Bank Secrecy Act compliance is more important than ever to companies that deal with “covered transactions”. The cost of fraud has exceeded one trillion dollars and is on the rise. The Bank Secrecy Act (BSA) was put in place to assist government agencies with stopping money laundering.
There are three main requirements that the BSA insists of financial institutions to maintain Bank Secrecy Act compliance:
- 1. Keep records for cash purchases of negotiable instruments
- 2. File reports of these purchases
- 3. Report any activity that may be indicative of tax evasion, money laundering or other illegal activities
Most people associate the United States Secret Service with the protection of the President and others whose continuing well-being is deemed to be in the national interest. Abraham Lincoln did not, however establish the Service for protection but, rather, to fight currency counterfeiting that ran rampant during the Civil War. Historians estimate that one thousand out of approximately thirteen hundred banks then in operation were the victims of the Confederacy’s attempt to destroy the Union economy by circulating counterfeit money.
So, is counterfeiting as big a problem today as it was during the Civil War? No. The Federal Reserve estimates that as of February 29, 2012 there was approximately $1.09 trillion in circulation, of which $1.05 trillion was in Federal Reserve notes. Up to two thirds of U.S. currency in circulation worldwide is held outside of the United States, so approximately only $303 billion circulates domestically. Let us assume that the entire amount of $261 million of counterfeit currency seized by the Secret Service in 2011 was removed solely from circulation in the United States. If so, it means that less than 0.086% of currency circulated in the U.S. in 2011 was fake money ($261 million/$303 billion) . Furthermore, authorities reported that 6.5 counterfeit banknotes are passed as real currency out of every 1 million banknotes in U.S. circulation. Again, this hardly seems like a significant sum and certainly not one that would generally signal a cause for alarm, right?
Loss. Whether it happens in the form of shoplifting, cash register shortages, product shrinkage caused by employees or counterfeiting, hard economic times lead ordinary people to engage in conduct they wouldn't consider under normal circumstances. Risk management, once considered an afterthought, is now front and center among the priorities that companies pursue as they look for ways to prevent potential loss or, at the very least, minimize it.
Heightened vigilance and increased attention to areas where loss might occur should be at the top of any risk management agenda. Training employees to be on the lookout for shoplifters or the monitoring of employees combined with tighter accounting and inventory controls to prevent employee theft are ways to minimize risk of loss. Effectively dealing with counterfeiting, however, requires more than mere training or increased surveillance.
Battling counterfeiting and the harm it does to your business takes technology. Why? Because counterfeiting has become the domain of "techies". Almost everyone has access to sophisticated home computers, high resolution scanners and laser jet printers that produce almost picture-perfect documents and reproductions, all at relatively affordable prices. With this technology, any intelligent person with patience and a modicum of attention to detail can engage in producing passable counterfeit U.S. currency. While most of these fake bills are detectable to those who handle money frequently, they often deceive public-facing individuals such as store cashiers, vendors at a flea market or the waiter in a dimly-lit bar or restaurant.
If you still have doubts about whether counterfeit currency poses a problem for your business, consider this: $261 Million in counterfeit currency was taken from circulation in the U.S. by the United States Secret Service in 2011. That's the amount removed, not the total amount believed to be in circulation.
Your first line of defense against counterfeit currency is, of course, your staff. Training employees on what to look for in the behavior of a shopper and how to examine a bill for evidence of counterfeiting are both essential to your loss prevention efforts. However, technological advances have created fake bills of such high quality that they often evade detection by mere visual examination. This is why you should consider use of a counterfeit currency detector.
A properly trained employee using a currency detector can help you minimize, if not completely eliminate, the amount of fake bills your business takes in. A counterfeit currency detector will decrease that amount for two reasons: 1) Obviously, it enables your staff to identify "funny money" at point of sale, not while counting cash receipts at the end of the day when it's too late; and 2) It serves as a deterrent because counterfeiters are less likely to try to pass fake bills to businesses that actively engage in counterfeit detection.
Counterfeit money can be detected by, in increasing order of complexity and sophistication:
In the past, fake ID’s have largely been associated with underage drinkers trying to get their hands on alcohol. But nowadays, fake ID’s have become so high-tech that they can be used for much more sinister purposes. For very little money, people can obtain fake ID’s online that trick most detection equipment. To make sure you aren’t falling victim to this new form of high-tech fraud, you need driver license authentication equipment that is able to protect your business.
“Extremely troubling,” is how one Arizona public safety officer described the small items in front of him.“Better than we’ve ever seen” was the reaction of Assistant U.S. Attorney for New Hampshire Al Rubega. And Charles Shumer, Senator from the state of New York minced no words when announcing a need to to “strangle their source of funding” of its purveyors, “and put them out of business.” The object of their alarm? An innocuous-looking laminated card, with an photo, name address and basic demographics of its owner.
By all appearances, a genuine driver’s license. But nevertheless a fake.
An emerging concern for legislators, law enforcement and even ordinary shopkeepers is the level of sophistication built into these IDs, as well as their source -- China. First cropping up on high high school and college campuses, the fake IDs could be ordered through an anonymous email address of a “Chinese guy”: buyers supply the name, address, birth-date and other basic information which appears on their driver's licenses, wire several hundred dollars to a bank account, and in several weeks’ time receive their card from China, hidden in between the packaging of some small item.
