Over the last two years there has been a tremendous increase of both public and institutional awareness in India of the large amounts of counterfeit paper money entering that country. Newspapers frequently print stories of large catches in police raids and sting operations -- however if the drug trade is any indication, these hauls prompt one to wonder how much more gets through. What is surprising though is the lack of discussion both in the Indian scholarly and popular press regarding the very direct link between the counterfeiting and the sponsorship of insurgency.

Insurgencies can be an expensive business, especially if you are trying to start one up, or keep it going in difficult times. Local operatives must be paid not only for their services, but also for the goods and services they need to buy to create the infrastructure to support the insurgency. If the currency in question is widely circulated in the region, such forgeries will be used in neutral and third countries to pay operatives. This is why Customs Officers in many countries get very suspicious indeed when they find travellers carrying large quantities of hard currency. There is a high probability that the person is either involved in something legally questionable, in the intelligence business or possibly both.

Insurgents such as those in Kashmir often pay their local hosts for food and lodging. It wins hearts and minds by making their presence less onerous to the locals, especially given the depressed local economy. All of this obviously has to be in the local currency. In order to avoid suspicion such payments can not be in unusually high denominations or even large bundles of low denomination notes. During the last stages of the obsessive and counter-productive American hunt for Somalian clan leader Mohammed Farah Aideed, one inexperienced American handler in Mogadishu made the mistake of paying his source with a crisp new twenty-dollar bill. The informant was dead by the end of the day, strung up in a marketplace as an example to other collaborators, no doubt, after he tried to spend or convert his big reward.

It goes without saying that those state sponsors of terrorism with the technical means would find it far more attractive to print the stuff rather than spend the real thing. There is also the added benefit of damaging the target's economy. However, such operations are relatively uncommon because of (a) the technical difficulties involved in creating currency that will pass casual inspection (b) the scale required to make a 'profit', given such costs.

One of the best known and documented cases was the Nazi effort known as Operation Bernhardt (April 1943 – February 1945) which did a good job of producing large numbers of some very convincing British banknotes (esp. £5 and 10). The SS which thought up and implemented the plan used Jewish concentration camp prisoners for the engraving and inking talent. Some nine million notes were produced, but they were never effectively distributed- they were largely used to pay agents in occupied nations and neutral third countries as well as agents in the Allied nations rather than the original goal of wholesale economic subversion. However, the Germans for all their efforts were never able to create perfect forgeries, and the quality of their efforts varied widely. It is not clear, how much of this had to do with the sophistication of the Bank of England’s design, and how much had to do with the passive resistance of the Jewish workers. However, it is important to note that many of the forgeries (mostly the £5 notes) were indistinguishable from the real thing without careful laboratory analysis. More recently the Taleban has been extremely unhappy with Moscow’s bulk reprinting of 10,000 denominated Afghani bills for Masood and the Northern Alliance [2] which has caused a major case of inflation in that country. The Russians -- who have printed Afghanistan’s currency since the 1979 invasion -- are reprinting existing serial numbers. This means its not possible for the Taleban to distinguish original notes from the Russian reprints, or even to accurately estimate the number in circulation. It has proved (for the Russians at least) to be a low cost means of supporting a friendly faction. Other cases include the revolutionary government of Iran which is estimated at having printed over a billion dollars worth of US $ 100 notes using machines ordered in the Shah’s time.

Security features prospective forgers have to overcome include replicating the feel and appearance of the paper, printing methods, watermarks, security threads, serial numbering, and appearance under magnification and ultraviolet light. The greatest security comes from the design itself. It is incredibly difficult to replicate the exact thickness, curvature, and fine print of every line in a well-designed note. Conversely, such fine detail and secret marks will not be useful to members of the general public or even low level bank employees. At this point, a definition of some of the printing terms would be useful. There are three basic methods; letterpress, offset, and intaglio. Letterpress is a process by which copies of an image are produced by repeated direct impression of an inked, raised surface against sheets – just like those old mechanical typewriters. Offset lithography, or litho-offset, in commercial printing, widely used printing technique in which the inked image on a printing plate is printed on a rubber cylinder and then transferred (i.e., offset) to paper or other material. Intaglio printing is the opposite of relief printing, in that the printing is done from ink that is below the surface of the plate. The design is cut into the printing surface or plate, which can be copper, zinc, aluminum, magnesium, plastic, or even coated paper. The printing ink is rubbed into the incisions or grooves, and the surface is wiped clean. Unlike surface printing, intaglio printing, which is actually a process of embossing the paper into the incised lines, requires enormous pressure. The ink actually stands up on the paper (which along with the size of the notes helps the visually impaired to identify currency) creating in effect a three dimensional design. It is the most secure means of printing currency. Most notes use a combination of such methods; for example, intaglio printing may be used for the portraits and filigree work, and letterpress for the serial numbers.

