    Counterfeit U.S. Currency Abroad: Issues and U.S. Deterrence Efforts
    (Letter Report, 02/26/96, GAO/GGD-96-11).

    Pursuant to a congressional request, GAO provided information on
    counterfeiting of U.S. currency abroad and U.S. efforts to deter these
    activities.

    GAO found that: (1) counterfeit U.S. currency is used for economic gain
    and illegal activities, such as drug trafficking, arms sales, and
    terrorist activity; (2) there are several techniques used to counterfeit
    U.S currency, including photocopying, the raised note technique,
    computer assisted printing, bleaching and reprinting, and
    photomechanics; (3) the offset printing method offers the highest
    quality of counterfeit notes and can only be detected by experienced
    bank tellers; (4) it is difficult to determine the extent of
    counterfeiting abroad because of the lack of accurate counterfeit
    detection data and foreign officials reluctance to view counterfeiting
    as a serious problem; (5) of the $380 billion in U.S. currency
    circulated in fiscal year 1994, $208.7 million was counterfeit, which
    represented less than one one-thousandth of U.S. currency in circulation
    at that time; and (6) the U.S. government is involved in various
    counterfeit deterrence activities, including redesigning U.S. currency,
    increasing the presence of the Secret Service and the exchange of
    information abroad, and seizing the production and distribution
    capabilities used in counterfeiting of U.S. currency.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  GGD-96-11
         TITLE:  Counterfeit U.S. Currency Abroad: Issues and U.S.
                 Deterrence Efforts
          DATE:  02/26/96
       SUBJECT:  Currency losses
                 Currency and coinage
                 Crimes or offenses
                 Foreign governments
                 Intelligence gathering operations
                 Forgery
    IDENTIFIER:  International Counterfeiting Deterrence Act

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    Cover
    ================================================================ COVER

    Report to the Honorable John M.  Spratt, Jr., House of
    Representatives

    February 1996

    COUNTERFEIT U.S.  CURRENCY ABROAD
    - ISSUES AND U.S.  DETERRENCE
    EFFORTS

    GAO/GGD-96-11

    Counterfeit U.S.  Currency Abroad

    (280132)

    Abbreviations
    =============================================================== ABBREV

    Letter
    =============================================================== LETTER

    B-261994

    February 26, 1996

    The Honorable John M.  Spratt, Jr.
    House of Representatives

    Dear Mr.  Spratt:

    The U.S.  currency,\1 reportedly the most widely held in the world,
    is susceptible to counterfeiting.  Of the $380 billion of U.S.
    currency in circulation, the Federal Reserve estimates that over 60
    percent may be held outside the United States.  The widespread use of
    U.S.  currency abroad, together with the outdated security features
    of the currency, makes it a particularly vulnerable target for
    international counterfeiters.

    Various congressional groups and the media have expressed concerns
    about counterfeiting of U.S.  currency abroad.  Widespread
    counterfeiting of U.S.  currency could undermine confidence in the
    currency and, if done on a large enough scale, could have a negative
    effect on the U.S.  economy.  In light of these concerns, and in
    response to your request, we are providing information on (1) the
    nature of counterfeiting of U.S.  currency abroad, (2) the extent of
    that counterfeiting and of concerns about this issue, and (3) the
    status of U.S.  efforts to deter such counterfeiting of U.S.
    currency abroad.  As discussed with your office, because of
    significant limitations in the data on the size and direction of the
    problem of counterfeiting abroad, we were unable to reach conclusions
    or comment on the adequacy or effectiveness of the various deterrent
    efforts described.  Also, as discussed with your office, this report
    was prepared using unclassified sources of information.  The draft
    report underwent a security classification review by the appropriate
    agencies, including Treasury and the Secret Service, and was released
    by the appropriate officials as an unclassified report.

    --------------------
    \1 In this report, "U.S.  currency" refers to U.S.  Federal Reserve
    notes and does not include coined money.

       RESULTS IN BRIEF
    ------------------------------------------------------------ Letter :1

    U.S.  currency is counterfeited by a diverse group of perpetrators
    using a variety of methods.  Although counterfeiters may engage in
    this activity for direct economic gain, counterfeiting is sometimes
    linked with other more nefarious criminal endeavors, such as drug
    trafficking, arms dealing, and alleged terrorist activities.

    According to law enforcement officials, counterfeiters run the gamut
    from office workers to organized crime and terrorist groups, and the
    equipment used for counterfeiting U.S.  currency ranges from
    photocopiers to sophisticated offset presses.  Moreover, the quality
    of counterfeit notes varies significantly, and even those made using
    the same method vary according to the sophistication of the
    perpetrator and the type of equipment used.  Of increasing concern is
    the fact that certain foreign counterfeiters are becoming extremely
    sophisticated and are producing very high-quality counterfeit notes
    that are more difficult to detect than any previous counterfeits.

    Due to the criminal nature of this activity, the true extent of
    counterfeiting of U.S.  currency abroad cannot be determined.  The
    total level of counterfeit-currency detections--$208.7 million in
    fiscal year 1994--represented less than one one-thousandth of U.S.
    currency in circulation.

    Both Treasury and Secret Service officials agreed that counterfeiting
    of U.S.  currency is a threat to be taken seriously, but that it is
    not now at a level that poses an economic threat to the U.S.
    monetary system.  Treasury Department and Secret Service officials
    use counterfeit-detection data from the Secret Service to help assess
    the extent of counterfeiting.  The Secret Service has also used these
    data to demonstrate significant increases in counterfeiting activity
    abroad, citing a 300-percent rise in detections in fiscal year 1993.
    According to the Secret Service, it supplemented these data with
    intelligence information and field experience in reaching its
    conclusions on the degree of and risk represented by counterfeiting
    abroad.

    Our analysis of the counterfeit-detection data used by Treasury and
    Secret Service raised questions about their usefulness for
    illustrating either actual counterfeiting activity or recent growth
    in counterfeiting activity.  As previously mentioned, because of the
    criminal nature of this activity, the actual extent of counterfeiting
    cannot be directly measured.  Other limitations of the data are that
    they (1) included only those counterfeit detections that were
    reported to the Secret Service, and thus may in part have been a
    reflection of where Secret Service focuses its efforts; (2) may have
    underreported the occurrence of high-quality notes because those
    notes are difficult to detect; (3) may have reflected factors other
    than increased counterfeiting activity, such as improvements in the
    ability to detect counterfeits or to determine their source; and (4)
    may have shown fluctuations over time that were skewed because of the
    occurrence of unusually large seizures.  Because of these
    limitations, use of the data alone to estimate the extent of
    counterfeiting or counterfeiting trends, without appropriate
    qualifications, may be misleading.

    Foreign law enforcement and financial organization officials we
    interviewed varied in their degree of concern over the counterfeiting
    of U.S.  currency.  Foreign law enforcement officials tended to be
    more concerned about the counterfeiting of U.S.  currency than were
    foreign financial organization officials.  Moreover, financial
    organization officials did not complain of increases in
    chargebacks,\2 and financial and foreign law enforcement officials we
    met with provided few examples of instances where U.S.  currency was
    no longer accepted due to concerns about counterfeits.

    The U.S.  government, primarily through the Treasury and the Federal
    Reserve, has increased its efforts to deter counterfeiting
    activities.  However, none of these efforts have been fully
    completed, and thus their success cannot be evaluated at this time.
    These anticounterfeiting efforts included (1) redesigning U.S.
    currency to incorporate additional security features, and then
    publicizing and distributing the new currency; (2) using joint
    federal agency team visits abroad to obtain more information on
    counterfeiting and provide counterfeit-detection training; (3)
    increasing Secret Service staffing abroad; and (4) using additional
    task forces and increasing diplomatic efforts to combat
    counterfeiting abroad, particularly efforts to eradicate the highest
    quality counterfeit note known to the Secret Service, commonly
    referred to as the "Superdollar."\3

    --------------------
    \2 A chargeback occurs when the Federal Reserve or a bank detects a
    counterfeit note in a deposit and charges the customer's account for
    the value of the counterfeit.

    \3 The note is also known as the "Supernote" or the "Superbill" and
    is referred to as the "C-14342 Family" by the Secret Service.

       BACKGROUND
    ------------------------------------------------------------ Letter :2

    The widespread use of U.S.  currency abroad, together with the
    outdated security features of the currency, makes it a particularly
    vulnerable target for international counterfeiters.  According to the
    Federal Reserve, the proportion of U.S.  currency in circulation
    abroad has increased from 40 percent in 1970 to over 60 percent
    today.

    High foreign inflation rates and the relative stability of the dollar
    have contributed to the increasing use of U.S.  currency outside the
    United States.  And, in fact, the United States benefits from this
    international use.  When U.S.  currency remains in circulation, it
    essentially represents an interest-free loan to the U.S.  government.
    The Federal Reserve has estimated that the U.S.  currency held abroad
    reduces the need for the government to borrow by approximately $10
    billion a year.

    Despite this benefit, its increasing international use has made U.S.
    currency a target for counterfeiting.  Furthermore, with the
    exception of two changes introduced in 1990,\4 the security features
    of the currency have not substantially changed since 1929, which has
    resulted in the U.S.  dollar's becoming increasingly vulnerable to
    counterfeiting.  (See fig.  1 for the existing security features of
    the currency.)

       Figure 1:  Overt Security
       Features of U.S.  Currency

       (See figure in printed
       edition.)

       Source:  U.S.  Department of
       the Treasury.

       (See figure in printed
       edition.)

    Congressional groups and the media have continued to highlight their
    concerns that the counterfeiting of U.S.  currency abroad is becoming
    an increasingly serious problem.  Concerns about counterfeiting
    abroad were heightened in 1992 with the issuance of the first of two
    reports\5 by the House Republican Research Committee's Task Force on
    Terrorism and Unconventional Warfare.  These reports charged that a
    foreign government was producing a very high-quality counterfeit
    note, commonly referred to as the Superdollar, to support terrorist
    activities.  In 1993, the House Appropriation Committee's Surveys and
    Investigations staff completed a report on the Secret Service's
    counterfeiting deterrence efforts and briefed the House
    Appropriations Committee.  In the same year, a bill--the
    International Counterfeiting Deterrence Act--was introduced to
    address international counterfeiting and economic terrorism; however,
    it was not passed.

