Counterfeiting
COUNTERFEITING
Counterfeiting is one of the few crimes mentioned in the text of the Constitution, perhaps because "[t]he general power over currency . . . has always been an acknowledged attribute of sovereignty" (Legal Tender Cases, 79 U.S. 457, 545 (1870)). Congress quickly made use of its authority to prohibit counterfeiting; the Act of 30 April 1790 authorized the death penalty for counterfeiting U.S. securities (contemporary punishments include fines, forfeiture, and prison). Comprehensive federal regulation of counterfeiting, however, emerged only with the adoption of a national currency amid the economic turmoil of the Civil War. The act of 30 June 1864, as modified and extended, forms the backbone of the statutory scheme codified at 18 U.S.C. §§ 470–514.
An obligation or security is counterfeit if it "bears such a likeness or resemblance to any of the genuine obligations or securities issued under the authority of the United States as is calculated to deceive an honest, sensible and unsuspecting person of ordinary observation and care when dealing with a person supposed to be upright and honest" (United States v. Wethington, 141 F.3d 284, 287 (6th Cir. 1998)). The definition of counterfeit also includes objects such as slugs that can be used to procure goods and services from vending machines and other coin or currency activated devices (18 U.S.C. § 491).
Counterfeiting is similar to forgery, and both are covered in the same chapter of the United States Code. Courts sometimes use the terms interchangeably, but counterfeiting generally refers to "a crime based upon a preexisting genuine instrument," while forgery does not always "carry such presumption but indicates that there is a genuine or real obligor in existence whose obligation has been simulated" (Stinson v. United States, 316 F.2d 554, 555 (5th Cir. 1963); see also 18 U.S.C. § 513(c)). To the extent the distinction between these offenses could create confusion or suggest a gap in coverage, federal statutes prohibit the counterfeiting, forging, or false making of securities and obligations, as well as the creation of fictitious obligations (18 U.S.C. § 514).
Federal law prohibits counterfeiting or forging a wide variety of specific obligations, securities, and public records, ranging from currency and coins to postage stamps and meter stamps; state and private securities; lending agency notes and obligations; federal contractor bonds, contracts, and related records; visas and other entry documents; customs documents and letters patent; military passes and permits; money orders; court, department, and agency seals; and ship's papers and federal transportation requests. Related offenses include the counterfeiting or pirating of copyrights and trademarks (18 U.S.C. §§ 2318, 2320). The counterfeiting within the United States of foreign obligations, securities, bank notes, and postage stamps is a crime as well. In response to the widespread use of U.S. currency in other countries and the increasingly international scope of counterfeiting efforts, federal law also has a broad extraterritorial component that bars counterfeiting of U.S. obligations or securities even when such activities occur entirely outside the United States (18 U.S.C. § 470).
In addition to the crime of making counterfeits, federal law prohibits the distinct offenses of possessing, passing, uttering, and dealing in domestic or foreign counterfeit items with intent to defraud. Uttering is the crime of representing a counterfeit item as genuine (United States v. Heller, 625 F.2d 594, 598 (5th Cir. 1980)). Making, possessing, and dealing in the things used to make domestic or foreign counterfeits, with intent that they be so used, is also a crime.
Intent to defraud need not be directed at a specific person or entity; "a general intent that some innocent third party in the chain of distribution be defrauded" is sufficient (United States v. Mucciante, 21 F.3d 1228, 1235 (2d Cir. 1994)). Proof of intent against a claim of innocent possession usually comes from circumstantial evidence, such as a rapid series of passings, passing false bills at different establishments, the use of large counterfeit bills for small purchases rather than using the change from prior purchases, and the segregation of counterfeit bills from genuine bills (United States v. Armstrong, 16 F.3d 289, 292 (8th Cir. 1994)).
