8
BANK OF CANADA NOTES: LATER SERIES
Counterfeiting statistics for the early 1960s (chart 1) underscored the pressing need for a new, more secure series of notes. In 1961, the number of Canadian counterfeits passed rose to more than ninety-eight per million (ppm) genuine notes in circulation. This was perilously close to the threshold of 100 ppm (corresponding to a probability of one in 10,000 of receiving a counterfeit note) that the Bank deemed a dangerous amount of counterfeiting. For the $10 note alone, the number of counterfeits per million genuine notes reached 220 in 1961.1 The situation was even more ominous if the notes seized by police in raids but never circulated were included in the statistics.
The number of prosecutions for counterfeiting-related offences also increased: 150 in 1960, 253 in 1961, and 193 in 1962.2 Interestingly, roughly three-quarters of these cases originated in the province of Quebec. Why this was the case is not readily apparent. One possibility is that the province was drawing on a long counterfeiting tradition, dating back to the beginning of the nineteenth century (see chapter 5). More likely was the relative leniency of Quebec courts toward counterfeiting offences. Charges were more likely to be dismissed in Quebec than in other provinces, and, if a conviction was obtained, the defendants were more likely to receive a suspended sentence or a jail term of less than one year. Of 357 counterfeiting convictions in Quebec during the 1960–62 period, only nine received sentences of four years or more. In the rest of the country, there were 143 counterfeiting convictions during the same period, with fifteen receiving sentences of four or more years. The maximum jail term for making or passing counterfeit notes under the Criminal Code of Canada is fourteen years.
The rise in counterfeiting during the early 1960s led the Bank to begin in earnest the development of a new series of notes that would be more secure in light of the advancements in reproduction techniques that were generally available. It was several years before the new notes were ready for release, however, and in the meantime counterfeiting became a growing headache. In April 1966, Maclean’s magazine published an article stating that phony $20 bills were Canada’s “growth industry,” with $700,000 seized by police or passed in Montreal alone in 1965.3 According to Bank of Canada statistics, the proportion of counterfeit $20s passed that year touched approximately 320 ppm, more than three times the level deemed dangerous.4 Maclean’s wrote that the $20 bill was the note of choice for counterfeiters because it was “not too high for most merchants to change and high enough for a decent profit.” The prevalence of bogus twenties was such that many small shop owners stopped accepting them. The situation was reported to be so bad that twenty-five RCMP counterfeit experts were kept busy in Montreal alone, and that “the worst was yet to come” with a flood of new and improved counterfeits expected with the opening of Expo 67 the following year.
In response to the growing problem, the Bank of Canada countered with the release of a new multicoloured $20 note in 1969, the first of its new, more secure Scenes of Canada series. Other denominations appeared in succession over the following years, with the $50 and $100 notes issued in 1975 and 1976, respectively. The range of tints on the new notes frustrated most attempts at reproduction. However, during the period between the release of the new $20 and that of the higher-denomination notes, forgers shifted their focus away from the $20 bill to the $50s and $100s. In 1973, counterfeiting of the $50 note from the1954 Landscape series reached a level of 950 per million genuine $50 notes in circulation.5 Although the chances of someone actually receiving a counterfeit bill were still quite small, even bank branches became reluctant to accept high-denomination notes.6 With the release of the new $50 note in March 1975, the Bank of Canada asked banks not to reissue the $50 note of the 1954 series and withdrew it from circulation.7 The old notes remained legal tender, however. The new $100 bill came out the following year. Public suspicion of large-denomination notes persisted long after the introduction of the new series.
$20, 1969, front and back. The $20 note was the first of the new Scenes of Canada series, which was dubbed a “Rainbow in Your Pocket” by the Vancouver Province. The colourful hues and swirling patterns of the notes, designed to foil the latest in copying technology, used innovative printing processes that required the printers to buy new equipment. The faces of the notes were produced with one intaglio and three lithographic plates. The monochrome serial numbers of earlier notes were replaced with blue and red numbers. Called “psychedelic” by some, the new notes were initially refused by some merchants who believed that they couldn’t be real currency.
