Fake in India: A counterfeit economy
27 Nov 2014 9:47 PM GMT
Sahil got a shock when the bank employee told him that one of the 20 notes of ‘500 he had brought to deposit was a counterfeit. He was also embarrassed – at being fooled as well as being possibly taken for a criminal. He first argued that he did not know, a common man like him could not be expected to cross-check all the security parameters (there are 14 of them, to be precise), and the bank should accept the note. The Safdarjung Enclave branch of Central Bank of India refused. Sahil was lucky, though. His father, who runs a small confectionery shop in Arjun Nagar of south Delhi, managed to catch the customer who had passed the dubious note on to him. Now was the customer’s turn to be shocked and embarrassed, but he changed the note. In the process, however, the dubious currency note won another life.
It had started its journey, most likely from a sophisticated printing press in a neighbouring country. It had crossed the border possibly near Malda in West Bengal – as part of a bunch of fake notes with a total face value of Rs10-15 lakh in a gunny sack thrown in a nullah from one side of the border and picked up on the other side. Now it would continue to circulate, changing hands as a genuine one and harming the economy. Travelling alone, it cannot be captured by any law enforcement agency.
The only way to catch it and put it out of business is when it comes to a bank counter. That is why the Reserve Bank of India (RBI) has asked banks to net fake notes, not reject them. It wants banks to accept all cash, without bothering about veracity, and give due credit to the customer.
Counterfeits are to be filtered out at the back office. The RBI directive says, “In no case, the counterfeit notes should be returned to the tenderer.” The central bank wants to be helpful to the hapless common man. A master circular dated July 1, 2014, reminded all banks of the monetary policy statement for 2012-13 (announced on April 17, 2012), “wherein it was indicated that banks may streamline their system in a manner which will make them bear the risk of counterfeit banknotes rather than the common man who unknowingly comes in possession of such notes”.
It also refers to a circular dated November 16, 2012, “advising that failure on the part of the banks to impound counterfeit notes detected at their end will be construed as wilful involvement of the bank concerned in circulating counterfeit notes, and appropriate penalty will be imposed”. In practice, however, the central bank advice is routinely flouted. Most banks assert they follow all RBI guidelines strictly, but customer experience contradicts the claim. What usually happens is that the bank employee at the cash counter checks the authenticity of the notes and takes out the fake ones. Then one of the three things happens: the note is returned to the customer straight away, or it is stamped ‘forged’ and returned to the customer, or it is stamped “forged” and impounded. None of the scenarios follows the RBI guideline. The returned note is back in circulation – even with the ‘forged’ stamp.
Why do banks unwittingly abet the crime of keeping fake notes in circulation? Accepting a counterfeit note means bearing its cost. For every impounded fake note, RBI gives 25 percent of the face value to the bank in compensation, that is, the bank stands to lose 75 percent of the face value.
A junior official of State Bank of India, talking on condition of anonymity, admitted that bank officers prefer to return fake currency to customers. “You have to understand why we do so. People come expecting us to exchange their fake currency notes with genuine ones. When we impound the currency, they argue with us. Sometimes they make a scene. What can we do about it? So, to avoid unnecessary arguments we sometimes stamp it and return it.” Vipin Malik, former director on the central board of RBI, explains, “Frankly speaking, an FIR [first information report] has to be registered by the bank when it gets a counterfeit currency note. Once you file an FIR, there is a lot of legal hassle which people and bankers try to avoid.
What is required is that the government along with RBI should devise a mechanism to put in place a proper system to deal with counterfeit currency.” That mechanism is, of course, lacking. In other words, the banking sector should be doing much more than what it does now on battling the menace of what is officially called fake Indian currency notes (FICN).
A top CBI official who has probed several cases of FICN says that a part of the problem is RBI’s reluctance to highlight the issue.
“RBI is not in favour of highlighting this issue. It feels that the proportion of FICN in the economy is very small and in no way can it cause much harm to it. RBI feels that if it gives prominence to the matter, the counterfeiter’s purpose – of eroding the legitimacy of the Indian currency and thus subverting the economy – will be served,” says the official. Malik insists that the proportion of counterfeit currency to that of legal tender is indeed “negligible”. Still, “why should even a single fake note be there in circulation? Any amount of counterfeit is bad. The RBI has taken a lot of initiatives to check the circulation of counterfeits.” An RBI official admitted that they often receive complaints about banks flouting the guidelines, “but in such cases due action is taken”.
