Sir James Craig
(Library and Archives Canada, c024888k)
Counterfeiting respects no frontier. Over the past 200 years, counterfeiters have plied their dubious trade across the Canada-U.S. border, taking advantage of the vulnerable on both sides of the international boundary. At the beginning of the nineteenth century, U.S. forgers began counterfeiting U.S. bank notes in the Eastern Townships of Quebec, owing to a permissive Canadian legal regime and lax law enforcement. Governor Tichenor of Vermont, in 1808, petitioned Sir James Craig, the Governor General of Upper and Lower Canada, to pass legislation making the forging of foreign currency explicitly illegal. This is more fully reported in chapter 5. In 1810, the legislatures of both Lower and Upper Canada agreed to do so in what is, to our knowledge, the earliest example of international co-operation to suppress counterfeiting.
Counterfeiting gangs, such as the Johnsons, who were active during the second half of the nineteenth century, operated in both the United States and Canada. When things got too hot in one country, they fled to the other, taking their counterfeiting “business” with them. As well, with the U.S. and Canadian dollars both on the gold standard and fixed at parity with each other,1 bank notes issued by U.S. and Canadian banks freely circulated across the long, open border; country of origin was of little consequence to the general public.2 Both factors meant that the note-issuing banks and law enforcement agencies of the two countries had to strengthen their contacts and work co-operatively if they were to deal effectively with counterfeiting, which had reached epidemic proportions in North America by the mid-1800s.
U.S. and Canadian banks worked collectively under the auspices of banking associations. In addition to funding private investigations of counterfeiting, such associations collaborated on note designs and security techniques. In its 1854 Annual Report, the New England–based Association for the Suppression of Counterfeiting, which at that time included at least one Canadian bank in its membership, discussed techniques that would foil photographic counterfeiting. It also looked for an indelible ink that would make it impossible for counterfeiters to alter genuine bank notes.3 Cross-border co-operation among law enforcement bodies was facilitated by the establishment in the United States of the U.S. Secret Service in 1865, charged with stamping out counterfeiting in the United States, and the creation of the Dominion Police Force in Canada in 1868, which assumed the responsibility for enforcing Canadian laws relating to counterfeiting, at least with respect to Dominion notes and coin.4
Sir James Craig
(Library and Archives Canada, c024888k)
During the 1920s, there was a concerted international effort to systematically address cross-border counterfeiting issues. In 1923, the International Criminal Police (Interpol) was established in Vienna by a group of mainly European countries and the United States. Its mandate included centralizing information on international criminal activities, handling extradition proceedings, and discussing criminal investigation procedures. One area of growing concern to Interpol was counterfeiting. In April 1929, an international convention on the suppression of counterfeiting was held in Geneva, Switzerland, under the auspices of the League of Nations. Interpol attended in an advisory capacity. There were twenty-six signatories to the Convention. Noticeably absent from the list of the signing nations was Canada, although it participated in the Geneva meeting as an observer.5 The articles of the Convention established rules and procedures for signatory countries to deal with counterfeiting. Countries were required to make no distinction in their national laws between the counterfeiting of domestic and foreign notes and coin, to permit the extradition of counterfeiters, to provide details of counterfeits in circulation and known counterfeiters, and to establish central offices to facilitate close contact. The Convention came into force in 1931.
