain, if you will, the concept of administrative seizure of computer equipment used in counterfeiting. How is the seizing of $2,500 or less of equipment a disincentive to a counterfeiter when he can make that much and more in counterfeit bills very quickly with an equal or a smaller investment? Why does law enforcement not treat the other items used in counterfeiting as part of its seizure of criminal proceeds in the way that drug traffickers' cars, houses, and so forth, which often are very largely related to the crime involved, are seized? Should there be more of a parity in the seizure procedure as a way of addressing potential problems?

    Mr. LYNCH. The problem with counterfeiting using computers and scanners and printers is a little bit more of a difficult issue because inherently computer scanners and printers are legitimate items. It is only when they are used to get involved in this criminal activity that they take on a criminal nature. So it is a little bit more difficult to wrestle with.

    One of the problems that we see with not seizing and forfeiting the instrumentalities of counterfeiting is precisely that it feeds the perception that this is not considered a priority by law enforcement and by those who would seek to suppress that kind of counterfeit activity. Even though a counterfeiter may be able to purchase the instrumentalities of counterfeiting very quickly with profits he has already accrued, it still puts him out of business for a few days; it still causes him to suffer inconvenience, and it still causes him to clearly understand that we are going to do whatever measures it takes to suppress this kind of activity in order to protect the integrity of our currency. So it is not a panacea certainly, but it is one more thing, one more step we can take to slap the hand of the counterfeiter, so to speak.
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    Chairman CASTLE. Well, let me restate the question. I have absolutely no hesitation whatsoever that if we can relate the equipment which is being used to the counterfeiter, that we should seize that equipment. But my question really goes beyond that.

    My question is what if we can also show that they have used their car to transport illegal currency someplace; so what if we can prove they used their house as a shelter to house the equipment in which this is done, or other related assets which they might have that could be a heck of a lot more value than the computer equipment.

    My understanding is that rarely, if ever, does anyone go after those other assets with respect to counterfeiters, whereas with respect to a drug agent, they will seize everything in sight on roughly, at least in my mind, the same stream of reason, the same fruit-of-the-tree-type thing. I wonder why we can't do this, or do we need to change laws as far as counterfeiting is concerned, or do you think that that goes too far and we shouldn't go that far?

    Mr. LYNCH. To a degree, Mr. Chairman, I am in accord with that thinking, that we have to send a clear message that we want to punish counterfeiters, and we have to do more than just lightly punish them for this kind of activity, because counterfeiters historically need to be deterred or they will just continue to distribute more and more counterfeit and become more of a problem. It seems to us as we review counterfeiting cases that counterfeiters, even after they have gone to prison and suffered incarceration for periods of time, they very often go back to counterfeiting if they have the opportunity. So whatever we can do to deter that, whatever we can do to stop that, would be beneficial.
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    Also, we see a trend now where narcotics traffickers and violent street gangs are getting involved in the distribution of counterfeit currency, so this is taking on a new flavor, that kind of counterfeiting, because it is not just strictly limited to the white-collar-type criminal, and of course there are ancillary issues related to violent street gangs and narcotic traffickers getting involved in counterfeiting and creating profits from that that can be used in other areas.

    Chairman CASTLE. Well, that is my view as well. I mean, when these laws are written and they are expanded, such as you and I have just discussed, it doesn't mean you have to use it in every instance, but it does mean that in certain instances it is there, it is available. It seems to me that in counterfeiting, where we have a known incidence of not particularly long sentences in which they are actually producing the very essence of a lot of crime, that is money, and they can do it in incredible numbers fairly rapidly, as we have seen in the demonstration already, that the ability to seize greater assets may be the deterrent which is necessary. If you are not going to be able to put them in prison for more than a year, and if indeed they can get off for $1,000 or $2000, which they can run off in a day, maybe something that hits a lot harder is what is needed.

    Mr. LYNCH. Those sanctions, Mr. Chairman, if judiciously applied, would be a welcome benefit.

    Chairman CASTLE. Again, changing subjects, years ago it was hard to go into any store or restaurant without seeing a ''Know Your Money'' flyer or poster; I remember seeing them. While your presence here indicates your concern about the issue, and while you say there will be increased efforts on public education, how do you explain the relative lack of public education on this issue for the past couple of decades?
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    Now, this is a good piece of literature which I have seen before, and there is some good education going on, but as I said, I mean, maybe I am pretty gullible, but I look at this, and heck, I am running this subcommittee, and you guys have put on demonstrations for me, you have shown me all the watermarks and all of this stuff, and believe me, I probably wouldn't look twice at this if somebody handed it to me. I perhaps don't need to be educated, but we have a heck of a lot of merchants and people out there who do.