(National Currency Collection)
The Scenes of Canada series successfully addressed the counterfeiting that had emerged during the 1960s and early 1970s. Counterfeiting fell off sharply and remained at very low levels from the mid-1970s to the end of the 1980s. But technology was making great strides, and although the colour photocopiers that came onto the market in the 1970s were expensive and available only in print shops and offices, their potential for counterfeiting was quickly recognized.
$10, 1989. What became known as the Birds of Canada series featured designs with a single large focal point that would make the defects in counterfeit notes easier to spot. The notes were also the first to use microprinting as a security measure.
(National Currency Collection)
The Bank of Canada began work on the next note series in 1974, even before all denominations of the Scenes of Canada series had been launched, and by 1983 had decided to make large images of Canadian birds the focus of the design for the new notes. Defects in attempted reproductions would be easier to spot in a single clear image. The portraits on the notes were also enlarged for the same reason. The other security features of the new series were far more complex. The “Canada sky” feature on the backs of the notes was composed of multi-directional lines that produced wavy patterns when photocopied. The central panel on the front featured microprint, and what appeared to be lines in the background were actually rows of microprinted numerals. But it was the state-of-the-art Optical Security Device (OSD) that took direct aim at counterfeiting with colour copiers. The shiny rectangle applied to front of the high-denomination notes ($20 to $1000) in the upper left corner shifted colour from gold to green when tilted, a property not reproducible by printers or scanners. The Bank had worked with physicist George Dobrowolski and his team at the National Research Council in Ottawa, investing millions of dollars over sixteen years, to develop a cutting-edge security device using thin-film optical filters. His contributions to the field of optical engineering earned Dobrowolski accolades in his field, as well as the Order of Canada. The OSD successfully protected notes in the Birds of Canada series, released between 1986 and 1992, for most of the 1990s.8 The new notes also included features that when read by commercial copiers, as well as scanners and printers on personal computers, would cause them to refuse to copy a bank note. Deployment of machines that could read the codes was slow, however.
Security features from the Birds series: (1) the optical security device, (2) the central panel on the front of the note composed of microprint “BANK OF CANADA 50 BANQUE DU CANADA,” and (3) wavy lines in the background are rows of microprinted numerals.
(National Currency Collection)
With the rapid development of personal computer technology, counterfeiting began to pick up in the early nineties (chart 2), and the bank’s note-issuing arm pushed for the production of a new series. In 1997, a team was established to develop the new notes. The team began by looking for a new substrate (security paper that has its own intrinsic security features). In theory, if access to the note substrate can be limited, then counterfeiting can be thwarted. Operating in an environment where the government was enacting sweeping cost-cutting measures, they hoped to find a substrate that not only offered improved security, but that would also extend the life of bank notes, thus reducing the cost of replacing worn notes.
A polymer material developed by the Reserve Bank of Australia was considered, but at more than twice the cost per note, was deemed too expensive. The team decided to go with “Luminus,” an experimental material produced by a Canadian paper manufacturer that consisted of a polymer sandwiched between two layers of paper. After circulating thousands of $5 test notes between 1995 and 1998, the decision was made to use Luminus for all the notes in the new Canadian Journey series. The polymer layer improved not only the durability of the notes but could carry an image similar to a watermark.9
Plans for the new notes were soon in disarray, however, when the owner of Luminus decided that it would be unable to supply the product because of technical difficulties, as well as problems with marketing it elsewhere. The new $10 note, issued in 2001, was therefore printed on a 100 per cent cotton paper in the hope that production with Luminus might still be possible in the future. The notes featured the microprinting and intaglio of the Birds series, together with new security measures. These included random fibres and images that glowed under ultraviolet light, a hidden number beside the portrait, and three iridescent gold maple leaves in the centre that substituted for the planned watermark. Nevertheless, the new notes were almost immediately targeted by counterfeiters who were undeterred by the new features. The hidden number and gold leaves were simply too subtle to be useful for quickly recognizing a fake note.
Indeed, five boys at a high school in Richmond, British Columbia, aged twelve to eighteen, made their own copies of the $10 notes as a prank and gave them to some friends. When the phony notes were readily accepted by merchants, the young entrepreneurs began selling their counterfeits at school—$10 in real cash for $30 in fakes. The young buyers would purchase a candy bar with a fake $10 and get back about $9 in real money. Business was brisk, and the bogus notes spread like wildfire before the police finally tracked down the five offenders.10
Things were about to get even worse. In 2001, bogus $100 bills from the Birds series complete with a phony OSD began surfacing in quantity, and retailers from Windsor to Montreal and beyond began refusing $100 notes.