    The Secretary of the Treasury is responsible for issuing and
    protecting U.S.  currency.  Treasury, including the Secret Service
    and the Bureau of Engraving and Printing, and the Federal Reserve
    have primary responsibilities for combating the counterfeiting of
    U.S.  currency.  The Secret Service conducts investigations of
    counterfeiting activities and provides counterfeit-detection
    training.  The Bureau of Engraving and Printing designs and prints
    U.S.  currency, which includes the incorporation of security features
    into the currency.  The Federal Reserve's role is to distribute and
    ensure the physical integrity of U.S.  currency.  It receives
    currency from financial institutions around the world and uses
    specialized counting and verification machines to substantiate the
    authenticity of all U.S.  currency received.  The various
    counterfeiting deterrence efforts are coordinated through the
    Advanced Counterfeit Deterrence Steering Committee, which was formed
    in 1982.

    The Secret Service is the U.S.  agency responsible for
    anticounterfeiting efforts abroad.  At the time of our work, the
    Secret Service primarily used its six overseas offices, three task
    forces, two temporary operations, and resources from six domestic
    offices to conduct this task.  (See app.  I for a description of
    Secret Service offices responsible for locations abroad.) Secret
    Service offices outside the United States typically are staffed by
    one to six agents.  Agents working abroad are involved in the same
    issues as their domestic counterparts, such as detecting
    counterfeits, investigating financial crimes, and protecting
    dignitaries.  However, the majority of a typical agent's time abroad
    is spent on counterfeiting deterrence efforts.  In pursuing these
    efforts, agents must rely on the cooperation of foreign law
    enforcement agencies and sometimes are allowed to provide only
    investigative support.  This situation is different from that in the
    United States, where agents have direct investigative authority.  The
    Secret Service also provides other staff to support international
    counterfeiting deterrence activities.  For example, the Secret
    Service has assigned two Counterfeit Division staff to work with the
    Four Nations Group\6 and three agents to work with Interpol--the
    International Criminal Police Organization.

    --------------------
    \4 In 1990, Treasury added a security thread and microprinting to
    U.S.  currency.

    \5 The House Republican Research Committee, Iran, Syria and the Trail
    of Counterfeit Dollars (Washington, D.C.:  July 1, 1992); and Update:
    Iran, Syria and the Trail of the Counterfeit Money (Washington, D.C.:
    July 13, 1994).

    \6 The Four Nations Group, an international group with
    representatives from the United States, Great Britain, Australia, and
    Canada, meets every 18 months to share information on counterfeiting
    trends and investigations.

       SCOPE AND METHODOLOGY
    ------------------------------------------------------------ Letter :3

    To obtain information on the nature and extent of counterfeiting of
    U.S.  currency abroad, as well as U.S.  efforts to combat this
    activity, we obtained views and material from (1) U.S.  government
    agencies in the United States and abroad; (2) foreign law enforcement
    and financial organization officials in seven European countries, as
    referred to us by U.S.  embassy officials; (3) Interpol officials in
    the United States and abroad; and (4) individuals researching the
    Superdollar case, including the author of the House Republican Task
    Force on Terrorism and Unconventional Warfare reports on the
    Superdollar.  We performed our review in the United States, England,
    France, Italy, Germany, Hungary, Poland, and Switzerland.  Interpol,
    State Department, and Secret Service officials recommended these
    countries for our review on the basis of their knowledge of
    counterfeiting abroad.

    To obtain U.S.  government perspectives on the nature and extent of
    counterfeiting as well as on efforts to deter this activity, we
    interviewed and obtained documentation from senior Treasury officials
    in Washington, D.C.; Secret Service officials in Washington, D.C.;
    New York, New York; San Francisco, California; England; France;
    Italy; and Germany; and Bureau of Engraving and Printing officials in
    Washington, D.C.  We also interviewed Federal Reserve Board officials
    in Washington, D.C.; Federal Reserve Bank officials in San Francisco
    and New York; and State Department officials in Washington, D.C., and
    abroad.

    To secure information on the extent of the problem of counterfeit
    U.S.  currency abroad, we obtained Secret Service data on domestic
    and international counterfeit detections.  We then reviewed the
    Secret Service's counterfeit-detection data for fiscal year 1987
    through fiscal year 1994.  We also reviewed Interpol's 1991 to 1993
    annual reports on international counterfeiting activity.  We did not
    independently verify the accuracy of the data that the Secret Service
    and Interpol provided.

    To gain perspective on both counterfeiting and deterrence efforts
    abroad, we obtained input from foreign law enforcement and financial
    organization officials in the countries we visited.  (See app.  II
    for a listing of foreign agencies and organizations we contacted
    while abroad.) In conducting our interviews, we did not pose the same
    questions to all officials.  Thus, the responses we obtained cannot
    be generalized.

    The scope of our work was limited by a number of factors related to
    national security and investigative concerns.  First, due to the
    criminal nature of counterfeiting, the actual extent of
    counterfeiting abroad cannot be determined.  Second, since current
    known counterfeiting activities involved ongoing investigations, we
    were not able to fully explore and discuss these investigations with
    law enforcement and intelligence officials.  Third, due to the
    sensitive nature of the ongoing investigation of the so-called
    Superdollar, we were unable to fully explore this extremely
    high-quality, allegedly foreign government-sponsored, counterfeiting
    operation.  As a result of these limitations, this report is not
    evaluative, and it thus contains no conclusions or recommendations.

    This report was prepared using unclassified sources of information.
    The draft report underwent a security classification review by the
    appropriate agencies, including Treasury and the Secret Service, and
    was released as an unclassified report.  Although they initially
    stated that some of the information was or should have been
    classified, Treasury and the Secret Service later rescinded this
    statement after they performed a full security classification review
    and we reached agreement with them on a minor revision to appendix
    VII.  (See app.  VIII, pages 66 and 67, for Treasury and Secret
    Service statements that the report is unclassified.)

    We conducted our review from September 1994 to May 1995 in accordance
    with generally accepted government auditing standards.  In June and
    then again in November 1995, we updated our work on Secret Service
    staffing abroad.  We obtained written agency comments on a draft of
    this report from the Departments of the Treasury and State and from
    the Federal Reserve.  These comments are discussed at the end of this
    report and presented in appendixes VIII through X.

       THE NATURE OF COUNTERFEITING OF
       U.S.  CURRENCY ABROAD IS
       DIVERSE
    ------------------------------------------------------------ Letter :4

    The nature of counterfeiting of U.S.  currency abroad is diverse,
    including various types of perpetrators, uses, and methods.  The
    relative sophistication of the counterfeiter and method used results
    in counterfeit notes of differing quality.  According to a National
    Research Council report requested by Treasury,\7 the counterfeiting
    problem will increase as technologies improve and are made more
    accessible to the public.  Already, the Secret Service has been
    troubled by some very high-quality counterfeits of U.S.  currency
    identified as originating abroad.

    Perpetrators include both the casual and the professional
    counterfeiter.  The casual counterfeiter is a person who commits the
    crime because it is convenient or easy to do.  For example, an office
    worker may use a copying machine to counterfeit U.S.  currency.  The
    number of casual counterfeiters is expected to increase with the
    greater accessibility of and improvements to modern photographic and
    printing devices, according to the National Research Council report.
    Conversely, the professional counterfeiter may be a member of a gang,
    criminal organization, or terrorist group.  Foreign law enforcement
    and Secret Service officials that we interviewed told us of suspected
    links between counterfeiting and organized crime.

    Counterfeit U.S.  currency is used for economic gain and is sometimes
    linked to other crimes.  According to foreign law enforcement and
    Secret Service officials, counterfeit U.S.  currency is sometimes
    distributed in conjunction with drug trafficking, illicit arms deals,
    and other criminal and/or terrorist activities.  Moreover, Secret
    Service and foreign law enforcement officials told us that
    counterfeit U.S.  currency is now sometimes produced by
    counterfeiters in one country for export to another country.  For
    example, in Milan, Italy, counterfeiting has become an industry in
    which counterfeit U.S.  currency is produced for export, according to
    Italian law enforcement officials.  They added that the counterfeits
    typically were exported to the former Soviet Union and Eastern
    Europe.

    The methods used by counterfeiters of U.S.  currency abroad are the
    same as those used within the United States, according to Secret
    Service officials.  Common techniques include using black and white,
    monochromatic, or color photocopiers; cutting and taping or gluing
    numerals from high denomination notes to the corners of a note of
    lower denomination, also known as making "raised notes"; using
    sophisticated computers, scanners, and laser or ink jet printers;
    bleaching good notes and reprinting higher denominations on the
    genuine paper; and using photomechanical or "offset" methods to make
    a printing plate from a photographic negative of a genuine note.

    Depending upon the sophistication of the counterfeiter and the method
    used, the quality of counterfeit notes can vary a great deal.  The
    Secret Service has found good, fair, and poor quality notes for each
    method used.  For example, a good color copier-produced note could be
    better than a poor ink jet-produced note.  However, the offset
    printing method generally results in the highest quality
    counterfeits, whether produced abroad or domestically.  (See app.
    III for descriptions of common methods used and some examples of
    counterfeit notes.)

    Recently, very sophisticated counterfeiters have been producing very
    high-quality notes using the offset process.  High-quality
    counterfeit notes are difficult for the general public to discern,
    but according to Federal Reserve officials, the notes can be detected
    by experienced bank tellers.  (See app.  IV for case examples of
    high-quality counterfeit notes produced in Canada, Colombia, and the
    Middle East.)

    --------------------
    \7 National Materials Advisory Board, Commission on Engineering and
    Technical Systems, National Research Council, Counterfeit Deterrent
    Features for the Next Generation Currency Design (December 1993).

       THE EXTENT OF THE PROBLEM COULD
       NOT BE DETERMINED, AND FOREIGN
       VIEWS WERE INCONCLUSIVE
    ------------------------------------------------------------ Letter :5

    The criminal nature of the activity precludes determination of the
    actual extent to which U.S.  currency is being counterfeited abroad.
    The best data available to reflect actual counterfeiting are Secret
    Service counterfeit-detection data.\8 However, these data have
    limitations and thus provide only a limited measure of the extent of
    counterfeiting activities.  Use of these data should be qualified to
    reflect these limitations so that conclusions reached using the data
    do not mislead.  Overall, detected counterfeits have represented a
    minuscule amount of the currency in circulation.  According to Secret
    Service officials, the data that they gathered was supplemented by
    intelligence information and field experience to demonstrate an
    increase in counterfeiting activity abroad.  However, our analysis of
    the same counterfeit-detection data proved inconclusive.  Moreover,
    foreign officials' views about the seriousness of the problem of
    counterfeit U.S.  currency were mixed.  Foreign financial
    organization and law enforcement officials that we interviewed
    reported no significant numbers of chargebacks and few reported
    instances of U.S.  currency not being accepted abroad.