    Are education projects really up to the speed that they need to be? I mean, I think we have done a lot with innovation, but are we doing the education to make sure the innovations are truly working, other than the banks, which I assume are educated?

    Mr. LYNCH. As a matter of fact, Mr. Chairman, it is interesting that you mention ''Know Your Money.'' A revised edition of ''Know Your Money,'' which will incorporate the new $100, $50 and $20 Federal Reserve notes is due out sometime after May, and the Department of the Treasury has committed to print over a million copies of the new ''Know Your Money'' brochure, which will be tremendously helpful. And frankly, the reason why a newer edition has not come out is simply because we wanted to incorporate the $20, which is the most widely used domestic note, into the ''Know Your Money'' brochure, and printing it prematurely, before the unveiling of the new $20, would have created additional expense that we would like to have avoided.

    Now we will, in May or shortly thereafter, put out a new ''Know Your Money'' brochure that should be very helpful to the public. Additionally, the Federal Reserve and the Secret Service will be involved in conducting seminars across the country starting on or about the 20th of May in a number of cities to cash handlers, merchants, law enforcement, financial institutions, and this series of nationwide seminars should be helpful in helping those people who handle currency more often than others to authenticate genuine currency.
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    Chairman CASTLE. Good. Well, thank you.

    Let me at this time turn to Mr. Fox. We will have another round of questions after Mr. Fox is done.

    Mr. FOX. Thank you, Mr. Chairman. I appreciate your leadership in bringing this issue forward.

    I will ask my first question to Mr. Lynch. I think the Chairman is right. To the naked eye or someone who is not schooled as you are, I wouldn't think twice about this, especially when you are moving fast and you are not thinking about it. Now I am going to start looking at every dollar I get.

    I guess the question would be how can the printer that you have right there print green and gray ink at the same time?

    Mr. LYNCH. The ink has different colors in it, color cartridges, that can be put in the printers. Printers now can print many, many colors.

    Mr. FOX. So you can scan in, and it will tell the computer, print green here, print gray there?

    Mr. LYNCH. Absolutely.

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    Mr. FOX. I noticed in checking with the Chairman, I see it doesn't have the threads in it, and it doesn't have the watermark, but everything else is—we can scan the image, and we really have to be watchful.

    Let me ask this question, if I may, Mr. Lynch. As Congress takes a serious look at this issue, how can we work to make sure that our financial institutions are not duped into accepting or passing to themselves? What can we do additionally?

    Mr. LYNCH. Well, sir, what we would like to do is we would like to work, as I said, with the reprographic industry to preclude counterfeiting in those three phases so that we can make it more difficult for counterfeiters to manufacture counterfeit currency.

    In terms of ensuring that financial institutions do not accept counterfeit currency, it is very important that not only do we train financial institutions, but that financial institutions incorporate training for their internal personnel as well. And that training process has to be an ongoing process, and it has to be a process that enhances not only the authentication of genuine currency and the detection of counterfeit currency, but it is one that has to center on the fact that this is a serious activity and that we need the support of financial institutions if we are going to conquer the problem, because if financial institutions unwittingly accept counterfeit currency, not only is that currency injected into the commercial system, but also valuable leads are lost when that money is not determined to be counterfeit until it gets to the Federal Reserve System.

    Mr. FOX. Is there a financial incentive for the financial institutions to be careful? I mean, do they lose money if they are not careful?
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    Mr. LYNCH. Financial institutions do lose money if the money is determined to be counterfeit by the Federal Reserve. The Federal Reserve will debit the account of the bank that transferred that currency to the Federal Reserve.

    Mr. FOX. Is there a replacement note?

    Mr. LYNCH. No, sir, they cannot. They lose that money, and if the financial institution can determine what account was responsible for depositing that money, then they will, in turn, debit that account for the currency.

    Unfortunately, there is little incentive, other than that of civic responsibility, that would—and of course the possibility of losing currency—that would cause a bank, once they have accepted currency, to scrutinize it closely in their currency room without passing it on to the Federal Reserve, because the Federal Reserve will debit their account.

