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Spike in Fake Euros Raises Concern

WHEN THE EURO was launched in 2002, it was said to be immune to counterfeiting. The currency had sophisticated security features, some known only to a few central bank officials. The number of fake euros seized by police declined every year. But last December, the European Central Bank (ECB) quietly announced that police seizures of counterfeit notes had increased by nearly 12 percent in the second half of 2007. The number of fake coins seized rose 30 percent.

The ECB noted, however, that the number of fakes—296,000 banknotes, mainly in €20 and €50 denominations—is still a tiny proportion of the 11.4 billion notes in circulation.

Stronger efforts by authorities to remove counterfeits from circulation explain part of the increase, says Ezster Miltenyi, a spokeswoman at the ECB in Frankfurt, Germany. Moreover, despite the recent upsurge in confiscated fakes, the ECB says that euro banknotes are copied less frequently than the legacy national currencies were.

That could change as criminals start to appreciate the market opportunities offered by the euro. The eurozone of 15 EU countries offers a bigger potential market than the smaller legacy currencies. The raw materials are cheap and readily available. Technology has made it faster to craft an acceptable fake that includes holograms and optically variable inks that change color under ultraviolet light.

“It’s very profitable. It probably costs a counterfeiter €0.50 to produce each €50 note,” says Dutch banknote consultant Karel Schell. He notes that the real challenge “is to get it into circulation.”

The economics of counterfeiting coins are also becoming more attractive. “A very informal estimate showed that a counterfeit €2 coin would cost about 20 cents to make by a counterfeiter. In addition, the risk perceived by the criminal is smaller, as coin counterfeiting is perceived to be of lesser interest to law enforcement,” says Yannis Xenakis, head of the European Commission’s euro protection unit.

Police have struck back, closing two illegal mints in Italy and Spain last year. Police seized 211,100 fakes, most of them €2 coins. That brought to 14 the number of illegal mints discovered since 2002.

As to the source of the fake notes, experts are pointing fingers at master counterfeiters working in Eastern Europe. “The majority of fakes are coming from the eastern countries and a few types are really good counterfeits,” says Schell.

Colombia is another prime source of fake currencies, including the euro, says Jean-Paul Vacandare, president and founder of CTMS, a French banknote detection-device manufacturer. “Colombia has the equipment, the tradition. The skills are passed down from father to son. It’s an export business, just like for any other merchandise that is distributed from wholesaler to retailer, and each takes their cut,” he says.

Colombian counterfeiters still favor the dollar, a currency they have been copying for generations. Last June, Colombia’s DAS internal security service, the U. S. Secret Service, and investigators from the Bank of Spain shut down a major dollar and euro counterfeiting operation in Colombia. The case took 113 officers eight months to crack. Police arrested nine people, and seized 400,000 fake €50 and €100 notes, and 1.1 million $20 and $100 bills. They found a further 4.4 million bills being prepared for production. It was the largest counterfeit operation ever discovered in Colombia.

Last September, Hungary’s National Bureau of Investigation arrested six people for counterfeiting. Some were arrested as they were loading stolen security paper onto a truck. Police seized more than eight tons of paper, enough to produce €140 million-worth of fake €50 notes.

Having security paper to print notes on is essential to make fakes look convincing. And while it is not possible, according to Schell, to produce notes good enough to fool detection systems at banks, the counterfeiters generally only have to fool a shop clerk.

Counterfeiters’ attraction to the euro will probably keep growing, says Peter Ettinger, president of Document Security Systems, a U.S. security technology company. “Technology has enabled a whole category of casual counterfeiters to get in the game. The euro’s newfound value is making it a more advantageous target.”

This is why the ECB has announced that it will issue a new series of euro notes in 2011 that will incorporate more security features. “The [counterfeiters] are always looking for new ways to trick us, and we are always looking for ways to protect our currency,” says Miltenyi.