By Lalitha Kunaratnam

KUALA LUMPUR, Malaysia--According to Bank Negara Malaysia, ongoing efforts have contributed to Malaysia’s consistently low counterfeiting rates. 

At the end of 2020, Malaysia’s counterfeiting rate was less than one piece per million (ppm) of banknotes (2019: one ppm), well below that of other benchmarked countries.

Counterfeits are discovered in two main ways:

1) The counterfeiters are found through law enforcement procedures and their products are seized, usually in large quantities.

2) Merchants or banks discover counterfeit notes after they have been passed into circulation.

Whilst there is much evidence that regulators and law enforcement agencies are working closely to safeguard the integrity of the ringgit against counterfeit banknotes and coins, there is scarce evidence on detection of foreign currency counterfeiting.

In many countries including Malaysia, the U.S. dollar is accepted in transactions as a global currency. It is often stockpiled against political and economic uncertainty and can provide a stable, anonymous liquid asset to individuals and corporations. Hence, international currencies such as the U.S. dollar and British pound have higher counterfeiting rates than domestic currencies.

Presently, the scope of foreign currency counterfeiting is wider, the impact is greater, the tools more readily available and the techniques increasingly sophisticated. Fake banknotes produced by professional counterfeiters are virtually indistinguishable from real money. 
Moreover, the capabilities for detection of counterfeit foreign currencies may be lower simply because the financial institutions and the population in general are not familiar with the security features of these foreign currencies.

Some well-known cases include three Malaysian Anti-Corruption Commission officers who were detained in September for allegedly misappropriating funds connected to a case involving the former head of the Malaysian External Intelligence Organisation Datuk Hasanah Ab Hamid.

The senior officers had allegedly stolen a portion of U.S. 6 million seized from the former spy chief and replaced with counterfeit currency. One of the officers was also arrested for alleged possession of dangerous drugs as well as firearms and ammunition.

These professional counterfeiters can act alone or as part of a group. The real threat comes when counterfeiters are sponsored or financed by well-established organised crime groups. 
These groups have a high level of sophistication which cannot be attained by ordinary criminals, such as comprehensive and covert distribution channels, transnational operations and the use of logistics of highly sophisticated money laundering networks.

In a typical operation, several layers of intermediaries might be involved, each one dealing with one or more of the following processes: -

(a) Procurement of counterfeit foreign currency notes from printing facility;

(b) Distribution to a stocking facility;

(c) Smuggling of counterfeit foreign currency notes to the country in which it is to be circulated;

(d) Distribution of the counterfeit foreign currency notes;

(e) Ensuring collection and repatriation of the proceeds generated to all stakeholders in the chain; and

(f) Laundering the proceeds of crime.

The numerous layers make it inherently difficult for law enforcement authorities to tackle the criminal organisation and to locate the illegal production facilities.
The ones most likely to be caught are the “mules” distributing or planting counterfeit foreign money whereas the persons at the upper echelons of the criminal organisation remain untouched.

Considering that counterfeiting crimes generate high profits and every stage in the process of distribution has its profits, it is difficult to estimate the proceeds of crime generated by each stage due to the shortage of comprehensive information available on the complete working of various layers of the organised crime groups.

Normally, organised crime groups involved in currency counterfeiting activity are a branch of criminal activity or part of a bigger criminal networks engaging in all kinds of illicit activities such as drug and human trafficking, firearms smuggling, blackmail and extortion.

These groups and all branches within can rely on long-existing, reliable and well working facilitating networks. The fact that most of the criminals arrested have criminal records for a wide variety of criminal activities supports the theory that counterfeiting activities are only part of the entire criminal business of these organisations.

If left unchecked, the circulation of counterfeit foreign currency can undermine national economies, weaken financial institutions and jeopardise people’s livelihoods. It fuels the underground economy and finances the activities of organised criminal networks and terrorists.

*Lalitha Kunaratnam is an anti-corruption activist who believes policymakers need to step up their game and make plans for serious reforms*