Doing anything more than that, the official argued, would be beyond a civil body’s mandate and it would be up to the law-enforcement agencies to take further action.
An apex bank spokesperson said, “Like all central banks, the RBI also keeps researching new security features available the world over for currency notes. It introduces new security features to the currency notes from time to time. It also conducts training programmes for institutions about security features of genuine currency notes.”
Pak hand
On May 14, 2009, police nabbed four ruffians near Star cinema, Mazgaon in south Mumbai and seized high-quality fake Indian currency notes (FICN) of ‘1,000, totaling a face value of Rs3,45,000. After interrogating them, the anti-terrorism squad (ATS) of Mumbai police arrested two more, recovering FICN of face value of Rs 18,500.
The investigation in this matter was later transferred to the national investigation agency (NIA), which soon realised that the catch was not isolated and the amount involved was far bigger. The fake notes of ‘1,000 seized in this case had the series number 2AQ – the same as the fake notes recovered at the Kochi currency chest of the RBI. The quality of the notes was also the same, prompting the agency to join the dots.
There was obviously a wider network at work behind circulation of FICN, and the source of the fake notes found from Mumbai and Kochi was the same. When NIA sent some of the notes to the RBI, the central bank’s experts were aghast. In their close scrutiny, they found in fake notes many covert features of Indian currency, and the imitation was so good it did not look like an amateur job from a shabby printing press.
“It could have been achieved only through highly sophisticated machinery only available with sovereign governments,” the NIA noted in a release, quoting the RBI experts’ report. It added, “[A] similar opinion was given by experts of bank note press (BNP), Mysore.” As the NIA dug deeper, the canvass soon expanded, and several cases of counterfeit currency recovery under investigation all over the country seemed to be interconnected.
The fake currency also makes it cheaper for the ISI to fund its terror activities in India. Fake notes used to be routed into India through several neighbouring countries such as Nepal and Sri Lanka. Nepal in particular was a major channel, and the scene came to such a pass that traders there started refusing to accept the ‘500 note. However, police and intelligence agencies made serious efforts, created awareness among people, and eventually eliminated the business of fake
currency there. Governance now
It had started its journey, most likely from a sophisticated printing press in a neighbouring country. It had crossed the border possibly near Malda in West Bengal – as part of a bunch of fake notes with a total face value of Rs10-15 lakh in a gunny sack thrown in a nullah from one side of the border and picked up on the other side. Now it would continue to circulate, changing hands as a genuine one and harming the economy. Travelling alone, it cannot be captured by any law enforcement agency.
The only way to catch it and put it out of business is when it comes to a bank counter. That is why the Reserve Bank of India (RBI) has asked banks to net fake notes, not reject them. It wants banks to accept all cash, without bothering about veracity, and give due credit to the customer.
Counterfeits are to be filtered out at the back office. The RBI directive says, “In no case, the counterfeit notes should be returned to the tenderer.” The central bank wants to be helpful to the hapless common man. A master circular dated July 1, 2014, reminded all banks of the monetary policy statement for 2012-13 (announced on April 17, 2012), “wherein it was indicated that banks may streamline their system in a manner which will make them bear the risk of counterfeit banknotes rather than the common man who unknowingly comes in possession of such notes”.
It also refers to a circular dated November 16, 2012, “advising that failure on the part of the banks to impound counterfeit notes detected at their end will be construed as wilful involvement of the bank concerned in circulating counterfeit notes, and appropriate penalty will be imposed”. In practice, however, the central bank advice is routinely flouted. Most banks assert they follow all RBI guidelines strictly, but customer experience contradicts the claim. What usually happens is that the bank employee at the cash counter checks the authenticity of the notes and takes out the fake ones. Then one of the three things happens: the note is returned to the customer straight away, or it is stamped ‘forged’ and returned to the customer, or it is stamped “forged” and impounded. None of the scenarios follows the RBI guideline. The returned note is back in circulation – even with the ‘forged’ stamp.