    --------------------
    \8 Interpol data, the only other international compilation of
    counterfeit-currency statistics, were less reliable due to the
    limited amount of reporting by foreign countries.  According to
    Interpol officials, reporting to Interpol was inconsistent and mostly
    limited to European nations.

          TREASURY BELIEVED THE LEVEL
          OF COUNTERFEITING WAS
          ECONOMICALLY INSIGNIFICANT
    ---------------------------------------------------------- Letter :5.1

    On the basis of the number of Secret Service counterfeit-detections,
    Treasury officials concluded that counterfeiting of U.S.  currency
    was economically insignificant and thus did not pose a threat to the
    U.S.  monetary system.  According to Secret Service and Treasury
    officials, detected counterfeits represented a minuscule portion of
    U.S.  currency in circulation.  Secret Service and Federal Reserve
    data showed that, in fiscal year 1994, of the $380 billion in
    circulation, $208.7 million had been identified as counterfeit notes,
    a figure which represented less than one one-thousandth of the
    currency in circulation.  However, while Treasury and Secret Service
    officials agreed that, overall, counterfeiting was not economically
    significant, they considered any counterfeiting to be a serious
    problem.

          THE SECRET SERVICE BELIEVED
          COUNTERFEITING ABROAD WAS
          INCREASING
    ---------------------------------------------------------- Letter :5.2

    The Secret Service reported that counterfeiting of U.S.  currency
    abroad was increasing.  It used counterfeit-detection data,
    supplemented with intelligence information and field experience, to
    support this claim.  It also employed two counterfeit-detection data
    measures to illustrate the extent of counterfeiting abroad:  (1)
    counterfeit-detections abroad and (2) domestic detections of
    counterfeits that were produced abroad.  Counterfeits detected abroad
    are categorized as "appearing abroad," while counterfeits detected
    domestically are divided into two separate categories.  Domestic
    detections of counterfeits not yet in circulation are called
    "seizures," and those counterfeits detected while in circulation are
    called "passes."

    The Secret Service has reported a significant recent increase in
    detections of counterfeit U.S.  currency abroad.  In one analysis, it
    reported that the amount of counterfeit currency detected abroad
    increased 300 percent, from $30 million in fiscal year 1992 to $121
    million in fiscal year 1993, thereby surpassing domestic detections
    in the same period (see fig.  2).

       Figure 2:  Secret Service
       Counterfeit Detection Data,
       Fiscal Years 1987-94

       (See figure in printed
       edition.)

    Note:  See pages 13 to 15 for our views on the limitations of this
    data.

    Source:  U.S.  Secret Service.

    The Secret Service has also reported that, in recent years, a larger
    dollar amount of the notes detected as domestic passes has been
    produced outside the United States.  Since 1991, the dollar amount of
    counterfeit U.S.  notes detected while in circulation and produced
    abroad has exceeded the dollar amount of those produced domestically
    (see fig.  3).  In fiscal year 1994, foreign-produced notes
    represented approximately 66 percent of total domestic passes
    detected.

       Figure 3:  Secret Service
       Domestic Pass Data, Fiscal
       Years 1987-94

       (See figure in printed
       edition.)

    Note:  See pages 13 to 15 for our views on the limitations of this
    data.

    Source:  U.S.  Secret Service.

          THE ACTUAL EXTENT OF
          COUNTERFEITING ABROAD COULD
          NOT BE DETERMINED
    ---------------------------------------------------------- Letter :5.3

    The true dimensions of the problem of counterfeiting of U.S.
    currency abroad could not be determined.  Treasury and the Secret
    Service use Secret Service counterfeit-detection data to reflect the
    actual extent of counterfeiting.  However, although these data are
    the best available, they have limitations.  Specifically, they are
    incomplete and present only a partial picture of counterfeiting.  If
    these limitations are not disclosed, the result may be misleading
    conclusions.

    First of all, the actual extent of counterfeiting could not be
    measured, primarily because of the criminal nature of this activity.
    Secret Service data record only those detections that are reported to
    the Secret Service; they do not measure actual counterfeiting.  As a
    result, the data provide no information about the number of
    counterfeiters operating in any given year or the size and scope of
    their operations.  More importantly, these data could not be used to
    estimate the volume of counterfeit currency in circulation at any
    point in time.  In the case of counterfeit currency appearing abroad,
    reasons for this include the following:  (1) the data do not
    distinguish between how much counterfeit currency was seized and how
    much was passed into circulation; (2) they could not provide
    information about how long passed counterfeits remained in
    circulation before detection; and (3), most critically, they provide
    no indication of how much counterfeit currency was passed into
    circulation and not detected.

    Second, counterfeit detection data may in part be a reflection of
    where the Secret Service focuses its efforts.  Use of these data thus
    may not identify all countries with major counterfeiting activity,
    but simply countries where agents focused their data collection
    efforts.  For example, in fiscal year 1994, almost 50 percent of
    detections abroad occurred in the six countries where the Secret
    Service was permanently located.  In other countries,
    counterfeit-detection statistics tend to be more inconsistent.  For
    example, in fiscal year 1994, certain African and Middle Eastern
    countries reported no counterfeiting activity to the Secret Service.
    This lack of reported detections, however, does not necessarily
    indicate that counterfeiting activity did not occur in these
    countries.

    Third, detection data for high-quality notes may be underreported.
    The Secret Service has said that, because so few Superdollars have
    been detected, this indicates that there are not many in circulation.
    However, according to the Task Force on Terrorism and Unconventional
    Warfare report, the majority of Superdollars are circulating outside
    the formal banking system and therefore would not be reported to the
    Treasury if detected.  Also, as we discovered on our overseas visits,
    many foreign law enforcement and financial organization officials had
    inconsistent and incomplete information on how to detect the
    Superdollar.  Thus, financial institutions abroad may be
    recirculating the Superdollars.

    Fourth, reported increases in counterfeiting abroad, as supported by
    Secret Service detection data, may be due to a number of factors
    other than increased counterfeiting activity.  For example, in 1993,
    the Secret Service changed its reporting practices abroad to be more
    proactive in collecting counterfeit-detection data.  Instead of
    relying solely on reports from foreign officials, agents abroad began
    to follow up on Interpol reports and intelligence information in
    order to collect additional data.  Also, according to Treasury
    officials, foreign law enforcement officials have improved their
    ability to detect counterfeit U.S.  currency and report it to the
    Secret Service.  Furthermore, although domestic reporting and
    detection practices have been more consistent, the increase in
    domestic detections of counterfeits produced abroad is also subject
    to interpretation.  For example, rather than foreign-produced notes
    increasing, it is possible that the Secret Service's ability to
    determine the source of counterfeit currency has simply improved over
    time.

    Fifth and finally, counterfeit-detection data fluctuate over time,
    and one large seizure can skew the data, particularly for detections
    abroad.  For detections outside the United States, the Secret Service
    has relied heavily on information provided by foreign law enforcement
    organizations, and has obtained little information from financial
    organizations.  Thus, counterfeit detections "appearing abroad" have
    primarily been seizures reported by foreign law enforcement
    organizations, and the size of these seizures can have a significant
    impact on detection data.  For example, according to the Secret
    Service, several large seizures accounted for the jump from $14
    million in counterfeit detections abroad in fiscal year 1988 to $88
    million in fiscal year 1989.  The following year, the data indicated
    a significant drop in detections (see fig.  2).

          FOREIGN VIEWS ON THE EXTENT
          OF COUNTERFEITING ABROAD
          WERE MIXED
    ---------------------------------------------------------- Letter :5.4

    Overseas law enforcement and financial organization officials' views
    on the extent of the problem of counterfeit U.S.  currency varied.
    Foreign law enforcement officials tended to be more concerned about
    counterfeit U.S.  currency than foreign financial organization
    officials.  Financial organization officials we met with said that
    they had experienced minimal chargebacks, and most expressed
    confidence in the ability of their tellers to detect counterfeits.
    Furthermore, we heard few reports from foreign financial organization
    and foreign law enforcement officials about U.S.  currency not being
    accepted overseas because of concerns about counterfeiting.

    Most foreign law enforcement officials we spoke with believed that
    the counterfeiting of U.S.  currency was a problem, but their
    opinions on the severity of the problem differed.  While the Swiss,
    Italian, and Hungarian law enforcement officials said that it was a
    very serious problem, French and English law enforcement officials
    said that the problem fluctuated in seriousness over time; German,
    French, and Polish officials said that the counterfeiting of U.S.
    currency was not as serious a problem as the counterfeiting of their
    own currencies.  Some of these law enforcement officials expressed
    concern over increases in counterfeiting in Eastern Europe and the
    former Soviet Union.  Some also expressed particular worry about
    their ability, and the ability of financial organizations in their
    countries, to detect the Superdollar.

    Conversely, most foreign financial organization officials we spoke
    with were not concerned about the counterfeiting of U.S.  currency.
    Of the 34 organizations we visited in 7 countries, officials from 1
    Swiss and 1 French banking association and 2 Hungarian banks viewed
    the counterfeiting of U.S.  currency as a current or increasing
    problem.  According to other foreign financial organization
    officials, they were not concerned about U.S.  counterfeiting
    activity because it did not have a negative impact on their business.
    For example, none of the 16 financial organization officials with
    whom we discussed chargebacks told us that they had received
    substantial chargebacks due to counterfeit notes that they had failed
    to detect.  In addition, some of these officials cited other types of
    financial fraud and the counterfeiting of their own currency as more
    significant concerns.  For example, officials from one French banking
    association were more concerned with credit card fraud, and officials
    from two financial organizations in Germany and one financial
    organization in France said counterfeiting of their country's
    currency was a greater problem.

    Furthermore, foreign financial organization officials we spoke with
    were confident about their tellers' ability to detect counterfeits
    and, in some countries, tellers were held personally accountable for
    not detecting counterfeits.\9 In most of the countries we visited,
    detection of counterfeit U.S.  currency relied on the touch and sight
    of tellers, some of whom were aided by magnifying glasses or other
    simple detection devices, such as counterfeit detection pens.\10
    Other counterfeit-detection devices used abroad, like ultraviolet
    lights, did not work effectively on U.S.  currency.  While foreign
    financial organizations appeared confident of their tellers' ability
    to detect counterfeits, some of these organizations had incomplete
    information on how to detect counterfeit U.S.  currency, particularly
    the Superdollar.

    Finally, foreign financial organization and law enforcement officials
    provided a few isolated cases in which U.S.  currency was not
    accepted abroad.  For example, when it first learned about the
    Superdollar, one U.S.  financial organization in Switzerland
    initially stopped accepting U.S.  $100 notes, although it later
    resumed accepting the U.S.  notes from its regular customers.  Also,
    Swiss police, Hungarian central bank, and French clearing house
    officials reported that some exchange houses and other banks were not
    accepting $100 notes.  We were unable to confirm these reports.
    However, a State Department official commented that, because drug
    transactions tended to involve $100 notes, some foreigners were
    reluctant to accept this denomination, not because of counterfeiting
    concerns, but rather because of the notes' potential link to money
    laundering.

