Countering Fake Indian Currency: Institutions and Mechanisms

The Indian government has taken various steps to check the circulation and smuggling of fake currencies into the country. Production, smuggling, or circulation of fake Indian paper currency or any other material which has been made a terrorist act are prohibited acts. The Ministry of Home Affairs has set up a group to share intelligence with the various security agencies in the country to counter the circulation of fake currency notes. On the other hand, The NIA has also been formed to focus on the investigation of fake money and terror funding cases.

International borders have been strengthened through the use of new surveillance technology. These include the establishment of observation posts and the erection of border fencing and Various training programs are organized for the police officers of Nepal and Bangladesh to improve their skills in the areas of detecting and investigating fake currency cases.

The Reserve Bank of India has also taken various measures to prevent the circulation of fake notes. It has also organized awareness programs for the public and cash handlers. Data collected by the intelligence agencies and the police revealed that the amount of fake Indian currency seized by them increased significantly during the year 2020.

FICN since 2016:

In 2016, Prime Minister Narendra Modi announced the demonetisation of 500 and 1,000 notes. One of the motives for the move was to get rid of high denomination fake currency. A study conducted by the Indian Statistical Institute revealed that around 70 crore worth of fake money was deposited into the economy annually. The largest portion of the fake money seized was the 2,000 notes. According to the forensic analysis conducted on the notes, some of their features, such as the watermark and the guarantee clause, were replicated.

The Combating Financing of Terror Cell of the Ministry of Home Affairs is focused on the issue of financing terror groups and fake Indian currency notes. A co-ordination center has been established to share intelligence with the agencies of the country to prevent the circulation of fake money. The FCORD meetings were held in December to discuss the various issues related to the money laundering and terror financing. The various agencies and states involved in the fight against terror financing have also participated in the meetings of the FCORD.

The NIA's Terror Funding and Fake Currency Cell carries out investigations related to terror financing and FICN. The National Investigation Agency's (NIA) TFFC Cell has been carrying out investigations related to the financing of terror groups and fake money since 2009. One of the cases investigated by the NIA involved a foreign state that is involved in the circulation of fake money. It was observed that this country's goal was to weaken India's economic security and integrity.

On June 6, 2015, a memorandum of understanding was signed between Bangladesh and India to fight against the circulation of fake money and smuggling. The two countries' Joint Task Force has been constituted to carry out the necessary steps to prevent the circulation of fake money. Under the terms of the agreement, a standard operating procedure was established to enhance the exchange of information and develop effective collaborations among the agencies of the two countries. India is also a member of the Financial Action Task Force, which carries out various activities related to the fight against terrorism.

The Ministry of Home Affairs also participates in the various meetings of the Financial Action Task Force to review the country's progress in addressing the issue of terrorist financing. India also participates in the meetings of the AFC and the EAG, which are the regional bodies that are focused on the issue of money laundering and terrorism financing. It also participates in the meetings of the SFTP and the APG.

Smuggling of Indian currency notes is a grave security threat. In the context of the country, this practice is being carried out by the state to destabilize the financial system.

The fake Indian currency notes being smuggled into India through the land borders of Nepal and Bangladesh are considered a threat to the country's security. Due to the restrictions imposed by the authorities on movement of persons across the country's land borders, the number of seizures of fake Indian currency notes has significantly decreased. The quality of the fake Indian currency notes being seized has gradually improved. However, the networks involved in the trafficking of the notes are still not able to match the scale and quality of the seized ones. The movement of foreign Indian currency notes in South-east Asian countries, such as Thailand, Myanmar, and Bangladesh, indicates their use as staging points to enter India.

The FICN mainly originates from Pakistan and is transported across the country by trucks and trains. It is also transported through other countries such as Thailand, Malaysia, and Nepal. The Pakistani agents who operate under the Inter-Services Intelligence collect the FICN from its passengers and deliver it to their intended recipients.

An organized group uses India's porous borders to smuggle the FICN into the country. Terrorists and Pakistani infiltrators also carry the fake notes. Due to the nature of the FICN's design, it can be easily routed through the sea. It is also commonly used to exchange for original notes. In addition, India's government also uses European companies to produce the notes. These companies then deliver the currency to the country's banks. Since Pakistan has successfully built its own currency manufacturing companies, it has been able to produce the notes that are on par with the notes issued by India. The circulation of fake notes has escalated since 2006. Pakistan's goal is to destabilize India through the use of terror networks. In 2007, the terror attack on the Hyderabad House was carried out using the FICN. In 2005, the attack on the IISc in Bengaluru was also carried out using the fake notes. Aside from security, the use of fake money has a negative impact on the country's socio-economic status. Its existence has also affected the crime rates.

Complexity of Challenge:

The complexity of the fake currency's circulation and its impact on the economy require a multi-pronged approach to successfully counter it. The Reserve Bank of India should constantly upgrade the security features of Indian currency. These include printing with different security features and carrying out random examinations of notes. Awareness about the security features of the notes should be raised among the public. Also, banks should install note sorting machines to prevent fake notes from entering their branches. Despite having bank accounts, many people still don't have the necessary skills to use the system to avoid getting robbed. The agencies involved in the fight against fake money should collaborate with each other in order to prevent the circulation of fake notes. To avoid becoming dependent on foreign sources for its currency printing needs, India should focus on its own research and development.

India should also use its diplomatic leverage to prevent the use of its currency printing companies for the supply of materials to be used for the manufacture of fake notes. It should also help the authorities in other countries to improve the surveillance measures against fake money. For instance, India should cooperate with the Bangladesh and Nepal's Customs and Immigration Departments to prevent the smuggling of passengers from other countries.

Preventive measures for countering fake currency:

Modern fiat banknotes are more secure than their predecessors due to the advancements in technology and the centuries of experience in printing bills. Many national mints have adopted similar anti-counterfeiting technologies for their banknotes:

In Canada, authorities found over 470 counterfeit banknotes for every one million legitimate ones. This problem, which became more prevalent after the introduction of polymer notes, has prompted the Bank of Canada to introduce new measures to combat the issue.

In 1988, Australia started using polymer banknotes. This material has since been widely used in other countries such as Chile, Malaysia, and Mexico. Holograms, which are usually used in banknotes, are very secure and can be incorporated into various designs. Watermarks are usually created by printing different layers of paper on a bill. Tiny text security features are also commonly featured on bills globally. Around 44 per cent of banknotes issued since 2011 have color-changing features. Security thread: Many notes use this security feature, which consists of a thin ribbon that is threaded through the note’s paper.

Invisible marks: Some notes can also feature ink that's only visible in ultraviolet light. However, the best counter measures can only be through use of more online transactions and shifting to plastic money i.e. credit and debit cards.

Pic Courtesy-Ishant Mishra on unsplash.com

(The views expressed are those of the author an do not represent views of CESCUBE.)