    Mr. FOX. Sometimes I have seen the currency put under an ultraviolet light. Is that what banks should be doing as well?

    Mr. LYNCH. Well, certainly, the ultraviolet light will help in determining whether certain notes are genuine or counterfeit, because in the new currency, the ultraviolet light will help determine whether the security thread is a legitimate security thread, not that it would be foolproof. In other words, a counterfeiter might simulate a certain color under ultraviolet light for a security thread. However, in some instances, if that color that should be showing under ultraviolet light is missing, then clearly the bank would understand that they have a counterfeit note on their hands.
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    Mr. FOX. What role is being played by local law enforcement in combating and prosecuting counterfeiting, and do they have a zero tolerance policy themselves?

    Mr. LYNCH. To my knowledge, in virtually every jurisdiction that we work, there is a zero tolerance policy by local law enforcement. Over the years the Secret Service has enjoyed a tremendous working relationship with local law enforcement, and very many of the people that are stopped passing counterfeit notes are first encountered by local law enforcement that is called by a merchant or a bank teller, and in very many of the patrol guides that are issued and promulgated by law enforcement, they have instructions to contact the Secret Service when they come upon counterfeit currency.

    So the system, the communication and cooperation between the Secret Service and local law enforcement has been tremendous, and we see no change in that over the years.

    Mr. FOX. Well, I know the Secret Service has done a good job in educating chambers of commerce, because I have been to one of those meetings. But is the Administration educating you regarding the law in the production of U.S. currency and teaching them the serious consequences of breaking this law?

    Mr. LYNCH. That is a very interesting comment, sir, because as I understand it, our Treasury Public Affairs is seriously looking at a campaign of public education that might take us into the public school system so that we can teach our youth about the security features in genuine currency, help them authenticate currency and help them detect counterfeit currency. And what we have seen in many cases is sometimes our children help educate our parents, so we think that is certainly a very interesting initiative and something that we will look to pursue.
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    Mr. FOX. Thank you.

    Director Ferguson, if I could ask you a couple of questions, how does your currency compare to other currencies in the world in terms of the ease of counterfeiting?

    Mr. FERGUSON. Certainly the new Series 1996 $100 and $50 notes, and soon the new $20 this fall, are equal to the currencies around the world. They have virtually the security packages that are used in most currencies. They vary greatly from country to country, depending on their traditions as far as use of color, multisize, but the basic security package is very, very similar to that which is used anywhere else.

    The Series 1990, the security thread and microprinting is a very good note and would compare favorably with most currencies. The currency before that is of older technology and is, in fact, vulnerable to the technologies that we have seen emerging over the last four or five years.

    Mr. FOX. What do you mean by ''microprinting''? Can you describe that?

    Mr. FERGUSON. Microprinting is printing that is of very, very small, virtually impossible to read with the naked eye, and also very, very difficult for copiers and scanners to resolve into individual letters, so on the Series 1990 currency, around the portrait it would say ''United States of America'' repeated many times. If you looked at a copy, it would just be a line or blotches. The letters are actually below the size of resolution for the copier.
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    Mr. FOX. Do you and Mr. Lynch meet with international counterparts to discuss the state of the industry and what, you know, cutting-edge technologies you can adopt that other countries may have found successful?

    Mr. FERGUSON. Yes. We at the Bureau of Engraving and Printing belong to several different international groups, the Four Nations Group, which is Canada, Great Britain, Australia, and the United States; also the Pacific Rim Bank Note Printers Conference; and we are members of the European Bank Note Printers Conference, where we, in fact, meet with all of our counterparts, or the vast majority, around the world to discuss this very topic.

    The most important topic in the security printing world today is how, in fact, to stay in front of technologies. No longer can we allow a currency design to stay in use for 40 or 50, or, in our case, 70 years. We have to be ready and prepared to augment the security features on a much more regular basis.

    Mr. FOX. Based on what you and Mr. Lynch discussed this morning with the printers and the computers and what they have done, should the U.S. Government have some means of tracking who owns color printers and high-quality copy machines? I mean, it sounds like a daunting task, but what could be done?

    Mr. FERGUSON. We are working, as Mr. Lynch testified earlier, with the industry to identify ways of interacting with the technology to, in fact, make the technology not copy U.S. currency, to make the copies that are produced by that technology traceable back to an individual machine, which is more of a law enforcement and forensic tool than it is a prevention one; but interacting with the scanners and the computers and the output devices, somewhere in that process to interject a system that would recognize that as a U.S. currency note and not allow it to be reproduced faithfully.
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    Mr. FOX. Thank you, Mr. Chairman.