    --------------------
    \9 For example, in Hungary tellers were charged for every counterfeit
    note they accepted that the bank later detected.

    \10 Counterfeit detection pens are filled with a chemical that, when
    applied to currency, turns gold if the currency's paper contains
    certain characteristics of genuine paper and black if those
    characteristics are not present.

       ADDITIONAL U.S.  COUNTERFEIT
       CURRENCY DETERRENCE EFFORTS
    ------------------------------------------------------------ Letter :6

    The U.S.  government, primarily through the Treasury Department and
    its Secret Service and the Federal Reserve, has been increasing its
    counterfeiting deterrence efforts.  These recent efforts include
    redesigning U.S.  currency; increasing exchanges of information
    abroad; augmenting the Secret Service presence abroad; and
    undertaking efforts to stop production and distribution of
    counterfeit currency, including the Superdollar.

    In an effort to combat counterfeiting both domestically and abroad,
    Treasury is redesigning U.S.  currency to incorporate more security
    features intended to combat rapid advances in reprographic
    technology.  This change, the most significant to the U.S.  currency
    in over 50 years, is, according to some U.S.  and foreign officials,
    a long overdue one.  The redesigned currency is planned for
    introduction in 1996 starting with changes to the $100 note, with
    lower denominations to follow at 9- to 12-month intervals.  According
    to Treasury officials, the currency redesign will continue, becoming
    an ongoing process, because no security features are
    counterfeit-proof over time.  These officials also said that the old
    currency would not be recalled and would retain its full value.
    Moreover, Treasury is leading a worldwide publicity campaign to
    facilitate introduction of the redesigned currency, ensure awareness
    and use of the overt security features, and assure the public that
    the old currency will retain its full value.  Through this campaign,
    the Federal Reserve hopes to encourage the public to turn in old
    currency for the redesigned notes.  (See app.  V for further
    information on the currency redesign.)

    In addition, the Secret Service, through its team visits abroad in
    company with Treasury Department and Federal Reserve officials, has
    both gathered further information on counterfeiting and provided
    counterfeit-detection training.  As of May 1995, the team had met
    with law enforcement and financial organization officials in Buenos
    Aires, Argentina; Minsk, Belarus; London, England; Zurich,
    Switzerland; Hong Kong; and Singapore.  According to Secret Service
    officials, their visits were successful because they were able to
    develop better contacts, obtain further information about foreign
    financial institutions' practices, learn more about tellers' ability
    to detect counterfeits, and provide counterfeit detection training
    seminars for both law enforcement and financial organization
    officials.  Future trips were planned to Russia and possibly the
    Middle East.

    Further, the Secret Service has been attempting to increase its
    presence abroad, although it has encountered difficulties in
    obtaining approval.  The Secret Service has over 2,000 agents
    stationed in the United States, but it has fewer than 20 permanent
    positions abroad.  The Secret Service first requested additional
    staff in February 1994 for permanent posting abroad beginning in
    fiscal year 1996.  However, due to uncertainties over the funding of
    the positions as well as to other priorities within the Treasury
    Department, as of June 21, 1995, the Secret Service had secured
    approval for only 6 of 28 requested positions abroad.  Subsequent to
    our discussions with the Secret Service, Treasury, and State, on July
    21, 1995, Treasury approved the remainder of the positions and passed
    them on for State's approval.  As of November 30, 1995, the
    respective chiefs of mission had approved only 13 of the 28
    positions, and only 1 agent had reported to his post abroad.  (See
    app.  VI for further information on increasing the Secret Service
    presence abroad.)

    Additionally, the U.S.  government has undertaken special efforts to
    eradicate the highest quality counterfeit note--the Superdollar.
    These efforts include the use of task forces and diplomatic efforts
    among senior policy-level officials of the U.S.  and certain foreign
    governments.  Due to the sensitivity and ongoing nature of this
    investigation, we were made generally aware of these efforts but not
    provided with specific information.  (See app.  VII for further
    information on U.S.  efforts to eradicate the Superdollar.)

       AGENCY COMMENTS AND OUR
       EVALUATION
    ------------------------------------------------------------ Letter :7

    The Department of the Treasury, including the Secret Service, the
    Department of State, and the Federal Reserve provided written
    comments on a draft of this report.  (See apps.  VIII, IX, and X.)
    These comments included technical changes and/or factual updates that
    have been incorporated where appropriate.  However, Treasury,
    including the Secret Service, also raised and later rescinded issues
    of security classification and sensitivity and did not fully agree
    with our characterization of the limitations of the Secret Service
    counterfeit currency detection data and other supporting methods for
    estimating trends in counterfeiting.  In their comments, Treasury and
    the Secret Service made frequent reference to activities that they
    believed provided additional support for the conclusions they drew
    from the detection data.  These activities included contacts with
    foreign law enforcement and financial organization officials, vault
    inspections of banks abroad, and analysis of Federal Reserve data.

    Although the Secret Service recognized the limitations of its
    counterfeit currency detection data, Treasury and Secret Service
    conclusions provided in hearings and reports have not always
    reflected these limitations.  Thus, in this report, we discuss the
    data limitations and conclude that any use of the data should be
    qualified to recognize these limitations.  Although the Secret
    Service has the best counterfeit-detection data available, this does
    not negate the potential for the limitations of this data to foster
    misleading conclusions.  First, the actual extent of counterfeiting
    cannot be determined because of the criminal nature of this activity.
    Second, counterfeit-detection data may be a reflection of where the
    Secret Service focuses its efforts.  Third, detection data for
    high-quality notes, which may more easily circumvent detection and
    reporting abroad, may be even less representative of the actual
    extent of the problem.  Fourth, increases in counterfeiting
    detections abroad may be due to a number of factors other than
    increased counterfeiting, such as improved information gathering and
    reporting.  Also, counterfeit-detection data fluctuate over time, and
    one large seizure abroad can skew the data.

    We acknowledge in this report that the Secret Service supplements its
    detection data with intelligence information and field experience.
    Even though we did not evaluate these specific methods, our work did
    yield some information on these activities.

    With regard to Treasury and Secret Service contacts with foreign law
    enforcement and financial organization officials, in our discussion
    of additional U.S.  counterfeit currency deterrence efforts, we
    acknowledge that Treasury and Secret Service officials have recently
    increased their contacts with foreign financial organizations in
    preparation for the U.S.  currency redesign effort.  However, almost
    all of the foreign financial organization officials we met with in
    September 1994 had had little or no contact with Treasury and/or
    Secret Service officials before that time.

    Regarding vault inspections of banks abroad, Secret Service officials
    initially told us that they were conducting vault inspections during
    their joint team visits with Treasury and Federal Reserve officials.
    However, according to Federal Reserve officials, and as subsequently
    confirmed by Secret Service officials, vault inspections had been
    conducted in only one of the six locations visited during our review.
    Secret Service officials told us that the inspections had been
    conducted in Argentina but were then discontinued because of the
    limited results obtained there.  The officials told us that the
    inspections might be reinstituted in other countries if it was
    subsequently decided that the effort was warranted.

    Finally, regarding the use of Federal Reserve data, the Secret
    Service and the Federal Reserve confirmed that the Federal Reserve
    data were actually a component of the Secret Service data, and thus
    were effectively addressed in our evaluation of the Secret Service
    data.

    ---------------------------------------------------------- Letter :7.1

    As agreed with your office, unless you publicly announce the contents
    earlier, we plan no further distribution until 30 days from the date
    of this report.  At that time, we will provide copies of the report
    to interested congressional committees, to the Departments of the
    Treasury and State, and to the Federal Reserve.  We will also make
    copies available to others on request.

    Please contact me at (202) 512-8984 if you have any questions
    concerning this report.  Other major contributors to this report are
    listed in appendix XI.

    Sincerely yours,

    JayEtta Z.  Hecker, Associate Director
    International Relations and Trade

    SECRET SERVICE GEOGRAPHIC COVERAGE
    ABROAD, AS OF MAY 1995
    =========================================================== Appendix I

                         Number of
                            agents  Geographic coverage abroad
    --------------  --------------  ------------------------------------------------
    Overseas
     office
    Bangkok                      2  Asia (Indonesia, Malaysia, Singapore, and
                                     Thailand)
    Bonn                         1  Europe (Austria and Germany)
    London                       1  United Kingdom (England, Scotland, Wales,
                                     Northern Ireland, Channel Islands, Isle of Man,
                                     Shetland Islands, Gibraltar), Iceland, and
                                     Ireland
    Manila                       1  Philippine Islands
    Paris                        6  Africa (Algeria, Angola, Benin, Burundi, Burkina
                                     Faso, Cameroon, Cape Verde, Central African
                                     Republic, Chad, Comoros, Congo, Djibouti,
                                     Equatorial Guinea, Gabon, Ghana, Guinea,
                                     Guinea-Bissau, Ivory Coast, Madagascar, Mali,
                                     Mauritania, Mauritius, Morocco, Niger, Rwanda,
                                     S�o Tom� & Principe, Senegal, Togo, Tunisia,
                                     and Zaire), Europe (Belgium, Czech Republic,
                                     Slovakia, Denmark, Finland, France,
                                     Liechtenstein, Luxembourg, Monaco, Netherlands,
                                     Norway, Poland, Portugal/Azores, Spain, and
                                     Switzerland), Former Soviet Republics (Belarus,
                                     Estonia, Georgia, Latvia, Lithuania, Moldova,
                                     Russia, Tajikistan, and Ukraine), and Greenland
    Rome                         5  Africa (Botswana, Egypt, Ethiopia, Gambia,
                                     Kenya, Lesotho, Liberia, Libya, Malawi,
                                     Mozambique, Nigeria, Seychelles, Sierra Leone,
                                     Somalia, South Africa, Sudan, Swaziland,
                                     Tanzania, Uganda, Zambia, and Zimbabwe), Europe
                                     (Albania, Bulgaria, Cyprus, Greece, Hungary,
                                     Italy, Malta, Romania, San Marino, Vatican
                                     City, and former Yugoslavia), Middle East
                                     (Bahrain, Iran, Iraq, Israel, Jordan, Kuwait,
                                     Lebanon, Oman, Qatar, Saudi Arabia, Syria,
                                     Turkey, United Arab Emirates, Yemen Arab
                                     Republic, and Yemen Peoples Democratic
                                     Republic)
    Domestic
     office
    Buffalo                     \a  Canada
    Honolulu                    \a  Far East, Australia, and all U.S. Pacific
                                     possessions
    Miami                       \a  Bahama Islands, Canal Zone, Cayman Islands,
                                     Central America (except Mexico), Cuba, Jamaica,
                                     and South America
    New York                    \a  Bermuda
    San Antonio                 \a  Mexico
    San Juan                    \a  Puerto Rico, Virgin Islands, and West Indies
                                     (except Bahama Islands, Cayman Islands, Cuba,
                                     and Jamaica)
    Temporary
     assignment or
     task force\b
    Hong Kong;                   1  Hong Kong
     temporary
     assignment
    New Delhi,                   1  New Delhi, India
     India;
     temporary
     assignment
    Latin America;               1  Central and South America
     task force
    Milan, Italy;                2  Italy
     task force
    Nicosia,                     2  Cyprus
     Cyprus; task
     force
    --------------------------------------------------------------------------------
    \a Domestic agents cover U.S.  territories as well as geographic
    regions abroad.  Therefore, no specific number of agents are assigned
    to cover regions abroad.

