Currency Fraud

CURRENCY fraud is the production or manufacturing of paper money and coins, without the right to do so, replicating currency already circulating within the economy with the purpose of deceiving and defrauding, or genuine paper currency which has been altered to increase its face value. One of the first episodes in American history involving the production of fraudulent paper currency occurred during the American Revolution. In 1775, the Continental Congress issued $242 million in Continental currency to finance the Revolutionary War. The British, however, were able to replicate this currency and began distributing it throughout the American colonies.

As a result, the currency issued by the Continental Congress rapidly depreciated and was soon deemed worthless giving rise to the phrase “not worth a Continental.” Subsequently, the Founding Fathers were compelled to declare the production of fraudulent currency a crime. Therefore, they bestowed upon Congress the power to punish such an act by means of the Counterfeiting Clause contained within Article 1, Section 8, of the U.S. Constitution. According to the Counterfeiting Clause, “Congress shall have power … to provide for the punishment of counterfeiting the securities and current coin of the United States.”

The production and circulation of fraudulent currency became a severe problem in the United States during the Civil War. At this time, there were approximately 1,600 state-chartered and unregulated banks each of which designed, issued, and printed their own banknotes. These notes were easily replicated and over 30,000 different varieties were in circulation, which led to massive confusion and bank failures throughout the country. To address this problem, Congress standardized American banknotes in 1863 by issuing a single national currency. These national bank notes, commonly referred to as greenbacks, contained complex designs and were printed on a high-quality cotton and linen paper authorized by the U.S. government.

This newly established national currency curtailed the fraudulent replication of paper notes only briefly and shortly thereafter, fraudulent currency flooded the economy once again. Consequently on July 5, 1865, the Secret Service was established as part of the Department of the Treasury, with the sole mission of protecting the integrity of U.S. currency. Within 10 years, the production of fraudulent currency was curtailed.

In 1913, Congress passed the Federal Reserve Act establishing the nation's Federal Reserve System,[Page 237] which authorized Federal Reserve banks to issue Federal Reserve banknotes. The following year, the banks began to issue the Federal Reserve banknote, and since its inception, the design of U.S. States currency has remained largely unchanged. The Bureau of Printing and Engraving, a branch of the Department of the Treasury responsible for production of U.S. security documents, has relied entirely on special inks, paper, and a printing process once thought to make the fraudulent production of currency extremely difficult, if not impossible, through a process called intaglio printing. Intaglio printing utilizes a very costly and powerful press that forces ink to penetrate the distinctive, high-quality paper that consists of 75 percent cotton and 25 percent linen, embedded with red and blue fibers, which has been manufactured exclusively by Crane Paper in Massachusetts since 1879.

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