    Chairman CASTLE. Thank you, Mr. Fox.

    But you are not talking about having a key for this, are you? That is, if you looked at the color reproduction, and it had the dots on it, you could key it into whose printer it was? You would just be able to match it up if you ever found that particular printer; is that correct?

    Mr. LYNCH. Well, Mr. Chairman, as a matter of fact, we are looking at that, at both.

    Chairman CASTLE. At a key system, too?

    Mr. LYNCH. At a key system and a way to forensically match up a counterfeit note with a computer printer. And that, of course, is being done with a copier technology, and that type of application is being researched with computer-related technology.

    Chairman CASTLE. Let me ask a question that perhaps either of you could answer. I was going to ask it originally of Mr. Lynch, but I think it is probably in the realm of both of you. But clearly, one of the most effective deterrents to counterfeiting is the lack of access to the right quality of paper. In fact, you have sort of hinted at that already today earlier. Other countries in the world seem to have addressed this issue by using alternatives to paper, and I have here an Australian note which is no longer in production, actually, but it is a polymer paper, and there is a little Mylar section there which I can actually see through, and it is different than paper. And this is Thailand, Thai currency with the same type of effect. It obviously holds up longer and also has identifications that are not easily reproduced by color on copiers or whatever it may be.
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    I know we just changed our currency, but are we behind the curve on this, and won't the need for an alternative substrate become more serious? The better and cheaper, more prevalent that personal computers become, they are becoming even more prevalent and better, are we going to have to think about this next modernization and this next change?

    Mr. FERGUSON. Mr. Chairman, several answers to that question. The United States is not behind the curve. We are evaluating alternate substrates, and we evaluate a full range of security features constantly to determine which would be best, how they could be implemented, what they cost and what their benefits are.

    I would say that with the issue on the polymer substrates that you pointed out—Australia is using it, Thailand has recently begun production, and a few other smaller countries have introduced commemorative notes on the polymer—that it is early in the phase of that particular product line to be able to determine its full capability to prevent counterfeiting, how well it will hold up when it is subjected to the adversarial analysis of the counterfeiters out there in the world, and how easily they will be able to reproduce on polymers.

    Most packaging is, in fact, printed on plastic, so printing on plastic is not unique. However, it does make it much more difficult in the area of the personal computers, because it is hard to get that clear window and a coating behind every other part of the printing. Whether or not that will hold up or not, we are not sure, but we are seriously evaluating that to be able to provide the policymakers with a full range of information should they want to consider that in the future.

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    Chairman CASTLE. I have toured your facilities, of course, and it just occurs to me that I don't really understand how these polymer substrate notes will be made with the Mylar windows or whatever. Would it be possibly the same way, with the same kinds of machines where they would be run off? Would it just be a different base that would be used, or would it have to be an entirely different physical plant to do something like this?

    Mr. FERGUSON. Sir, those notes that you have in front of you were produced on virtually the same equipment that we use. There normally are one or two more operating steps that would be required. We would buy the substrate, the base is a clear polymer film, it is coated to look like paper with the exception of the window area, and we would print on that surface.

    The Australian note that you have, after that printing there is a lacquer overcoating that is done on both sides. That would have to create another operation to do that. However, it is done with a commercial offset printing press, so it would not require a different plant, simply another manufacturing step.

    Chairman CASTLE. You may not know the answer to this, but approximately how much more do you think this would cost, and how much longer would it last? I mean, obviously we go through a one dollar bill in 18 months or something like that. How much longer would something like this last if you know the answers to those things, your best guess?

    Mr. FERGUSON. The Australian experience has been that it lasts three to four times as long as their paper notes of similar denominations, and it costs approximately twice as much as their paper notes.
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    Chairman CASTLE. Mr. Lynch, do you feel that this kind of a note would be more foolproof in terms of counterfeiting than even what we are doing now with the changes that have been made, or is there not that much difference between them? Are these more easily replicated than perhaps is obvious, to me at least?

    Mr. LYNCH. Well, Mr. Chairman, it would really depend on the security features that are input into the substrate. We have seen ample evidence of good quality counterfeits in the credit card industry, so counterfeiting using offset printing or using a silk screen process is certainly not new to counterfeiters using a plastic substrate. But certainly there are security features in our current paper currency in the substrate that are very effective deterrents, and there may very well be a number of very effective deterrents available in a plastic substrate, but I would defer to Mr. Ferguson and his expertise in that area.