Not every counterfeiting offense requires intent to defraud. The mere possession of a counterfeit with intent to sell or otherwise use it is a crime (United States v. Parr, 716 F.2d 796, 808 (11th Cir. 1983)). Copying or reproducing all or part of an obligation or security of the United States is a crime regardless of intent (Boggs v. Bowron, 842 F. Supp. 542, 559–560 (D.D.C. 1993), aff'd 67 F.3d 972 (D.C. Cir. 1995)). Because there are sometimes good reasons to reproduce currency—for example, to illustrate news articles on monetary policy—Congress created limited exceptions to the blanket prohibition for certain purposes. Congress liberalized these exceptions after the Supreme Court found the "purpose" clause too narrow for the First Amendment (Regan v. Time, Inc., 468 U.S. 641 (1984); 18 U.S.C. § 504). Although these exceptions allow some versions of expressive counterfeiting, the U.S. Secret Service—which enforces the counterfeiting statutes—has applied the copying prohibition strictly against artists and satirists whose works call into question the integrity, value, or meaning of currency (Boggs v. Rubin, 161 F.3d 37 (D.C. Cir. 1998); Wagner v. Simon, 412 F. Supp. 426 (W.D.Mo. 1974), aff'd 534 F.2d 833 (8th Cir. 1976)).
Counterfeiting of federal obligations is generally a crime under state law as well as under federal law. State and federal governments have concurrent jurisdiction, states to protect their citizens against fraud, and the federal government to protect the integrity of the currency (United States v. Crawford, 657 F.2d 1041, 1046 n.6 (9th Cir. 1981); State v. McMurry, 907 P.2d 1084, 1086–1087 (Az. App. 1995)).
John T. Parry
See also Federal Criminal Jurisdiction; Federal Criminal Law Enforcement; Forgery.
BIBLIOGRAPHY
Cummings, Nathan K. "The Counterfeit Buck Stops Here: National Security Issues in the Redesign of U.S. Currency." Southern California Interdisciplinary Law Journal 8, no. 2 (spring 1999): 539–576.
Goldstone, David J., and Toren, Peter J. "The Criminalization of Trademark Counterfeiting." Connecticut Law Review 31, no. 1 (fall 1998): 1–76.
Stapel, Julie K. "Money Talks: The First Amendment Implications of Counterfeiting Law." Indiana Law Journal 71, no. 1 (winter 1995): 153–182.
Torcia, Charles E. Wharton's Criminal Law. 15th ed. Deerfield, Ill.: Clark Boardman Callaghan, 1993. Vol. 4, pp. 106–112.
United States Secret Service. Counterfeit Division—History of Counterfeiting. http://www.ustreas.gov/usss/counterfeit.htm (visited 28 August 1999).
United States Secret Service. Know Your Money—Illustrations of Currency, Checks, or Other Obligations. http://www.ustreas.gov/usss/money-illustrations.htm (visited 28 August 1999).
Weschler, Lawrence. Boggs: A Comedy of Values. Chicago: University of Chicago Press, 1999.
Counterfeiting
COUNTERFEITING
The process of fraudulently manufacturing, altering, or distributing a product that is of lesser value than the genuine product.
Counterfeiting is a criminal offense when it involves an intent to defraud in passing off the counterfeit item. The law contains exemptions for collector's items and items that are so obviously dissimilar from the original that a reasonable person would not consider them real. However, making a poor copy is no defense if the intent to defraud exists.
Counterfeiting most commonly applies to currency and coins. It is illegal to manufacture, possess, or sell equipment or materials for use in producing counterfeit coins and currency. Federal law also prohibits producing counterfeit postmarks, postage stamps, military papers, or government securities. Counterfeiting also applies to the fraudulent manufacture and sale of other items, such as computer software, CDs, consumer products, airplane parts, and even designer dresses. An increase in this type of counterfeiting has led to a strengthening of intellectual property laws worldwide. Counterfeiting or conspiracy to distribute counterfeit goods can lead to state or federal criminal charges. Civil lawsuits also can result from allegations of counterfeiting.
Coins and Currency
Counterfeit coins appeared within a century of the first legitimate coins, which appeared in about the seventh century b.c. The severity of the punishment for counterfeiting (death, in many cultures) and the difficulty of creating counterfeit coins that did not include some metal of value (and therefore cost a significant amount to produce) kept the practice in check. However, counterfeiting flourished after the development of paper money in about a.d. 1650, especially in American colonies where counterfeit bills and even coins were sometimes more common than genuine ones. Counterfeiters had honed their skills so much that when the United States issued its first federal coins in the 1780s, the government hired an ex-counterfeiter to cut the dies. Counterfeiting boomed again during the Civil War, when the United States issued its first paper money.