    \b Both task-force and temporary-assignment agents are located in
    these countries on a temporary duty basis.  Agents on temporary
    assignments rotate more frequently than do those assigned to the task
    forces.

    Source:  U.S.  Secret Service.

    FOREIGN LAW ENFORCEMENT AND
    FINANCIAL ORGANIZATION OFFICIALS
    INTERVIEWED
    ========================================================== Appendix II

    Country                 Law enforcement agency  Financial organization
    ----------------------  ----------------------  ----------------------
    England                 National Criminal       Bank of England
                            Intelligence Service    National Westminster
                                                    Bank
                                                    Citibank
                                                    Republic National Bank
                                                    of New York
                                                    Hong Kong and Shanghai
                                                    Bank Holdings, plc

    France                  Office Central Pour la  Association Fran�aise
                            R�pression du Faux      des Banques
                            Monnayage               Banque de France
                                                    Caisse Parisienne de
                                                    R�escompte
                                                    American Express

    Germany                 Bundeskriminalamt       Deutsche Bundesbank
                                                    Deutsche Bank
                                                    Dresdner Bank

    Hungary                 Landes Polizei          Magyar Nemzeti Bank
                            Hauptkommissariat       Budapest Bank
                            Ungarn                  Ibusz Bank
                                                    Magyar Hitel Bank
                                                    American Express
                                                    Citibank

    Italy                   Polizia di Stato        Banca D'Italia
                            Guardia di Finanza      Associazione Bancaria
                            Carabinieri Presso la   Italiana
                            Banca d'Italia          Banca Nazionale del
                                                    Lavoro
                                                    Credito Italiano
                                                    American Express
                                                    Thomas Cook

    Poland                  Komenda Glowna Policji  Bank Polska Kasa
                                                    Opieki, S.A.
                                                    Bank Handlowy W
                                                    Warszawie, S.A.
                                                    American Express
                                                    Citibank

    Switzerland             Bundesamt f�r           Swiss Bankers
                            Polizeiwesen            Association
                                                    Credit Suisse Bank
                                                    Swiss National Bank
                                                    Union Bank of
                                                    Switzerland
                                                    Citibank
                                                    JP Morgan
    ----------------------------------------------------------------------

    METHODS OF COUNTERFEITING U.S.
    CURRENCY
    ========================================================= Appendix III

       Figure III.1:  Offset Printed
       Notes

       (See figure in printed
       edition.)

    (See figure in printed edition.)One defect in this good-quality
    offset counterfeit is the presence of diagonal black lines in the
    hair (A).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

    According to Secret Service officials, the methods of counterfeiting
    U.S.  currency abroad are the same as those used domestically and
    range from offset printing to raised notes.  While offset printing
    tends to produce the higher quality counterfeit notes, quality can
    vary within each method used.  In some cases, a good color copier
    note can be better than a poor quality offset counterfeit.  Although
    some of the overt defects used to distinguish counterfeits from
    genuine notes appear minor, often a combination of defects makes it
    easier to distinguish between the two.  It is also important to
    remember that covert security features\11 are incorporated in U.S.
    currency, and the makeup of the genuine paper is a highly guarded
    secret.

       (See figure in printed
       edition.)

    (See figure in printed edition.)One defect in this fair-quality
    offset counterfeit is the presence of a diagonal black line in the
    hair (B).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

    --------------------
    \11 Covert features are undetectable by the naked eye and allow
    sophisticated machines, such as those maintained by the Federal
    Reserve, to identify counterfeit notes when those notes are of such
    high quality that they escape detection by the average citizen during
    a transaction.

          OFFSET PRINTED NOTES
    ----------------------------------------------------- Appendix III:0.1

    Offset printing is the most common process used by counterfeiters,
    according to the Secret Service.  From a photographic negative of a
    genuine note, a printing plate that includes the image and nonimage
    area is produced.  This plate is placed on a plate cylinder, which
    transfers ink onto the blanket cylinder.  Then paper is rolled
    between this blanket cylinder and an impression cylinder, resulting
    in a printed image that appears to be flush with the surface of the
    paper.  A review of the range of counterfeits produced through offset
    printing reveals various defects that distinguish counterfeit from
    genuine notes.  Examples are provided in figure III.1.  The
    good-quality offset sample has diagonal black lines in the hair on
    the right side (see fig.  III.1, A).  The fair-quality offset sample
    has a diagonal black line near the hair (see left side of fig.
    III.1, B).

       (See figure in printed
       edition.)

    (See figure in printed edition.)One defect in this poor-quality
    offset counterfeit is the lack of shading lines in the face and hair
    (C).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

    Finally, in the poor-quality offset sample, the portrait is missing a
    majority of shading lines in the face and hair (see fig.  III.1, C).

          INK JET PRINTED NOTES
    ----------------------------------------------------- Appendix III:0.2

    Ink jet printing is a counterfeiting method whose use is largely due
    to improvements in technology--scanners, computers, and printers.
    Unlike the offset method that uses plates to compress images onto
    paper, ink jet printing is a pressureless and plateless printing
    process that employs computers, electronics, electrostatics, and inks
    to compose and produce images.  Ink jet technology requires the image
    to be scanned and converted to information that is transmitted to the
    computer.  This image must be created each time it is reproduced,
    providing counterfeiters an

       Figure.  III.2:  Ink Jet
       Printed Note

       (See figure in printed
       edition.)

    (See figure in printed edition.)The ink jet counterfeit is detectable
    by the small colored dots used to make up the image (A).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

    opportunity to change the serial numbers on the notes.  To create the
    image, ink jet printers spray tiny droplets of ink from the printer
    head through a small gap of air onto the paper (see fig.  III.2, A).
    The ink jet counterfeit has small red, blue, yellow, and black dots
    that make up the image; the genuine note does not have these colored
    dots.

       Figure III.3:  Office
       Machine-copied Notes

       (See figure in printed
       edition.)

    (See figure in printed edition.)One identifiable defect in color
    machine-copied counterfeit notes is the loss of some of the shading
    lines in the face and hair (A).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

          OFFICE MACHINE-COPIED NOTES
    ----------------------------------------------------- Appendix III:0.3

    Copying genuine notes on office copier machines is one of the
    simplest methods employed to produce counterfeits.  Office machine
    copiers, which include black and white, monochromatic, and color
    copiers, use an electronic transfer of toner to paper.  Black and
    white copiers apply black toner only; monochromatic copiers apply one
    color of toner at a time; and color copiers use a simultaneous
    combination of yellow, light blue, bright pink, and sometimes black
    toners to produce all colors.

       (See figure in printed
       edition.)

    (See figure in printed edition.)One defect in this monochromatic
    counterfeit note is the break in the borderline of the portrait oval
    (B).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

    The result is an image resting on the surface of the paper.  Under
    magnification, these counterfeits sometimes reveal small, individual
    particles of toner outside the image area.  Also, the portrait image
    tends to be less distinct in these notes.  For example, in the sample
    color machine-copied note in figure III.3, A, shading lines are
    missing in the face and hair.  In the sample monochromatic note,
    there is a small break in the lower borderline of the oval (shown on
    the lower right of fig.  III.3, B).

       Figure III.4:  Raised Note

       (See figure in printed
       edition.)

    (See figure in printed edition.)In this raised note, corners have
    been cut off a $10 note and pasted on a $1 note (A).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

          RAISED NOTES
    ----------------------------------------------------- Appendix III:0.4

    Raised notes involve one of the most simplistic counterfeiting
    methods.  Using this method, a counterfeiter cuts numerals from
    higher denomination notes and glues them to the corners of lower
    denomination notes (see fig.  III.4, A).  To detect these counterfeit
    notes, a comparison of the arabic numbers in the corners with the
    text number at the bottom of the note or under the appropriate
    portrait can be made.

    THREE CASE EXAMPLES OF
    HIGH-QUALITY COUNTERFEITS
    ========================================================== Appendix IV

       Figure IV.1:  The Canadian Note

       (See figure in printed
       edition.)

    (See figure in printed edition.)Two defects in this counterfeit note
    are the lack of microprinting around the portrait (A) and the break
    in the borderline of the portrait oval (B).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

    Three cases, the first two provided by the Secret Service and the
    third primarily by the House Republican Research Committee's Task
    Force on Terrorism and Unconventional Warfare, illustrate recent
    troublesome cases concerning the counterfeiting of U.S.  currency
    abroad; all involve high-quality counterfeit notes produced by using
    the offset printing method.

      In Canada, an individual linked to organized crime produced
         counterfeit U.S.  $100 notes using offset plates and a printing
         press.  The "Canadian Note" case took almost 2-1/2 years to
         solve, despite the good relations that exist between the United
         States and Canada and their respective law enforcement agencies,
         according to Secret Service officials.  During that period, the
         Secret Service detected over $10 million worth of these

    counterfeit notes.  The Canadian Note, as opposed to a genuine note,
    had the red and blue fibers printed on, rather than embedded within,
    the paper.  When these fibers on the counterfeit were scratched, they
    would not pull from within the paper as those in a genuine note would
    do.  Also, for 1990 series and subsequent notes, another security
    feature, the microprinting around the portrait that reads "The United
    States of America," was added.  This feature is missing from the
    Canadian Note shown in figure IV.1, A.  Finally, one overt defect in
    the Canadian Note is the break in the right-hand lower border of the
    oval (see fig.  IV.1, B).

       Figure IV.2:  The Colombian
       Note

       (See figure in printed
       edition.)