    Chairman CASTLE. Mr. Ferguson was touching on it. Maybe I should ask him directly then, too. I mean, this is to an amateur. What catches my eye is this little Mylar window, which to me is quite different, but maybe to a counterfeiter it is a very simple thing to do, I don't know. I am just trying to determine if something like this—and I am not suggesting we do this yet, I am just asking questions—but if something like this would be harder to duplicate by a counterfeiter, and, therefore, is something we should be thinking about vis-a-vis the future.

    Mr. FERGUSON. Well, sir, we are certainly looking at and following very closely the developments in the alternate substrate arena. I would say that in the world of security paper, it is a very mature industry, we have a great deal of experience, there are numerous currencies around the world that we can analyze and evaluate, run, you know, all kinds of tests against and check with the effectiveness of the features in those papers.
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    With the polymers we are at a very, very early stage, and there seems to be a potential for the introduction of new security features that might be new and, in fact, very interesting that we are taking a look at. But I would say it is very early and premature to say that the polymer, in fact, is a better security substrate for currency.

    Chairman CASTLE. OK. Thank you.

    Let me go on to other questions, Mr. Ferguson, of you. Will all of the anticounterfeiting devices introduced in the Series 1996 higher value notes—the $50 and the $100, I guess, are the only ones out right now that are included in the lower value notes, and obviously there is some—but is there a point of diminishing returns?

    Mr. FERGUSON. Currently, sir, the decision will be to incorporate the features as we go down through the $20's, the $10's and the $5's that are currently being designed, and the final decision on the full package features will be made as we do that final decision process.

    I would say that there is, in fact, a cost for each of these features, so you have to make determination on the cost of the feature versus the risk to the denomination, and that will be part of the process. Also, as we go down, we look at introducing new features and also new features that will make the note easier to denominate and authenticate in a machine environment as we get down to notes that people use in vending machines and other kinds of bank machines.

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    Chairman CASTLE. Thank you.

    In your testimony you state that copiers and scanners have difficulty in counterfeiting the deterrent features in the newer currency, which I hope is correct. However, I understand that a fake watermark can be indicated on a P-Note, a computer note, by manipulating the printing of a watermark-type mark on the reverse of the note. Can you comment on that?

    Mr. FERGUSON. Sir, as we always state, there is no such thing as a counterfeit-proof document. Any feature can be simulated to some degree in order to fool the unsuspecting, and perhaps not as careful as we would like, public.

    There are ways of creating the illusion of certain features, whether it be watermark or thread, by printing on the back; or the use of foils to try and simulate the OVI. These features, though, when compared to a genuine note, normally are fairly easily recognized to even the general public. Comparing two notes is probably the simplest way to indicate that this is not a real watermark.

    Chairman CASTLE. I will ask you this question, but if it is not in the public interest for you to answer it, please tell us so, and don't answer it. But if you can, would you please discuss what additional security features the Bureau of Engraving and Printing, the Federal Reserve and the Secret Service are considering?

    Mr. FERGUSON. I would say, sir, that we are considering a wide range of features as we look at the next generation of U.S. currency, and in doing that, we are looking in both what we call public man-in-the-street-type features or overt features, and we look at the detectable-type features, and we evaluate both every note that comes onto the market, every technique that any vendor wants to suggest, and we have an open Commerce Business Daily announcement asking for those people to come in and visit with us.
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    In addition to that, we have a contract with the Johns Hopkins Applied Physics Lab for them to help develop new features, especially in the machine authentication side, that no one else is using that would be the complete property of the U.S. Government.

    Chairman CASTLE. If my recollection is correct, even when you give us our personal show-and-tell sessions on what you are doing, you haven't told us 100 percent of everything that you are doing, and I think that is probably the way it should be. I think there are a few things that nobody knows about except perhaps a few of you.

    Mr. FERGUSON. There are certain classified systems in U.S. currency, sir.

    Chairman CASTLE. Good. Keep it that way.

    I don't have any formal questions I want to ask at this time, but I want to make sure at this hearing that we have brought out everything that you think is relevant to our consideration of any issues dealing with currency, particularly changing criminal laws or anything of that nature. So to either of you, or Ms. Pagano, if she wishes, is there anything else that you feel that should be said that has not been brought out or that needs to be reemphasized here?

