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Bank of Canada Governor Mark Carney walks past a poster of the bank's new circulating $100 bill, Canada's first polymer bank note, in Toronto on Nov. 14, 2011. (Nathan Denette/The Canadian Press/Nathan Denette/The Canadian Press)
Bank of Canada Governor Mark Carney walks past a poster of the bank's new circulating $100 bill, Canada's first polymer bank note, in Toronto on Nov. 14, 2011. (Nathan Denette/The Canadian Press/Nathan Denette/The Canadian Press)

Funny money: How counterfeiting led to a major overhaul of Canada's money Add to ...

In the fall of 2004, a Brinks truck loaded with cash was rumbling down highway 416 south of Ottawa, picking up bank deposits from stores and restaurants along the way, when the driver noticed something troubling in his rearview mirror. It was a grey Hyundai.



As the Brinks driver glanced behind him, he couldn’t help but notice it was the same car he and his partner had seen at the last two gas stations. And the Tim Horton’s before that. And the McDonald’s before that. Something wasn’t right.

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When police stopped the car several minutes later, they expected to find an armed robber. What they discovered instead was just as unsettling – stacks of near-perfect counterfeits of the Canadian $20 bill. Better forgeries than had ever been seen before.



The two men inside the car were on a mission of their own that day, and hadn't noticed the Brinks truck on their route. At each stop along the highway, they used the counterfeit cash to buy small items – a coffee, a package of gum – and pocketed legitimate money as change, amassing a small fortune as they went. This is how counterfeit money is typically laundered.



What police didn’t know at the time was that they weren’t just looking at a pair of small-time forgers. They were getting their first glimpse of the largest counterfeiting ring this country has ever seen, a group responsible for passing more than $11-million worth of known fake $20 bills, and many more that were never discovered and are still circulating in wallets and cash registers across the country.



It was a dream bust for police. But it led to a disturbing revelation inside the Bank of Canada: The central bank was losing the war on counterfeiting.



Canada’s paper money, with its rainbow of colours and picturesque drawings, had become one of the most forged currencies in the G20, a group of the world’s biggest economies – ranking behind countries such as Brazil, Argentina, Mexico, Italy, France and Spain for the number of counterfeit notes detected in circulation. For every one million legitimate banknotes out there, Canada was finding 470 counterfeits.



While that figure seems small – representing less than 1 per cent of bills in circulation – it was almost 10 times what countries in the G20 consider acceptable, since small amounts of counterfeits are typically symptomatic of a much bigger problem.



That grey Hyundai set in motion a chain of events that would ultimately lead Canada to undertake one of the most dramatic overhauls of its physical currency in decades.



It is a revamp of Canadian money that begins now and will last for the next two years, as the country’s first polymer banknotes – made of thin pieces of plastic rather than paper – are put into circulation. The first denomination to get the makeover is the $100 bill, which began circulating a few weeks ago, followed by the $50 note in March and smaller denominations in 2013.



The effort to replace Canada’s paper money with polymer notes is rooted in a theory that has been around as long as currency itself: If you can limit access to the material the banknotes are made out of – known as the substrate – you can choke off counterfeiting. To ensure the integrity of its new banknotes, the plastic material for Canada’s revamped money will come from a tightly controlled recipe for polymer developed in Australia.



The $100 bill is a fitting place to start, since it has been targeted so consistently by counterfeiters over the past decade. Businesses such as the Wendy’s hamburger chain and several national gas stations now post signs saying they no longer accept that denomination.



This threat to hard currency comes at a time when electronic payments such as credit and debit cards are eating away at the need to carry cash. But even as digital transactions proliferate, more than half of all retail transactions in Canada are still conducted with paper money, suggesting cash won’t be rendered extinct any time soon.



The remake of Canada’s money, at a cost of nearly $300-million, will be the biggest and most expensive change to the national currency since multicoloured bills replaced monotone banknotes in 1969.



It’s a crucial change: Counterfeiting undermines the credibility of a currency and the confidence people have in it. Since the last person holding a counterfeit is the one who gets burned with the loss, forged bills have a direct impact on businesses and consumers, and the economy as a whole.