    (See figure in printed edition.)One defect in this counterfeit note
    is a black dot near the outer border of the portrait (A).

       Source:  U.S.  Secret Service.

       (See figure in printed
       edition.)

      In Colombia, organized criminals bleach low denomination U.S.
         notes and then use the bleached paper to print higher
         denomination bills.  According to Secret Service officials,
         these criminals use the same distribution points as those for
         drugs to circulate the "Colombian" or "South American Note." In
         addition, according to Secret Service officials, this note is
         especially disconcerting because the paper is often genuine, a
         large number of variations exist in this counterfeit family,\12
         and the number of counterfeits detected for this note is large.
         From the time that the note was first detected in 1981, through
         fiscal year 1994, over 100 varieties of these counterfeits,
         amounting to almost $36 million, have been detected.  One overt
         defect in the Colombian Note is a black dot near the outer
         border of the oval on the right-hand side, as shown in figure
         IV.2, A.

      In the Middle East, a group, allegedly a foreign government, is
         sponsoring production of the Superdollar.  While many
         allegations have been made about the Superdollar, little
         evidence in support of these allegations has been made public.
         According to the report by the House Republican Task Force on
         Terrorism and Unconventional Warfare, the Superdollar is printed
         in the Middle East on "high-tech state-owned presses with paper
         only acquired by governments." Also according to the task force,
         the Superdollar is "designed for direct infiltration into the
         U.S.  banking system and has become a major instrument in
         facilitating the flow of militarily useful nuclear materials and
         equipment and various weapons systems." A few of the foreign law
         enforcement and financial institution officials we spoke with
         believed the Superdollar was being circulated through various
         terrorist organizations around the world, on the basis of
         reports of detections involving individuals with links to
         terrorist organizations.  According to the Treasury Department,
         no evidence exists to show that the note is printed with paper
         acquired only by governments or that the note is designed for
         direct infiltration into the U.S.  banking system.  Treasury
         also maintained that support for the remaining allegations
         concerning the Superdollar is inconclusive.  Furthermore,
         although the Task Force reported that between $100 million and
         billions in Superdollars is in circulation, no evidence has been
         provided to support these allegations.  Since the Superdollar
         was first detected in fiscal year 1990, Superdollar detections
         have represented a small portion of total counterfeit currency
         detections, according to Treasury and the Secret Service.  (Due
         to the sensitivity and ongoing nature of this case, defects in
         and pictures of the Superdollar were not included in this
         report.)

    --------------------
    \12 According to Secret Service officials, a "family" is a grouping
    of variations of counterfeit notes made by the same counterfeiters
    using the same process.  A family can include any number of
    variations.

    TREASURY DEPARTMENT TO INTRODUCE
    CURRENCY REDESIGN
    =========================================================== Appendix V

    To deter counterfeiters both domestically and abroad, the Treasury
    Department plans to issue newly designed U.S.  currency with more
    internal security features.  According to Treasury officials, the
    redesign is a preemptive step to protect U.S.  currency from
    high-tech counterfeiting.  Some U.S.  and foreign officials agreed
    that the change is overdue because the current U.S.  currency design
    is outdated and easy to counterfeit.  The new design incorporates a
    number of new security features and will be periodically reexamined
    and updated because no one security feature alone is sufficient and
    no single currency design can deter counterfeiting indefinitely.  The
    U.S.  strategy for introducing the new currency includes the
    replacement of old currency as it goes through the Federal Reserve
    system and the encouragement of exchanges of old currency for the
    newly redesigned currency.  The U.S.  strategy does not include a
    recall of old U.S.  currency.  Finally, to facilitate introduction
    and maximize the effectiveness of the redesigned currency, Treasury
    has initiated a worldwide public information campaign.  Through this
    campaign, Treasury and Federal Reserve officials plan to emphasize
    and thus increase the effectiveness of the new security features,
    make the public aware that the old currency will retain its value,
    and encourage individuals to exchange their old currency for the
    redesigned notes.

    THE CURRENT U.S.  CURRENCY DESIGN
    IS OUTDATED AND EASY TO DUPLICATE

    Some officials in the United States and abroad agree that the current
    design of U.S.  currency is outdated, making it particularly
    vulnerable to counterfeiting.  The U.S.  currency has had only two
    changes in over 50 years, both in 1990.  According to a June 1, 1995,
    Treasury Inspector General's report,\13 despite the 1990 addition of
    a security thread and microprinting, the lack of more major changes
    to the U.S.  currency has apparently left the United States with a
    less technologically advanced currency than those of other
    industrialized nations.  For example, the report pointed out that
    Japan has already incorporated special ink to deter counterfeiters,
    and Finland and Australia have added features similar to holograms
    (three-dimensional pictures) to their currency.  The Treasury
    Inspector General concluded that, because of the advances made by
    other nations and the lack of similar changes by the United States,
    the U.S.  currency has become one of the easiest to duplicate.  This
    conclusion was further supported by reports contracted by the Bureau
    of Engraving and Printing\14 and the Committee on Next-Generation
    Currency Design.\15

    During our overseas visits, officials from the Swiss, German, and
    Hungarian central banks told us that the United States should
    consider improving the security features within its currency.  The
    Hungarian central bank and the Swiss bankers association commented
    that the counterfeiting of U.S.  currency was particularly egregious
    because the design of the dollar is technologically out of date.
    German and English law enforcement officials noted that U.S.
    currency could be widely counterfeited because it is so easy to copy.
    Additionally, officials of a currency exchange business in Italy
    stated that, if the United States did not protect its currency by
    adding deterrence features, then increases in counterfeiting could
    lead to the devaluation of the dollar.

    CURRENCY REDESIGN INCORPORATES NEW
    SECURITY FEATURES, WITH MORE TO BE
    ADDED OVER TIME

    After the 1990 security features were added to the U.S.  currency
    design, the Advanced Counterfeit Deterrence Steering Committee formed
    the New Currency Design Task Force to analyze and recommend new
    security features.  On the basis of the task force findings, the
    steering committee presented its recommendations to the Secretary of
    the Treasury on changing U.S.  currency.  In 1992, the task force
    contracted with the National Research Council to recommend overt
    counterfeit-deterrence features.  The study was completed in 1993 and
    was used by the task force to recommend the new security features.

    The new U.S.  currency maintains its traditional appearance while
    incorporating new security features.  The redesigned notes retain
    their familiar size and colors, with portraits of the same historical
    figures on the front and the same buildings or monuments on the back.
    The greatest number of new security features are incorporated in the
    highest denomination bills, with fewer features built into the lower
    denomination bills that are less likely to be counterfeited.  The new
    security features include overt features easily recognized by the
    public and covert features for use by the banking system.  The most
    obvious changes are a 50-percent larger portrait that is off-center
    and the inclusion of a watermark that is visible when the note is
    held against a light source (see fig.  V.1).

       Figure V.1:  New Overt Security
       Features of the Redesigned U.S.
       Currency

       (See figure in printed
       edition.)

       Source:  U.S.  Department of
       the Treasury.

       (See figure in printed
       edition.)

    Production and distribution of the newly redesigned currency will
    take several years to complete.  The new $100 note will be introduced
    in 1996, with lower denomination notes following at 9- to 12-month
    intervals,\16 according to Federal Reserve officials.  The $100 note
    will be produced first because it is the note most widely
    counterfeited abroad.  The Bureau of Engraving and Printing has
    estimated that the first-year production costs for the $100 note will
    represent an increase of between $7.5 million and $10 million from
    current levels because of the addition of the new security features.

    Although these new deterrent features represent a significant change
    to the currency, these changes will not be the last.  According to
    Treasury Department officials, the combination of rapidly advancing
    technology, the continued worldwide demand for U.S.  currency, and
    the ability of counterfeiters to compromise deterrents over time will
    necessitate future currency redesigns.  Therefore, the Advanced
    Counterfeit Deterrence Steering Committee will continue to review, on
    an ongoing basis, the need for future deterrents.  Treasury has also
    established the Securities Technology Institute at The Johns Hopkins
    University's Applied Physics Laboratory to develop new materials to
    be used in U.S.  currency to further deter counterfeiting.

    Additionally, the Secret Service has begun to develop more
    comprehensive evaluation methods for the currency's
    counterfeit-deterrence features.  The Treasury Inspector General's
    office, which evaluated the security features added in 1990, has
    recommended that the Treasury Department develop a comprehensive
    system of performance measures for past and future deterrents.\17

    The Secret Service plans to develop a performance measurement method
    that will include a more detailed computer classification system.
    The system would allow for categorization of different counterfeit
    notes according to the features and series that they attempt to
    simulate.  Moreover, the Bureau of Engraving and Printing may pursue
    the development of a classification system through its contract with
    the Securities Technology Institute.

    TREASURY'S INTRODUCTION OF THE
    REDESIGNED CURRENCY WILL NOT
    INCLUDE A RECALL

    Although officials in some countries believe a recall should be
    issued in conjunction with the introduction of newly redesigned
    currency, Treasury and Federal Reserve officials believe they have
    developed a more appropriate strategy for the United States.  The
    strategy calls for the withdrawal from circulation of old or worn
    notes as they go through the Federal Reserve system and their
    replacement by the redesigned currency, as well as the publicizing of
    the new notes to encourage the public to exchange old currency for
    new.  In this way, Treasury and Federal Reserve officials expect the
    number of old notes in circulation to diminish over time, eliminating
    the need for a recall.  Treasury officials have concluded that this
    strategy will be more cost-effective and less risky to the stability
    of the U.S.  dollar.

    Some foreign law enforcement and a few foreign financial organization
    officials suggested that the United States might wish to consider
    recalling all old currency after distributing the new currency.
    Foreign officials said that changes to and recalls of other
    countries' currencies are common methods of combating counterfeiting
    abroad and that, without a recall, there is nothing to stop
    perpetrators from counterfeiting the old currency.  For example,
    foreign law enforcement officials told us that, although the United
    States incorporated two new security features into its currency
    issued in 1990, counterfeiters in Paris circumvented this effort by
    counterfeiting 1988 notes that did not have the new features.  In
    addition, a U.S.  terrorism expert expressed the opinion that, in
    order to eradicate the Superdollar, a recall would be necessary.

    Conversely, a few other foreign financial organization officials
    acknowledged the cost and other concerns cited by Treasury in
    choosing not to recall the old currency.  Some of these officials
    suggested that the amount of U.S.  currency in circulation would make
    a recall extremely difficult and costly.  Other foreign law
    enforcement and financial organizations did not comment on recalls.