For many decades, the skills and equipment that are needed to create counterfeit money confined the practice to a few professionals, and the secret service, the branch of the treasury department that is charged with enforcing counterfeiting laws, discovered most counterfeiters before the money leaked into circulation. But in the late twentieth century, with the availability of new technologies, such as color copying and electronic reprographics, more counterfeit schemes emerged. The Department of the Treasury estimated that $25 million worth of counterfeit bills were passed off in fiscal year 1994. Further damaging U.S. currency was a flood of fraudulent $100 bills on the world market. The Secret Service believes that from the early to mid 1990s, as much as $10 billion worth of nearly perfect counterfeit $100 bills were circulating internationally. It believes that the bills were printed on a press that is similar to those used by the U.S. Treasury and that had been sold to Iran in the 1970s. In 2002, authorities seized $130 million in fraudulent U.S. notes worldwide before they were circulated, and detected $44.3 million in spurious U.S. currency after it had passed into unwitting hands. But according to the Secret Service, the amount of fake money circulating has been fairly constant over recent decades, and only one or two notes in every 10,000 are counterfeit.
The increase in counterfeiting prompted Congress to pass the Counterfeit Deterrence Act of 1992 (18 U.S.C.A. § 471 note) to increase penalties. Prior to the enactment of new law, it was not a criminal act to manufacture counterfeit U.S. currency abroad. The law also instructed the Department of the Treasury to redesign paper money in order to make it more difficult to reproduce. In 1996, the first new currency was released. The bills' portraits were increased in size and moved to the left, to make
room for watermark miniatures of them. Treasury officials believe that the watermark and the use of color-shifting inks make the currency nearly impossible to reproduce with current technologies.
Other Items
Counterfeiting also applies to reproductions of packaging when the intent is to defraud or to violate protections under trademark, copyright, or patent laws. It is estimated that U.S. companies lose $8.1 billion annually in overseas business owing to violations of intellectual property laws. Increasing the enforcement of trademark and copyright law to discourage counterfeiting has been a focus of U.S. trade negotiations, both with individual countries and during the Uruguay Round of the international general agreement on tariffs and trade, Pub. L. No. 103-465, 108 Stat. 4809 (1994).
Disputes over counterfeit CDs and computer software have been at the center of U.S. trade conflicts with China for several years. Software manufacturers claim that 98 percent of the software used in China, including that used by the government, was illegally copied. Other goods that are distributed under false trademarks include cereal, razor blades, and soap. Under pressure from the United States, China strengthened its copyright and trademark laws in 1993. Lax enforcement resulted in a new trade agreement in 1995, which was designed to give U.S. manufacturers greater access to Chinese markets. Nevertheless, counterfeiting in China remains rampant.
Although most counterfeiting allegations are brought through the criminal courts, counterfeiting that violates patent, trademark, or copyright laws has resulted in civil lawsuits. For example, in 1994, a Paris court found that designer Ralph Lauren had copied a tuxedo dress pattern from Yves Saint Laurent's collection and ordered Lauren to pay his competitor $386,000 in damages.
Punishment
Under federal law, counterfeiting is a class C felony, punishable by up to 12 years in prison and/or a fine of as much as $250,000. State laws also establish penalties for counterfeiting.
further readings
Glaser, Lynn. 1968. Counterfeiting in America: The History of an American Way to Wealth. New York: Potter.
Counterfeiting
COUNTERFEITING
COUNTERFEITING. To counterfeit means to imitate with intent to defraud. Most counterfeit paper money can be classified in one of three categories: (1) notes that imitate legitimate notes; (2) alterations of legitimate notes, including notes raised from a lower to a higher denomination; and (3) spurious notes—that is, notes representing obligations of fictional institutions. Counterfeit notes of the period prior to the Civil War had to be distinguished not only from ordinary legal tender, but also from legitimate paper money circulating at a discount because it represented obligations of broken or failed banks. (Such notes were legal and worth whatever fraction of their face value the liquidated assets of the bank would permit.)
The circulation of both counterfeit notes and valid, but discounted, notes of commercial banks gave rise to the publication of pamphlets known as Bank Note Reporters and Counterfeit Detectors, published at any interval from semi weekly to annually by money brokers in centers of financial activity. These pamphlets gave up-to-date information on the validity and value of notes currently in use, and were used by any one who dealt in large amounts of nonlocal currency. After the effective end of state bank-note issues in 1867, the Bank Note Reporters became unnecessary because all bank-note and government-issued currency thenceforth circulated at par.