Shortly after the Geneva meeting took place, the League of Nations officially approached Canada, inviting it to join the Convention. J. C. Saunders, Deputy Minister of Finance, brushed the idea aside. In a letter to Dr. O. D. Skelton, under-secretary of state at the Department of External Affairs, he writes, “I may say that so far as this department is concerned, we have no observations to make. As you are aware, the subject of counterfeiting, so far as concerns the administration of criminal laws, is one of provincial jurisdiction.”6 While his department did “everything in its power to see that a thorough investigation is held” in cases of counterfeiting of Dominion currency, and was willing to assist in cases involving Canadian bank notes and other currencies, he did not see the Department of Finance usefully involving itself in the initiative. He thought that the Department of Justice, “if any department,” would be in a better position to consider the proposal, since the RCMP came under its jurisdiction.7
Commissioner Staines of the RCMP was lukewarm to the idea. He maintained that “at the present moment, the advantages to be gained from adhesion, from a strictly police point of view are slight, but they may increase in the future.”8 In his view, while Europe had much to gain from such international co-operation, since European criminals “make effective use of the obstacles and delays caused by the numerous international boundaries,” the “police value” of the Convention was limited for Canada as long as the United States was not a member. He noted that while U.S. criminals occasionally counterfeited U.S. currency in Canada and from time to time attempted to pass bad money in Canada, U.S.-Canada co-operation was already good. Moreover, there had been only one case in which Canadian bank notes had been counterfeited overseas, although he added that this could possibly change as communications with Europe improved. He noted that should Canada decide to join the Convention, the RCMP had the necessary facilities to act as the Canadian central office. He also suggested that the establishment of an advisory committee consisting of representatives of the bank-note companies, the Mint, and possibly the Canadian Bankers Association might be desirable.9
In any event, Canada chose not to join the Convention. The decision was reviewed in 1939, but since the United Kingdom and the United States had not ratified the agreement, and were unlikely to do so anytime soon, the Department of Finance recommended that Canada not join the Convention, viewing it to be neither necessary nor desirable.10 The issue resurfaced thirty years later when the Legal Counsel of the United Nations invited Canada in 1963 to accede to the Convention. Again, the answer was no. After discussions with the RCMP, “it was not felt that sufficient practical advantages would accrue to Canada to warrant accession, at the present time, to a Convention which might involve Canada in a considerable amount of procedural work.”11
Although the Geneva Convention on the Suppression of Counterfeiting remains to this day an active treaty under the auspices of the United Nations, Canada is still not a member. However, this lacuna has had few, if any, negative consequences. Canadian law is fully consistent with the convention, and Canada participates in Interpol, interfacing with the international police agency through the RCMP. The RCMP also continues to work closely with the U.S. Secret Service on cross-border counterfeiting.12 Moreover, Canada plays a major role internationally in combating counterfeiting through its membership and active participation in a number of multilateral agencies.
BIS headquarters, Basel, Switzerland.
(Sheila Niven)
During the 1980s, the development of high-quality colour copiers represented a new and growing threat to the integrity of bank notes. No longer were colour and designs consisting of fine lines effective anti-counterfeiting tools. The new copiers could accurately match the high-security colours used on bank notes. In addition, they were able to correct the “moiré patterns” that had appeared on copies of bank notes made by older machines. These patterns were errors produced during the copying process and were caused by interference between the frequency of the fine-line designs on bank notes and the frequency of the scanning device.13 The interference, similar to the strobing effect on a television sceen when a news presenter wears stripes, produced duplication errors in counterfeited notes that were obvious to the naked eye.
In response to these threats, a small international working group consisting of specialists from central banks and security printers established the Special Studies Group (SSG), reporting to the European Banknote Printers’ Conference.14 In September 1992, the central bank governors of the Group of Ten (G-10) countries, which includes Canada, were advised of the work of the SSG and of the efforts on the part of some copier manufacturers to develop security features to deter counterfeiting. In response to the encouragement received from the central bank governors, the SSG became more global in scope, expanding its membership to include representatives from all G-10 countries and Australia. The group was also brought under the governance of G-10 central banks. The mandate of the enlarged anti-counterfeiting group, initially called the Special Study Group on Modern Reproduction Technologies (SSG-2), and later renamed the Central Bank Counterfeit Deterrence Group (CBCDG), was also broadened. In addition to studying the impact of colour copiers on bank-note security, its objective was to identify other emerging technological threats to the security of bank notes and to identify a common international response. Key members of the enlarged group were the United States and Japan, the host countries of most software and hardware manufacturers.