Why do banks unwittingly abet the crime of keeping fake notes in circulation? Accepting a counterfeit note means bearing its cost. For every impounded fake note, RBI gives 25 percent of the face value to the bank in compensation, that is, the bank stands to lose 75 percent of the face value.
A junior official of State Bank of India, talking on condition of anonymity, admitted that bank officers prefer to return fake currency to customers. “You have to understand why we do so. People come expecting us to exchange their fake currency notes with genuine ones. When we impound the currency, they argue with us. Sometimes they make a scene. What can we do about it? So, to avoid unnecessary arguments we sometimes stamp it and return it.” Vipin Malik, former director on the central board of RBI, explains, “Frankly speaking, an FIR [first information report] has to be registered by the bank when it gets a counterfeit currency note. Once you file an FIR, there is a lot of legal hassle which people and bankers try to avoid.
What is required is that the government along with RBI should devise a mechanism to put in place a proper system to deal with counterfeit currency.” That mechanism is, of course, lacking. In other words, the banking sector should be doing much more than what it does now on battling the menace of what is officially called fake Indian currency notes (FICN).
A top CBI official who has probed several cases of FICN says that a part of the problem is RBI’s reluctance to highlight the issue.
“RBI is not in favour of highlighting this issue. It feels that the proportion of FICN in the economy is very small and in no way can it cause much harm to it. RBI feels that if it gives prominence to the matter, the counterfeiter’s purpose – of eroding the legitimacy of the Indian currency and thus subverting the economy – will be served,” says the official. Malik insists that the proportion of counterfeit currency to that of legal tender is indeed “negligible”. Still, “why should even a single fake note be there in circulation? Any amount of counterfeit is bad. The RBI has taken a lot of initiatives to check the circulation of counterfeits.” An RBI official admitted that they often receive complaints about banks flouting the guidelines, “but in such cases due action is taken”.
Doing anything more than that, the official argued, would be beyond a civil body’s mandate and it would be up to the law-enforcement agencies to take further action.
An apex bank spokesperson said, “Like all central banks, the RBI also keeps researching new security features available the world over for currency notes. It introduces new security features to the currency notes from time to time. It also conducts training programmes for institutions about security features of genuine currency notes.”
Pak hand
On May 14, 2009, police nabbed four ruffians near Star cinema, Mazgaon in south Mumbai and seized high-quality fake Indian currency notes (FICN) of ‘1,000, totaling a face value of Rs3,45,000. After interrogating them, the anti-terrorism squad (ATS) of Mumbai police arrested two more, recovering FICN of face value of Rs 18,500.
The investigation in this matter was later transferred to the national investigation agency (NIA), which soon realised that the catch was not isolated and the amount involved was far bigger. The fake notes of ‘1,000 seized in this case had the series number 2AQ – the same as the fake notes recovered at the Kochi currency chest of the RBI. The quality of the notes was also the same, prompting the agency to join the dots.
There was obviously a wider network at work behind circulation of FICN, and the source of the fake notes found from Mumbai and Kochi was the same. When NIA sent some of the notes to the RBI, the central bank’s experts were aghast. In their close scrutiny, they found in fake notes many covert features of Indian currency, and the imitation was so good it did not look like an amateur job from a shabby printing press.
“It could have been achieved only through highly sophisticated machinery only available with sovereign governments,” the NIA noted in a release, quoting the RBI experts’ report. It added, “[A] similar opinion was given by experts of bank note press (BNP), Mysore.” As the NIA dug deeper, the canvass soon expanded, and several cases of counterfeit currency recovery under investigation all over the country seemed to be interconnected.
The fake currency also makes it cheaper for the ISI to fund its terror activities in India. Fake notes used to be routed into India through several neighbouring countries such as Nepal and Sri Lanka. Nepal in particular was a major channel, and the scene came to such a pass that traders there started refusing to accept the ‘500 note. However, police and intelligence agencies made serious efforts, created awareness among people, and eventually eliminated the business of fake
currency there. Governance now
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