    Mr. LYNCH. Well, Mr. Chairman, I would just like to emphasize that a lot of the notes, the counterfeit notes, that are passed on the public are not good quality notes. Nancy Clark, who is in charge of our counterfeit information and research section has brought in just as a display all of the counterfeit currency that was successfully passed on the public in one month from Newark, New Jersey, and she is able to show, of that portion, how many of those were P-Notes. And if one were to go through those notes, one would find it amazing that some of those notes managed to get passed on the public, but it is simply because a lot of people who are in the business of accepting cash are just not paying attention.
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    Ms. CLARK. The money on the table are the P-Notes that came from Newark for the month of January. The money still in the box are the offset and OMC. This represents $50,000 in P-Notes. That is a month of Newark; it is approximately a week-and-a-half of what Miami, L.A. and New York are taking in.

    Chairman CASTLE. A P-Note is a note made on a personal computer?

    Ms. CLARK. Yes.

    Chairman CASTLE. Very similar to what we saw in the demonstration today; is that correct?

    Mr. LYNCH. That is correct, Mr. Chairman. That is our terminology for printer notes, and if one were to peruse those notes, one would find an awful lot of notes that frankly should not have been accepted, but were accepted because the people that were handling the cash did not examine that money, because most of it is not very deceptive.

    Chairman CASTLE. But there is a lesson here, because Mr. Fox and I have both opined up here that we don't pay a lot of attention to this. We see Ben Franklin, we see a $100 instead of a $1, we are pretty happy we got a hundred, and we don't pay a lot of attention to it. And I am afraid that the person working at 7-Eleven or Macy's or someplace is in a hurry, a lot of transactions going on, and they look quickly at it.

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    I mean, to somebody with a well-trained eye who has taken the time to look at it, it is one thing. And I know when I go to BP, I have seen the people who sit there and stare at whole sheets of these things and can pick off little flaws of these things, which is amazing.

    I don't know if we train our sales clerks to do that kind of thing or not, but I worry to make sure that those who are really getting this money first—I will probably get it in change or something, so I am not going to see it first—the banks and the merchants are adequately trained to be able to spot those kinds of things, because to you it may seem—I've got to tell you, from here it looks like a lot of good money to me. To you it has a different appearance, I guess.

    Mr. LYNCH. And that is precisely why we are concerned, because as poor as some of this money is, the prospect of the quality of counterfeits getting better as the quality of the technology improves certainly exists, so that is precisely why we are taking this matter so seriously and why we are working very hard on a number of initiatives to deter this kind of counterfeiting, because not only will the quality get better as the technology improves, but also the speed with which this currency can be printed will continue to improve. So it is a serious concern to us.

    Chairman CASTLE. Well, Mr. Fox has another question, but I would just like to comment on that, because, I mean, I agree with you. I think we have to take this very seriously. I think we have a statutory responsibility here in Congress and starting at the subcommittee maybe looking at the criminal statutes and perhaps some other areas to tighten things up to support what you all are doing. And I think we do need the educational process out there. And I think this hearing is good, although I am not sure showing people how to do this is—particularly a 12-year-old who can probably—I can probably use a machine the rest of my life and never figure out how to do it, but kids could.
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    Having said that, we know what the problems are, who is doing what out there, and I think if we educate the people who are handling money in the first instance, it can make a difference so that we can put a stop on this. So that, combined with good criminal statutes, I think, can make a difference. So we appreciate what you are saying.

    I totally believe that there is some algebraic formula for all of this, but it is a much more rapid turnover than it used to be in terms of the modern equipment with respect to catching up to the very things that you are doing to counterbalance that, and that is why we have to keep moving and I think keep looking forward to the next level of security, and be it the kind of money we have or what is on it or whatever it may be.

    So we do appreciate what you are doing, but let me turn to Mr. Fox.

    Mr. FOX. Thank you, Mr. Chairman.

    In terms of follow-up from the Chairman's line of questioning, what is the current penalty for counterfeiting in the United States?