    The strategy as developed calls for the Federal Reserve to remove old
    $100 and $50 notes from circulation as they go through the Federal
    Reserve banks and to reissue only the newly redesigned currency.
    Federal Reserve officials told us that it is possible that they will
    not remove the lower denomination notes until they have completed
    their normal lifespan, because their lifespan is usually shorter than
    that of the higher denomination notes.  For example, a $20 note is
    generally faded and torn after 2.5 years in circulation and is thus
    removed from circulation, whereas the lifespan of a $100 note is 6 or
    more years.

    Federal Reserve officials also told us that they expected a large
    demand for the new currency and that, although the U.S.  government
    will not issue a recall, it will develop a publicity campaign to
    encourage people to exchange older currency for new currency.
    Treasury and Federal Reserve officials expected people to gravitate
    to the new currency, particularly in overseas areas where older notes
    are already subject to greater scrutiny.  They said that, at some
    point, the new currency will greatly exceed the old currency in
    circulation and that by then merchants will universally prefer the
    new currency and subject the old currency to even greater scrutiny.
    Thus, they concluded, counterfeiting of the old notes would diminish
    over time.  They added that they were more worried that the demand
    for the new currency would exceed the supply than that the old
    currency might be counterfeited.

    Treasury officials said that they have no plans for a recall of the
    old currency because the costs are not justifiable and a recall could
    negatively affect the stability of the U.S.  dollar.

      According to Treasury officials, the potential costs associated
         with a recall are not warranted given the current level of
         counterfeiting.  The cost of a recall of all old U.S.  currency
         would be tremendous because U.S.  currency is an international
         currency that is widely held abroad.  Treasury believed that,
         since the legitimate use of U.S.  currency significantly
         outweighs the illegitimate use, imposing the enormous cost of a
         recall on legitimate users would not be justified.

      Treasury officials also told us that the stability of the U.S.
         dollar is primarily due to the stability of the U.S.  economy
         and the stature of the United States around the world.  They
         added that a recall of U.S.  currency could negatively affect
         this stability.  The United States has made only two overt
         changes to its currency since 1929 and has never recalled its
         currency.  People have faith in a currency because they believe
         it will retain its value.  Moreover, the U.S.  Treasury earns
         revenues from the use of U.S.  currency abroad, and a decrease
         in the use of U.S.  currency abroad thus would have a negative
         impact on these revenues.  For example, according to a Treasury
         official, a 1-percent decrease in U.S.  currency holdings
         overseas would cost the Treasury $75 million in annual revenues.

    WORLDWIDE EFFORT TO FACILITATE THE
    INTRODUCTION OF THE REDESIGNED
    CURRENCY

    Treasury is developing and implementing a comprehensive, worldwide
    public education campaign to facilitate the introduction of the new
    currency.  Through this public education effort, Treasury officials
    hope to (1) increase the effectiveness of the new security features
    by publicizing the overt ones, and (2) ensure that individuals around
    the world realize that the old notes will retain their value and that
    the U.S.  government has no plans to recall U.S.  currency.  Also,
    Federal Reserve officials said that they hope to encourage
    individuals to exchange old notes for newly redesigned ones.

    A Treasury Inspector General's report has noted that the 1990 overt
    security features were not as effective as hoped, partially because
    of the lack of an adequate long-term public education program.  And,
    with the introduction of the redesigned currency in 1996, the need to
    educate the public will be even greater because three different
    Federal Reserve Note designs will then be in circulation:  (1)
    pre-1990 notes without the security thread and microprinting, (2)
    1990 and later notes with the security thread and microprinting, and
    (3) the newly redesigned notes.

    Treasury's publicity campaign is expected to include the use of (1) a
    high-profile campaign spokesperson, the Treasurer of the United
    States, to inform the public about the newly redesigned currency; (2)
    staff dedicated solely to public education who will work with the
    U.S.  Information Agency to encourage the establishment of foreign
    focus groups, as well as an outside firm to help craft and
    disseminate the message to the general public and selected target
    audiences abroad; (3) U.S.  embassies overseas and foreign-desk
    officers at Treasury as points of contact for information regarding
    the redesign effort; and (4) the Federal Reserve, which has already
    begun to send information about the redesign effort to central banks
    around the world.  Additionally, according to the Secret Service, it
    intends to conduct an extensive training program for law enforcement
    and financial organization officials.

    --------------------
    \13 Treasury Inspector General, Treasury's Overt Changes to Currency
    Enhance Counterfeit Deterrence (June 1, 1995).

    \14 Price Waterhouse and The Institute for the Future, Implications
    of Increased Counterfeiting (September 30, 1986).

    \15 National Materials Advisory Board, Commission on Engineering and
    Technical Systems, National Research Council, Counterfeit Deterrent
    Features for the Next Generation Currency Design (December 1993).

    \16 According to the Federal Reserve, it takes almost a year to make
    a production plate.

    \17 Treasury's Overt Changes to Currency Enhance Counterfeit
    Deterrence (Washington, D.C.:  June 1, 1995).

    THE SECRET SERVICE IS ATTEMPTING
    TO INCREASE ITS PERMANENT PRESENCE
    ABROAD
    ========================================================== Appendix VI

    To better combat the counterfeiting of U.S.  currency, the Secret
    Service has requested an increase in its permanent presence abroad.
    As of May 1995, the Secret Service had the following overseas
    strength:  6 permanent offices with 16 agents assigned to them, with
    this permanent presence supplemented by 3 task forces, 2 temporary
    assignments, and 6 domestic offices covering additional geographic
    locations abroad.  In February 1994, the Secret Service requested
    additional positions abroad, and over a period of 5 months, the total
    positions requested grew to 28.  The Secret Service had hoped that
    these positions would be staffed by the beginning of fiscal year
    1996.  However, due to uncertainties over funding and to other
    Treasury priorities, as well as to the normal approval and staff
    selection timeframes at Treasury and State, as of November 30, 1995,
    only 13 of the 28 positions had been approved (see table VI.1.), and
    only 1 agent had moved to his new post abroad.

                                   Table VI.1

                      Status of Secret Service Request for
                    Increased Staffing Levels Abroad, as of
                               November 30, 1995

                                Under
                  Secret        discussion
                  Service       between
                  staff         Treasury and
                  increase      U.S. chief
    Locations     requested     of mission    Disapproved   Approved
    ------------  ------------  ------------  ------------  --------------
    New offices
    ----------------------------------------------------------------------
    Canada        2 agents      \a            1 agent       1 agent\b
                  1 support                   1 support

    Colombia      2 agents      1 agent       \             1 agent\b
                  1 support     1 support     c

    Cyprus        2 agents      \a            \c            2 agents
                  1 support                                 1 support

    Hong Kong     2 agents      1 agent       \c            1 agent\b
                  1 support     1 support

    Mexico        2 agents      \a            2 agents      \c
                  1 support                   1 support

    Russia        2 agents      2 agents      \c            \c
                  1 support     1 support

    Existing offices
    ----------------------------------------------------------------------
    England       1 agent       \a            \c            1 agent\b
                  1 support                                 1 support

    France        2 agents      \a            \c            2 agents\b

    Germany       1 agent       \a            1 support     1 agent\b
                  1 support

    Italy         2 agents      \a            \c            2 agents\b

    The           1 agent       1 agent       \c            \c
    Philippines

    Thailand      1 agent       1 agent       \c            \c

    ======================================================================
    Total         20 agents     6 agents      3 agents      11 agents
                  8 support     3 support     3 support     2 support
    ----------------------------------------------------------------------
    \a Discussion completed.

    \b Conditional approval based on agreement with U.S.  ambassador
    regarding administrative support costs.

    \c Not applicable.

    Sources:  U.S.  Departments of the Treasury and State.

    On February 2, 1994, the Secret Service submitted a request to the
    Treasury Department for funding under the Crime bill (Violent Crime
    Control and Law Enforcement Act of 1994, Public Law 103-322, Sept.
    13, 1994).  The Secret Service requested staffing for new offices in
    Bogota, Colombia; Mexico City, Mexico; Ottawa, Canada; Nicosia,
    Cyprus; and Hong Kong.  It requested additional staffing for existing
    offices in Rome, Italy; Paris, France; Bonn, Germany; London,
    England; Manila, the Philippines; and Bangkok, Thailand.  The Secret
    Service provided justification for its request, stating that
    counterfeit U.S.  currency being produced and circulated overseas had
    dramatically increased and that high-quality counterfeiting had also
    escalated overseas.  The Secret Service added that, because of its
    extremely limited resources abroad, it was not always able to take
    timely action to suppress counterfeiting abroad.  The Secret Service
    provided the examples of the Rome and Paris offices, which cover
    districts consisting of over 40 countries with respective complements
    of 5 and 6 special agents.  Additionally, on June 6, 1994, the Secret
    Service requested approval to open and staff a new office in Moscow,
    Russia, stating that the office was needed due to the burgeoning
    economic crimes in Russia and Eastern Europe.

    As the Secret Service continued to maintain its need for 28
    additional staff abroad, because of concerns over funding
    constraints, Treasury was considering a plan to consolidate Treasury
    Bureau staff overseas in a cost-saving effort.  Subsequently, on
    August 15, 1994, Treasury sent a request to State to approve 22
    Treasury agents and 4 support staff to be taken from the Secret
    Service and other enforcement bureaus' staffs, depending on the
    greatest need at each location.  The Treasury request stated that the
    positions would be funded with existing resources should Congress not
    approve additional funding.  State responded with the request that
    Treasury specify the bureau to which each position was to be
    assigned.

    On September 30, 1994, the Treasury, Postal Service, and General
    Government Appropriations Act for fiscal year 1995 made $5 million
    available to the Secret Service to combat the counterfeiting of U.S.
    currency.  However, according to the Treasury Department Budget
    Adviser for Enforcement, Secret Service base funding was still
    uncertain at that date.  Thus, on November 18, 1994, Treasury sent a
    letter to State requesting that 11 of the positions it had requested
    on August 15 be Secret Service agents for the new offices, as
    requested by the Secret Service.  However, Treasury did not forward a
    request for additional staffing of the existing offices at that time.

    On March 29, 1995, State sent a letter to Treasury providing an
    update on Treasury staffing requests, including the Secret Service
    positions, asking Treasury to respond to the cables from the chiefs
    of mission,\18 which had already been forwarded to Treasury.  Five of
    the requested agent positions had been approved, contingent on
    various clarifications.  Approvals consisted of two positions in
    Cyprus, one in Hong Kong, one in Colombia, and one in Canada.  The
    majority of the concerns and questions dealt with the funding of
    administrative support costs.  Furthermore, State noted that it had
    not yet received proposals for the additional Secret Service
    positions and that the proposals were needed so that State could
    forward them to the chiefs of mission concerned.