THE WINDSOR $100
On 11 July 2001, Wesley Weber, twenty-seven, Anthony Caporale, twenty-four, Dustin Kossom, twenty-one, and Ryan Hodare, twenty-three, were sitting at the dining room table of a one-storey cottage on the shore of Lake St. Clair. The only sound was the quiet droning of four ink-jet printers. Suddenly the patio doors burst open, and RCMP officers rushed in and forced them to the floor, while $100 notes flew around in the wind from the lake. The police seized $233,900 worth of counterfeit $100 notes, shutting down a counterfeiting operation that had plagued merchants along the Windsor-Toronto-Montreal corridor for months. The group had managed to unload more than $5 million of the highly deceptive notes before they were caught, some even surfacing in London, England.11
Wesley Weber personified the Bank of Canada’s worst nightmare: the highly intelligent, computer-savvy counterfeiter who could produce large quantities of bogus notes with equipment from the local office-supply store.
Weber began honing his craft in high school, where he forged car-insurance slips. In 1997, at age twenty-two, the Windsor native was convicted of forging cheques drawn on local businesses and the city’s social services. In April 1999, he was charged with making counterfeit $20 bills and for operating a marijuana grow-op. While serving an eighteen-month sentence that required him to stay at his parents’ house, he not only forged gift certificates for a local mall, but used fake $100 bills to pay for tire rims and an expensive computer printer.
“One night, I threw a $100 bill into a scanner and printed it out to see where the deficiencies lay. It took me five or six months to get a reasonable facsimile.”12 The next problem was getting paper that didn’t glow under UV light and had the feel of money. Posing as a bar owner, Weber went to a paper shop that explained all the terminology of the industry and told him just what he needed. He used fluorescent paint to simulate planchettes and then began figuring out how to duplicate the Optical Security Device—the colour-changing foil on the Birds series. This time, Weber and Caporale managed to get the head of research and development at API Foils in New Jersey to teach them all about security foils. “One guy would have given me the keys to his house,” said Weber. “He wanted to tell me about his industry and how proud he was. We manipulated people’s good intentions.”13 Posing as head of a graphics firm, he then obtained the materials needed to produce a phony OSD that was applied to each note with a hot stamping machine. Weber was even able to produce ridges on the paper to simulate the feel of raised ink. “When we started, it took eleven guys thirteen hours to make $100,000. By the time we got arrested fourteen months later, we had four guys making 100 grand in three and a half hours.”14
But Weber’s cockiness and profligate spending habits had put the police on his trail. A GPS transponder attached to Weber’s vehicle led police to the cottage. The property next door was rented and used as an observation post, monitoring the audio and video surveillance equipment that police had installed in Weber’s cottage.15
Weber pleaded guilty and was sentenced to five years in prison. His three associates received two-year sentences.
Counterfeiting of the $20 Birds series note and the Canadian Journey $10 also rose dramatically between 2002 and 2004. Indeed, “at the episode’s peak in 2004, the number of counterfeit bank notes detected per million notes in circulation reached 470, which was the highest among industrialized countries.”16 The vast proportion of these counterfeits were made using ink-jet printers, a change from the 1990s when laser printers were extensively used. With media reports of counterfeiting appearing regularly, Canadians’ confidence in their bank notes, particularly the high-denomination notes, was severely shaken.
The Bank responded with a comprehensive strategy aimed at deterring counterfeiters while educating the public and retailers about the improved security features in its new notes. The strategy included speeding up the removal of older notes from circulation and working closely with law enforcement and Crown prosecutors to achieve successful convictions and stiffer sentences.
The security features planned for the higher-denomination Canadian Journey notes included a metallic holographic strip, a see-through number, a watermark, and a windowed thread developed from the Bank’s OSD material. Luminus was no longer a possibility, and to acquire a substrate that could incorporate these new elements, the Bank had to obtain the government’s permission to use paper manufactured in Europe, since no manufacturer in Canada could meet these specifications. While economically sensible, this would have been a politically difficult decision, given opposition to the use of foreign paper in the production of Canadian bank notes.