    Mr. LYNCH. The current penalty for possession or passing of counterfeit currency is 15 years imprisonment. However, the imprisonment that is imposed in the judicial process is largely dependent upon the sentencing guidelines, which really provide a barometer for our legal system to use to mete out sentences that are considered fair across the board, and this technology actually plays against the sentencing guidelines, because the counterfeiters that use the reprographic technology generally only print to order and are only caught with small amounts of this at a time.
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    As anecdotal evidence of that, we have heard that, for instance, distributors of counterfeit currency in New York City will only sell packages of maybe $3,000 at a time to prospective passers, knowing that if they get caught that they are not risking great exposure, because sentencing guidelines do not heavily punish those who are involved in counterfeiting that has less than $5,000 in currency attached to it.

    So it is important to look at the base offense level, as it relates to sentencing guidelines to make sure that there is no windfall enjoyed by those counterfeiters that use this reprographic technology and are able to play against the odds by manufacturing and distributing very small amounts at a time as opposed to the more traditional counterfeiter that would make large amounts of counterfeit currency at one time.

    Mr. FOX. Then are you saying that there may be a need for the Chairman to explore, to change those sentencing guidelines?

    Mr. LYNCH. As a matter of fact, sir, I testified before the Sentencing Commission earlier this month, the United States Sentencing Commission, and the Department of the Treasury is working in conjunction with the Department of Justice to explore possible amendments to the sentencing guidelines with the U.S. Sentencing Commission, and we anticipate that this, the exploration and possible amendments to the sentencing guidelines, will be pursued vigorously during the next amendment cycle, which begins on the first of May.

    Mr. FOX. What about the possibility of the Castle bill where you would have the instruments of the crime, analogous to the Chairman when he talked about drugs, where the instrument of the crime is used to facilitate the counterfeiting? Would possession of those as additional areas for prosecution and sentencing, would that be helpful to you?
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    Mr. LYNCH. As a law enforcement officer, sir, I would say that greater deterrents are always welcome, and we would certainly welcome a greater deterrent to counterfeiting.

    Mr. FOX. I have nothing further. Thank you, Mr. Lynch.

    Mr. LYNCH. Thank you, sir.

    Mr. FOX. Thank you, Mr. Chairman.

    Chairman CASTLE. Mr. Lopez has explained to me that they can apparently keep the image of the currency inside the computer on the hard drive. Am I making sense with this? You may know more about this than I do. If so, is this something that is considered in terms of the criminal aspects of this, or could be?

    Mr. LYNCH. Well, it is certainly something that could be considered, Mr. Chairman. As a matter of fact, if, for instance, a counterfeiter were caught with a disk containing the image of a $100, there is no provision that would place any greater value than the $100 image, although the potential harm that the distribution of the images on disk or over the Internet—the potential harm could be devastating. For instance, if someone were to transmit the image of a good quality counterfeit or transmit or perhaps make disks containing a very good image and give them to his friends and/or associates, and certainly, the fact that a counterfeiter who had, for example, in his possession five disks each containing a image of a $100 Federal Reserve note would only be exposed to $500 in terms of the monetary loss associated with that criminal activity, that certainly does not lend itself to a fair assessment of the potential damage that that can cause.
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    Chairman CASTLE. My recollection was in the old days you could see the plates, you know, that they had with eyes and all those kinds of things, and I think it would be something similar, analogous to that in terms of evidence and what we could use.

    Mr. LYNCH. It is quite analogous, Mr. Chairman.

    Chairman CASTLE. OK. Well, one other question. You said you testified before the Sentencing Commission. Does the Sentencing Commission meet routinely to review the sentencing guidelines and where they should be? Is that a routine thing, or was that a special session?

    Mr. LYNCH. As a matter of fact, Mr. Chairman, they do meet routinely. They meet regularly, and during the course of an amendment cycle, which covers several months, they review possible options to amend sentencing guidelines, and they seek and hear testimony from experts from various entities to include defense counsel, industry representatives, law enforcement officers and others in order to come to a fair and impartial option to amend the sentencing guidelines.

    Chairman CASTLE. OK. Thank you.

    I have nothing further at this time. I don't think Mr. Fox does either.

    We very much appreciate all of you who participated here today being here. I think we share your concerns right down the line. Obviously the answers aren't always quite as obvious as sharing the concerns, but we will continue to work on this. If there is ever any help you need from us to prevent any kind of counterfeiting or illegal activity in this area, we would like to know about it, because we feel strongly that this needs to go forward. But I think today's hearing has been very helpful in making sure that we and our staffs are completely informed, and we appreciate your time in coming forward today. With that, we stand adjourned.
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    [Whereupon, at 11:20 a.m., the hearing was adjourned.]