    As of our exit briefings with the Secret Service, Treasury, and State
    in May 1995, Treasury had not yet responded to the cables from the
    chiefs of mission, with the exception of that from Nicosia, and had
    not requested any additional Secret Service positions for offices
    abroad.  According to a Treasury budget official, funding had
    remained uncertain until recently, and then other priorities took
    precedence.  However, the budget official also told us that a request
    for the remaining positions would be forwarded to State and that the
    cables would be answered shortly.

    Subsequently, on June 5, 1995, the Secret Service provided Treasury
    with a letter stating that it had not yet received a formal response
    regarding the remaining positions and that it was willing to fund
    administrative support costs.  The Secret Service also asked that the
    process be expedited.  In a June 13, 1995, letter from the Secret
    Service to Treasury, the Secret Service stated that it was moving
    ahead with candidate selection for the approved Cyprus, Hong Kong,
    Bogota, and Ottawa positions and expected to have those positions
    staffed in early fiscal year 1996.

    On July 21, 1995, Treasury approved the remainder of the Secret
    Service's 28 requested positions and forwarded the request to State.
    Cables were sent to the respective chiefs of mission for approval.

    Finally, as of November 30, 1995, the Secret Service had received
    approval from the chiefs of mission for 13 of the 28 new positions
    originally requested.  Approvals had been granted for staff in
    Canada, Colombia, Cyprus, Hong Kong, England, France, Germany, and
    Italy.  Requests for staff in Mexico and additional staff in Canada
    and Germany had been denied.  Requests for staff in Colombia, Hong
    Kong, Russia, the Philippines, and Thailand were still under
    discussion between Treasury and the chiefs of mission.

    However, although gains appear to have been made in the approval
    process, staff selection and movement of staff to their new posts
    abroad still remained to be completed.  According to the Secret
    Service, as of November 30, 1995, only one agent had moved into his
    new position abroad (in Canada); two other staff had been selected
    for other positions and were preparing to move; and the selection
    process was just beginning for the remaining approved positions.

    --------------------
    \18 The authority to determine the size, composition, and mandate of
    mission staffing elements rests with the chief of mission and the
    Secretary of State.  Other U.S.  government agencies do not have
    decision-making authority with respect to the size, composition, or
    mandate of missions abroad.

    U.S.  EFFORTS TO ERADICATE THE
    SUPERDOLLAR
    ========================================================= Appendix VII

    U.S.  efforts to eradicate the Superdollar include an interagency
    task force led by the Secret Service, an overseas Secret Service task
    force, and diplomatic efforts between senior policy-level officials
    of the involved countries.  Due to the sensitivity and ongoing nature
    of this investigation, we were made generally aware of these efforts
    but were not given specific information.  However, the Secret Service
    has provided classified briefings to Members of Congress on efforts
    to eradicate the Superdollar.

    In a February 1994 Secret Service request to Treasury for funding
    under the 1994 Crime bill, the Secret Service stated that, for the
    past 4 years, it had spearheaded a multiagency effort to suppress the
    most technically sophisticated note detected in the history of that
    agency.  This initiative has prompted an unprecedented forensic
    effort, utilizing the resources of the Secret Service, other
    government offices, and several national laboratories.

    According to a State Department official, senior policy level
    officials in the U.S.  government are conducting ongoing diplomatic
    efforts concerning the Superdollar with Middle Eastern government
    officials.  This official said that, in May 1995, our government
    asked these foreign governments to provide a show of good faith in
    improving relations by locating the printing plants and perpetrators
    involved in producing the Superdollar.  He added that these efforts
    did not specifically implicate these governments in the production of
    the Superdollar, but that, at a minimum, they were believed to be
    tolerating this illegal activity within their borders.

    U.S.  and Interpol officials we interviewed stated that final
    resolution of cases similar to that of the Superdollar, should such
    cases occur, were beyond the purview of law enforcement agencies and
    would require diplomatic solutions.  According to U.S.  and Interpol
    officials, jurisdictional constraints may prevent law enforcement
    agencies from dealing effectively with cases of foreign-condoned or
    foreign-sponsored counterfeiting of U.S.  currency.  In such cases,
    the Secret Service would be able only to identify and assist in
    suppressing the distribution of the counterfeit notes.  In countries
    where the United States has no diplomatic relations, U.S.  law
    enforcement has no leverage to aid in the deterrence of
    counterfeiting.  U.S.  and Interpol officials agreed that the
    decision on how to suppress a foreign government-condoned or
    foreign-sponsored counterfeiting plant would need to be made at a
    senior U.S.  government level.

    (See figure in printed edition.)Appendix VIII
    COMMENTS FROM THE DEPARTMENT OF
    THE TREASURY
    ========================================================= Appendix VII

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    See comment 4.

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    See comment 6.

    (See figure in printed edition.)

    See comment 3.

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    The following are GAO's comments on the Department of the Treasury's
    October 19 and November 30, 1995, letters, including the enclosures
    from the Secret Service.

    GAO COMMENTS

    1.  Treasury states that U.S.  currency is not highly susceptible to
    counterfeiting and that counterfeiting statistics and supporting
    evidence support its viewpoint.  We modified the text to delete the
    word "highly" but continue to believe that the evidence supports a
    conclusion that U.S.  currency is susceptible to counterfeiting.  For
    example, the susceptibility of U.S.  currency to counterfeiting is
    established in a number of reports, including:  (1) Treasury's Overt
    Changes to Currency Enhance Counterfeit Deterrence (June 1, 1995),
    prepared by the Treasury Inspector General's Office; (2) Implications
    of Increased Counterfeiting (September 30, 1986), prepared by Price
    Waterhouse and the Institute for the Future for the Bureau of
    Engraving and Printing; and (3) Counterfeit Deterrent Features for
    the Next Generation Currency Design (December 1993), prepared by the
    National Research Council for the Committee on Next-Generation
    Currency Design.  Additionally, the State Department's Bureau of
    International Narcotics and Law Enforcement Office of International
    Criminal Justice concurred with this position, as did Interpol
    officials we contacted.  Furthermore, counterfeiting statistics
    provided by the Secret Service only give reported detections and
    cannot be used to reflect the actual extent of counterfeiting.

    2.  Treasury states that, based on its vault inspections, Federal
    Reserve data, detection data, and contact with overseas banking and
    law enforcement officials, there is no evidence of which it is aware
    to support the statement that banks may be recirculating the
    Superdollar.  The Secret Service states that it is known that the
    C-14342 does not circumvent detection and further states that foreign
    banking institutions and currency exchange houses have consistently
    demonstrated their ability to detect these notes and that there has
    not been any indication of widespread recirculation of the C-14342
    family by financial institutions.  However, based on our interviews
    with financial organization and law enforcement officials abroad,
    financial organizations in some countries may be recirculating the
    Superdollar.  Many of the foreign law enforcement and financial
    organization officials we interviewed had inconsistent and incomplete
    information on how to detect the Superdollar, and some acknowledged
    that in some cases it may escape detection and be recirculated.

    3.  Treasury confirms that the report lists countries that were
    visited by the joint Treasury/Federal Reserve teams during our review
    and adds locations visited as of October 1995.  The Secret Service
    suggests that we should increase our scope to include additional
    locations visited after we completed our work in May 1995.  The
    report includes only visits that were completed during our review and
    for which the joint teams had reached preliminary conclusions and
    briefed us on their results.  Since we did not review information and
    conclusions from the additional visits, we did not include them in
    the report.

    4.  Treasury states that it does not agree that U.S.  currency is one
    of the easiest to duplicate.  We have revised the text to provide the
    specific Treasury Inspector General report reference, which states
    that U.S.  currency is easy to duplicate, and we have added other
    specific Treasury-contracted sources to the text.

    5.  The Secret Service states that it should be noted that well over
    90 percent of all counterfeit U.S.  currency is seized before it
    enters circulation.  This statement cannot be verified for two
    reasons.  First, since the total amount of counterfeit currency
    cannot be determined, one cannot determine what percentage is seized
    before it enters circulation.  Second, for detections abroad, the
    Secret Service detection data do not distinguish between detections
    occurring before and those occurring after entering circulation.
    Thus, it is not possible to determine what percentage of counterfeit
    U.S.  currency detected abroad is seized before it enters
    circulation.

    6.  The Secret Service states that foreign-produced counterfeit U.S.
    notes passed in the United States during fiscal year 1994 made up 64
    percent of total domestic passes, not almost 60 percent as stated in
    the draft report.  However, the Secret Service was unable to provide
    supporting data for the figure of 64 percent.  Our analysis of
    updated fiscal year 1994 statistics provided by the Secret Service
    resulted in a figure of 65.5 percent, and we changed the text
    accordingly.

    7.  The Secret Service expressed its concern over our references to
    material found in the House Republican Research Committee's Task
    Force on Terrorism and Unconventional Warfare reports.  These reports
    are the only unclassified government reports on the Superdollar.
    They are frequently quoted by the media and "terrorism experts" and
    thus cannot be ignored.  We have not verified the information in
    these reports.  We have attributed all comments made by the task
    force to the task force.

    (See figure in printed edition.)Appendix IX
    COMMENTS FROM THE DEPARTMENT OF
    STATE
    ========================================================= Appendix VII

    (See figure in printed edition.)

    The following is GAO's comment on the Department of State's October
    30, 1995, letter.

    GAO COMMENT

    1.  State concludes that we concur with its finding that counterfeit
    U.S.  currency is not a factor in international money laundering.  We
    did not address this issue in the scope of this report and have not
    reached this conclusion.

    (See figure in printed edition.)Appendix X
    COMMENTS FROM THE FEDERAL RESERVE
    ========================================================= Appendix VII

    MAJOR CONTRIBUTORS TO THIS REPORT
    ========================================================== Appendix XI

    HEADQUARTERS, WASHINGTON, D.C.

    Shirley A.  Brothwell, Senior Evaluator
    Martin H.  De Alteriis, Social Science Analyst
    Judith K.  Knepper, Senior Evaluator
    Rona H.  Mendelsohn, Senior Evaluator (Communications Analyst)
    Donna M.  Rogers, Evaluator
    Katherine M.  Wheeler, Publishing Consultant

    OFFICE OF THE GENERAL COUNSEL,
    WASHINGTON, D.C.

    Sheila K.  Ratzenberger, Assistant General Counsel
    Geoffrey R.  Hamilton, Attorney

    SAN FRANCISCO/SEATTLE FIELD OFFICE

    Kane A.  Wong, Assistant Director
    Kathleen M.  Monahan, Evaluator-in-Charge
    Pamela H.  Brown, Evaluator

    *** End of document. ***