Currently, thirty-two central banks belong to the CBCDG, including the Bank of Canada. The CBCDG (Plenary) is chaired by the governor of the Swiss National Bank, while the Group’s executive committee is chaired by the chief of the Bank of Canada’s Currency Department. Its members meet annually at the Bank for International Settlements (BIS) in Basel, Switzerland. The CBCDG’s office is hosted by the Bank of Canada in Ottawa, while its technical centre is located at the European Central Bank in Frankfurt, Germany. The key working party of the CBCDG is called the Technical Working Group. There is also a Law Enforcement Advisory Group that advises members on the organization and behaviour of counterfeiters.15
The CBCDG works closely with the law enforcement community and the private sector to identify and address threats to bank notes posed by a rapidly evolving technological landscape. A key achievement was the development of an approach to deal with the potential use of colour copiers to make counterfeit currency. A voluntary anti-counterfeiting system that would prevent the reproduction of bank notes by colour copiers was put in place in 1997.16
Subsequently, the CBCDG focused its attention on the threats posed by computers, scanners, and digital imaging. In 2000, the Counterfeit Deterrence System (CDS), an anti-counterfeiting technology for use in computer hardware and software, became operational. CDS technology, which prevents the reproduction of bank-note images, was voluntarily adopted by a number of computer hardware and software manufacturers in recognition of the harm that counterfeiting can cause the general public.17
In addition to the CBCDG, the Bank of Canada also participates in other international anti-counterfeiting forums, including the Four Nations Group Counterfeit Deterrence Working Party and the Pacific Rim Group of countries. The Four Nations Group, consisting of the Bank of Canada, the Reserve Bank of Australia, the Bank of England, and the Banco de México, shares research and tests the security features on bank notes, as well as working with other international organizations. At meetings of Pacific Rim nations, Canada and other member central banks compare notes and experience on counterfeiting.
ENDNOTES FOR CHAPTER ELEVEN
1Except for the years 1862–79, during which the convertibility of the U.S. dollar into gold was suspended.
2Far more important was the distance to the bank’s offices, should a holder wish to convert his notes into gold. Notes of banks whose redeeming offices were far away traded at a discount.
3Association of Banks for the Suppression of Counterfeiting, Second Report of the Board of Managers (Boston: William A. Hall, Printer, 1855), 13.
4The Dominion Police merged with the Royal North West Mounted Police in 1920 to form the RCMP.
5Letter from O. D. Skelton, Under-Secretary of State for External Affairs to the Hon. Vincent Massey, Canadian Minister to the United States, Washington, DC, 25 June 1929, LAC, RG 25, Vol. 2678-10339-40, Vol. 1.
6This was an extraordinary point of view for 1929. In 1925, the federal government had agreed, after considerable pressure from the chartered banks, that the RCMP would take the lead in counterfeiting cases, given the consequences of counterfeiting to the Canadian monetary system.
7Letter from J. C. Saunders, deputy minister, Department of Finance to Dr. O. D. Skelton, under-secretary of state, Department of External Affairs, 27 August 1929, LAC, RG25, Vol. 2678-10339-40, Vol. 1. Suppression of Counterfeiting, 1929–1963.
8C. Staines, Notes on the League of Nations Convention for the Suppression of Counterfeiting Currency, memorandum, June 1929, LAC, RG 25, Vol. 2678-10339-40, Vol. 1.
9Note that this was before the Bank of Canada opened for business in 1935.
10Letter from the deputy minister of finance to the under-secretary of state for External Affairs, 26 June 1939, LAC, RG25, Vol. 2678-10339-40, Vol. 2.
11Department of Justice, Letter from T. D. MacDonald, assistant deputy minister to the under-secretary of state for External Affairs, 28 June 1963, LAC, RG25, Vol. 6287-10339-40, Vol. 1.
12Since the U.S. dollar is the key global currency, the U.S. Secret Service maintains anti-counterfeiting offices around the world, including four in Canada: Ottawa, Toronto, Montreal, and Vancouver.
13K. J. Schell, “History of Document Security,” in The History of Information Security: A Comprehensive Handbook, ed. K. De Leeuw and J. Bergstra (Amsterdam: Elsevier, 2007), 213–14 and 197–242.
14Heinonen, “Counterfeit Deterrence.”
15Ibid.
16Ibid.
17Ibid.