In Pakistan's case, the ISI (1) has a large and expensive operation in South Asia which needs suitcase loads of money, so scale is not a problem, and (2) has access to the technical skills and equipment of their own country's banknote printing infrastructure. Pakistan prints its own Rs. 1,2,5 and 10 notes through the offset printing method (also used on the Indian 10-rupee note), which incidentally is the same method used in the majority of forged Indian currency. There have also been large numbers of counterfeits produced with color photocopy machines, or with scanners and color printers. This however is clearly the work of opportunistic individual amateurs, as opposed to the relative sophistication of the offset produced notes. Newer issue high denomination Indian currency is printed intaglio and Rs. 100 and 500 notes have a segmented security thread to the left of the portrait [3] -- neither of which the Pakistanis have any local ability to reproduce. The forgers have not been able to reproduce the paper used by the RBI, or replicate the appearance of the notes under ultraviolet light. This has meant that banks with the appropriate information and equipment have had no trouble at all in distinguishing counterfeit notes. There have been calls to the RBI from some Indian intelligence agencies (worried no doubt by implications of the large monthly hauls of counterfeits) to issue entirely new designs, but the RBI, which has far more expertise, and experience on this issue is of the justifiable opinion that the benefits do not outweigh the costs at this juncture. The State Bank of Pakistan, like many state banks around the world outsources the printing of its higher denomination notes, in this case to one of the private British presses. If however Pakistan creates the in-house infrastructure for plate engraving, intaglio printing and security features one could safely expect high denomination forgeries to become ever harder to detect. If the Pakistanis are serious, one can expect them to pursue such options vigorously. In addition one can expect the ISI to attempt bribing or stealing access to Indian sources of its security paper, into the banks for the serial numbering, and ideally even pinch a plate or two from the Nasik plant. It is not feasible to protect the numbering system from a determined effort. With enough serial numbers any of their resident cryptologists or even a couple of university math professors would be able to work it out. The paper supplies and currency production though can be protected.

Effective distribution in the target country can be as great a challenge as production. A very high percentage (possibly the majority) of Operation Bernhardt forgeries failed to enter Britain, while those that did were picked up relatively quickly. Pakistan has several routes such as the Samjautaha express and Delhi- Lahore Bus, but these deliveries tend to be made to be to specific individuals. It’s most natural ally though has been the Indian criminal world -especially in Bombay and Uttar Pradesh via Nepal- with it’s well developed distribution channels, which buy and sell much larger quantites. It is this particular relationship that leads many to assert that the primary Pakistani goal is one of Economic warfare. I would suggest that the real motive is profit, with any economic damage as a bonus. Such trade makes the expensive business of forgery more profitable while gaining the ISI another independant source of revenue.

Given the current crudity of the forgeries, the best strategy is to work with banks and companies; giving them the equipment and training they need to identify and confiscate fakes. This should be done not just in India but in Nepal, Bangladesh, and Sri Lanka as well, and at the lowest possible price. The crucial choke points in stemming the supply would be border States such as Uttar Pradesh, Rajasthan and Gujarat [7-8], as well as any states with ongoing insurgencies, and any city in the subcontinent with a Pakistani diplomatic mission[4] or business. It will not do to depend on the security agencies to apprehend every low grade courier and every smuggler coming across with a bundle of forgeries, or even a significant number of them. The pushers will simply raise the financial incentives, (which they can print off their presses), and the police and intelligence agencies will find their energies diverted from other, more pressing issues. A public education campaign would go a long way to help - it is after all in people’s own best interest to pay attention if they believe banks or businesses might reject the cash in their pockets. Given how quickly money circulates in an economy the size of India, once small branches are capable of filtering out the fakes the forgers will have a far more difficult time duplicating their earlier success. One can expect that the RBI to hasten the withdrawal of the older, less secure currency while issuing notes of the new design at an increased rate.

The real danger occurs when the fakes enter and remain in wide circulation. This could be because of either the difficulty of detection (as in Afghanistan) or a lack of prompt and effective countermeasures. This can cause the money supply increases to the point of inflation and devaluation. Given the size of the Indian money supply and the challenges outlined above to creating successful forgeries in the volumes required, I would consider such massive destabilisation farfetched. However, a proactive Indian policy would translate into significantly increasing the costs for state sponsors of insurgency.

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