Set next to a genuine driver’s license from that state, the two cards look virtually indistinguishable. But these fakes go one step further and imitate many of the hidden security features featured on the cards. Put them under UV light, as do the TSA security screeners, and the proper logo appears. Tilt the ID back and forth and just as in the genuine one, under the text will appear a hologram. Swipe the magnetic stripe on the reverse side into a handheld device, as would the bouncers at many bars, and all your information would be displayed just as on the card.
In fact the only way to trace the card’s origin is to scan the bar code on the back - the resulting readout will have “PARTiTek” appended to the end. The name corresponds to a bar code-encoding firm based in Nanjing, China.
Word of these super-IDs got around to several to several local TV stations, who decided to test them out on several local bars. The results were disconcerting: most of the doormen checking IDs were completely fooled by the fakes. And these are people trained to detect them.
For now, the “Chinese guy” appears more popular among teenagers looking to buy alcohol or enter a club than with terrorists looking to wreak havoc. But the implications of a fake ID sophisticated enough to pass even cursory TSA inspections should give us all pause.
To their credit, some businesses are already taking steps to detect these Chinese counterfeits - investing in better ID readers, which automatically check for all document security features, for instance. State and federal agencies are also fighting back by issuing more and harder to duplicate security features. This makes the need for reliable ID readers all the stronger, as the sheer amount and diversity of the new features will make them nigh impossible to verify with any confidence with the naked eye. Unfortunately, counterfeiters have gotten too good at creating the authentic look of the documents, and are now moving on to duplicating some of the under-the-surface parts. Businesses must develop a way to reliably verify the authenticity of these documents -- or a few teenagers sneaking in will be the least of their worries.
Criminals interpreted the American prospect of “making money” quite literally in the past month, rallying authorities into attention and cashiers into caution as money counterfeiters struck all over the United States with counterfeit bills. The poison fruits of this federal felony – one that rouses the Secret Service into investigation – sprung in varying capacities and surprising locations.
We have mentioned in a number of previous posts the international nature of many counterfeit money operations – and, as if to further reinforce how these are the best of times and the worst of times for retailers in regard to retail fraud, we present a story out of the nation's heartland, Philadelphia, and out of China.
But first, a few words about how these are “the best of times and the worst of times” for retailers and identity authentication. On the one hand, thanks to the power of the internet even mom & pop shops are now able to sell their wares all over the world. On the other hand, the same internet enables fraudsters to collaborate across borders in creating ever more realistic counterfeit ID cards, the scourge of every retailer. There is in fact now a whole shadow market, much like its legal counterpart but for counterfeit driver's licenses. China plays a key role in the latter, just as in the former.
The other obvious advantage to the international counterfeit trade is that it enables fraudsters to take refuge in regions where their operations stand the least chance of prosecution. While the manufacturing of any counterfeit currency is heavily punished within the borders of the United States, it is overlooked, if not actively encouraged in other nations, including China. The Tri-State area has seen a recent flood of Chinese-made counterfeits, and the results have been disastrous. One Philly bar owner was quoted saying “I don't want them to know it's hard for us to figure it out, but the technology is getting more and more scary”, while another, who not long ago was fooled by a fake ID and had to spend nearly a million in legal fees , described the counterfeit ID situation as “terrible”.
Although we have in previous posts focused primarily on European and South American hotbeds of fraud, China also plays a key role. Taking advantage of laws allowing the proliferation of counterfeiting, China-based businesses make a living creating fake IDs for American teenagers, counterfeit driver's licenses to match fraudulent credit cards, and other identity documents of every conceivable shape and size for every illegal activity imaginable. Their products are quite convincing, too: in an apparent show of force, a Chinese fraudster group created a China identity card, virtually indistinguishable from the genuine article, for none other than Barack Obama. Since the summer months of 2010, Obama (at least according to the document) is a permanent citizen of the People's Republic. The implication behind the group's widely-publicized ID stunt was that they are quite capable of doing the same with any ID from any country.
Their gain is American businesses' loss: these fake IDs wind up being used to purchase expensive items on stolen debit and credit cards; to return purchases for cash anonymously; or - in the case of the aforementioned teenagers - to obtain substances restricted to minors. The cumulative cost of this fraud reaches into the billions – and that is not including legal fees for stores selling restricted items to minors.
Visual vigilance is always a good place to start in defending against these fakes. It works better on the proprietor of the ID rather than the ID itself. Inexperienced fraudsters usually act nervous at the checkout. Any unusual shiftiness or inability to make eye contact by a customer is good ground for suspicion. As for the document they present, whether it be Chinese in origin, or Mexican, or anywhere in between, it will still not likely pass the UV test. So invest in a good set of UV light counterfeit detectors, watch for suspicious behavior, and you will keep yourself safe from fraud.
How easy is it to create counterfeit money? Up until a few months ago, the Reid brothers would tell you it is the simplest thing in the world. For three years, in fact, from 2005 to 2008, Glendon and Sheldon Reid made millions in counterfeit currency using nothing more sophisticated than chemical bleach, a scanner and a printer. The brothers were eventually discovered and arrested, but their story should caution us all.