Before issuing the new $20, $50, and $100 in 2004, the Bank took the unprecedented step of unveiling each note well before its actual release. At the same time, it launched a national campaign to familiarize the public and retailers with the security features of the new notes. The Bank’s regional offices provided information and training sessions across the country.
The new $100 note was issued in March 2004, and the Bank was working hard to restore public confidence. Forgers soon countered by making copies of the $100 note from the old Scenes of Canada series, which began appearing in significant numbers. These notes lacked the optically variable devices of the Birds or Canadian Journey notes and were therefore much harder to authenticate and hence were a prime target for counterfeiters. The Bank published a warning in its Annual Report, encouraging retailers to ask for notes from newer series.17 The episode even led the Bank to consider removing the legal tender status of notes from older, less secure series, but the proposal was rejected.
The new notes, combined with the Bank’s proactive approach, were successful, and by 2006, the number of counterfeits detected in circulation had fallen by almost half, and most were copies of notes from older series.18
$20, 2004. Printed on a watermarked substrate, the new notes were the most markedly Canadian ever produced, with themes of art and culture illustrated on the back. Together with four new security features, the notes also contained invisible machine-readable features for security and processing.
(National Currency Collection)
Canada’s counterfeiting record in 2004 and 2005 was substantially worse than that of other countries (chart 3).19 However, the launch of the Canadian Journey series, combined with the public education campaign and enhanced law enforcement efforts to tackle counterfeiters, quickly brought Canadian counterfeiting levels back in line with those of other countries.
Although the numbers were falling, and public confidence in the $100 note was being restored, police were uncovering counterfeiting operations of ever-increasing sophistication. They were seizing notes in quantities that could have had dramatic consequences had they ever circulated.
Security features from the Canadian Journey series: (1) intaglio, (2) see-through number, (3) ultraviolet feature, (4) windowed colour-shifting thread, (5) watermark portrait and number, (6) microprint, and (7) holographic stripe.
(National Currency Collection)
PROJECT GREENBACK
In 2003, counterfeit $20 notes from the Birds series and $10 notes from the Canadian Journey series began surfacing throughout Quebec and Ontario and as far away as British Columbia. Officers from the Toronto Police Services Fraud Squad set up a joint investigative team involving the RCMP, the Ontario Provincial Police, and the U.S. Secret Service. They were also assisted by officers from Peel Regional Police, the York Region Police, and the Hamilton Police Service. Project “Greenback” was under way.
Acting on a tip, officers staked out a warehouse in Markham, Ontario, in February 2004. When a stolen tractor trailer pulled up and started unloading stolen office furniture, officers arrested the driver, thirty-year-old Miroslav Mihalkov, and seized the furniture, together with forty-two bubble jet printers, aluminum plates and dies, gold foil, and cutting dies—definite evidence of counterfeiting—but no notes.
The warehouse had been leased by Ronald Todorov, twenty-one, who visited Mihalkov in jail prior to his release on bail.
Following another lead, an undercover officer contacted seventy-year-old James Coughlin, gained his confidence, and asked about obtaining some counterfeit notes. Coughlin helpfully provided some samples and introduced the officer to Mihalkov, who agreed to sell him $240,000 in $20 bills for $40,000. Both were arrested on the day of the sale.
When police searched the apartment of Mihalkov and his wife, they found it crammed with computers, printers, and boxes of counterfeit bills. They then headed to Todorov’s residence, where they found a Heidelberg printing press with a note still inside, as well as a photo of Todorov sitting in front of stacks of counterfeit notes and lighting a cigar with a $20 bill!20
Police seized $480,000 in $20 notes and $221,000 in $10 notes. Forensic inspection later tracked an additional $3.1 million in phony notes that had been passed across the country back to this operation. Mihalkov was sentenced to four years. The others received lesser sentences.
Machine seized by the police in “Project Greenback.”
(Courtesy RCMP)
The Bank of Canada had learned many lessons from its experience with the Canadian Journey series, most importantly, that new notes with improved security should be issued well before serious problems with counterfeiting surface. With this in mind, the Bank began work in 2005 to develop its next series of notes. By 2008, even though counterfeiting had reached its lowest level in years, work continued with the goal of producing a cutting-edge note series that would be one of the most secure in the world.
ENDNOTES FOR CHAPTER EIGHT