Counterfeiting is, of course, a crime, and for a long time many countries punished it with death. If, after a counterfeit note is passed the first time, it remains undetected, it becomes a part of the monetary system. At a time of full employment of resources it acts as a tax on the general public in favor of the counterfeiter. It raises prices By the percentage that the value of the counterfeit note bears to the total stock of money in the economy. If numbers of resources are unemploy ed, counterfeit notes have the effect of stimulating spending and, ultimately, reducing unemployment. Thus, at a time of less than full employment, the counterfeiter might be considered a public benefactor. Of course, counterfeit notes have never entered the monetary system in sufficient volume to make these general effects operable.
At least one case is recorded in which a responsible government legalized existing counterfeit issues—an action taken By the Confederate States of America during the Civil War. In an effort to spare the possibly innocent individual detected with a counterfeit note, the Confederate government legalized the acceptance of bogus notes late in the war. Indeed, the government had little choice. Because of the poor quality and multiplicity of issues of reputable Confederate notes, and also because of the masses of counterfeits in circulation—many originating in the North—hardly any one could tell the difference between real and fake money. Frequently the counterfeit notes were of better quality.
Counterfeiting in the twenty-first century is a minor part of total crime. The techniques, skills, and machinery required for effective counterfeiting are very costly and pay off well enough when used in legitimate enterprise with much less risk.
BIBLIOGRAPHY
Benner, Judith. Fraudulent Finance: Counterfeiting and the Confederate States, 1861–1865. Hillsboro, Tex.: Hill Junior College Press, 1970.
Dillistin, William H. Bank Note Reporters and Counterfeit Detectors, 1826–1866. New York: American Numismatic Society, 1949.
Johnson, David R. Illegal Tender: Counterfeiting and the Secret Service in Nineteenth-Century America. Washington, D.C.: Smithsonian Institution Press, 1995.
Richard H.TimberlakeJr./c. w.
See alsoBanking ; Banking: Bank Failures ; Currency and Coinage ; Mints, Private ; Money ; National Bank Notes .
Federal Deposit Insurance Corporation
FEDERAL DEPOSIT INSURANCE CORPORATION
"Deposits insured by the FDIC." Many banks today promote the insurability of customer deposits with this simple slogan, but this wasn't always the case. Prior to 1933, people depositing their money into a bank had no guarantee that their money was safe. From the stock market crash of 1929 to the first years of President Franklin Roosevelt's (1933–1945) administration, nine thousand banks collapsed, and depositors lost $1.3 billion.
Public confidence in the banking system collapsed along with the banks. In the hard times of the Great Depression, the government needed to bolster public confidence and maintain financial stability in the nation. The Federal Deposit Insurance Corporation (FDIC) was an effort to do just that. When the Glass-Steagall Act became law in 1933, it provided for the creation of the FDIC, which provides insurance coverage for bank deposits.
The FDIC insures deposits in national banks, Federal Reserve member state banks, and state banks that have applied for federal deposit insurance and meet FDIC qualifications. After its inception, the FDIC tried to repay all deposits, regardless of whether they occurred at an insured bank or were over $100,000. This method was felt to be the best way to keep public confidence in the banking system high.
In the 1980s, however, the country experienced a savings and loan crisis. Between 1980 and 1990, 1,110 banks failed. Their failure was caused in part by bad loans in a weak real estate market and also by risky loans to developing countries. Until this time the Federal Savings and Loan Insurance Corporation handled insured deposits at savings and loan associations. With the FDIC Improvement Act of 1991, the FDIC was given authority to insure deposits at savings and loan associations and new restrictions were made on how the organization repaid lost deposits.
The FDIC now operates by a "least-cost" method. If an insured bank collapses, the FDIC pays up to $100,000 of a depositor's claim. It is not allowed to cover uninsured depositors unless the president, the secretary of the treasury, and the FDIC jointly agree that failing to do so would seriously effect the economic conditions of the nation or the community.
See also: Federal Reserve System, Glass-Steagal Banking Act