Despite the talk of technology and innovation that surrounds the new money, the makeover of Canadian banknotes is a project designed specifically to lower Canada’s counterfeiting rates – and keep them low.



This is the story behind the planned scrubbing of Canada’s money, the shift to polymer bills, and one unusual discovery by an Australian scientist that changed currency as we know it.



HOW COUNTERFEITING BOOMED IN CANADA



The first time Wesley Weber forged a $100 bill, he scanned the image on his home computer, just to see what would happen.



It was late 2000, and the 25-year-old self-professed computer geek from Windsor, Ont., was flat broke and enchanted by the idea of being able to print money himself.



He focused his attention on the $100 bill from the Birds of Canada series – a brown banknote with a picture of a Canada Goose on the back – which was a challenge for most counterfeiters.



The series was first introduced in 1986 with the sole purpose of thwarting a new technology: the colour photocopier. The design made the notes difficult to reproduce by machine. Fine details in the face and hair of the Queen and former Prime Ministers depicted on the bills were too finicky for photocopiers to handle and appeared fuzzy in reproductions. A shiny gold metallic patch placed on each bill turned dark when replicated, further thwarting the forgers.



In 1990, only a few years after the Birds of Canada series was introduced, the country's counterfeit ratio – the proportion of counterfeit bills in the money supply – was admirably low.



Counterfeiting is measured using a system borrowed from chemistry known as parts per million (PPM). Normally used to judge the potency of molecules in a solution, PPM in the counterfeit sense refers to the number of fake banknotes found in circulation for every one million genuine notes. In 1990, Canada's counterfeit ratio was just 4 PPM, ranking its currency among the most secure in the world.



But the Bank of Canada made a crucial error. Amid tight budgets in Ottawa, the series was allowed to stick around longer than it should have. By the late 1990s, the rise of powerful and affordable home computers, store-bought graphics software, easy-to-use scanners and colour ink-jet printers were breeding a new generation of counterfeiters.



Fake bills started seeping into the monetary system in greater quantities. The number of fake Canadian bills rose as high as 117 PPM by 1997. Most G20 nations used 50 PPM as their benchmark to stay below.



Inside the Bank of Canada, there was growing concern. Though the number of fake bills in circulation was arguably microscopic compared to the 1.5 billion legitimate banknotes that circulate annually, the counterfeit ratio was becoming a black eye. Foreign banks were casting a skeptical eye on Canada’s currency.



“Let’s just say that colleagues of mine, internationally, recognized that we had to do something,” said Gerry Gaetz, chief of the Bank of Canada's currency department. “There was clearly organized groups in Canada targeting banknotes.”



In Windsor, Mr. Weber figured out that if he scanned the Canadian $100 bill on his computer, he could enlarge the image thousands of times the normal size. Using commercially available graphic-design software, he spent weeks correcting the fuzziness of the image, pixel by pixel, making the forgery sharper and more convincing.



Mr. Weber then began researching the best paper to use, shopping around for the right weight and colour to mimic the feel of money, which is made out of cotton fibre. He also needed paper that didn’t glow under UV light, another key trait of banknotes.



He settled on 24-pound Mohawk Super Fine soft-white stock with an eggshell finish – long a favourite of counterfeiters, according to Corporal Tim Laurence of the RCMP's Integrated Counterfeit Enforcement Team. Because a fake bill only needs to be passed once to profit the counterfeiter, it doesn’t need to be a perfect match; it just needs to be good enough. So the substrate – the material out of which the banknote is made – merely needs to resemble the real thing.



To forge the metallic patch on the bills, Mr. Weber found a supplier in New Jersey who sold foil that looked similar, which he stencilled onto each note. When police finally caught up to him at his rented cottage near Windsor in July, 2001, four HP DeskJet printers were in the middle of spitting out $233,000 worth of hundred dollar bills, three per page. The paper fluttered in the air as officers wrestled Mr. Weber to the floor. All told, police believe he produced more than $6-million in fake $100 bills that made it into circulation.



By the time of his arrest, Canada had 129 counterfeit banknotes for every one million legitimate bills in circulation, and the trend was not slowing. A Bank of Canada survey in 2002 found that 10 per cent of retailers were no longer accepting the $100 bill, to shield themselves from losses.



Mr. Weber represented a new problem for the Bank of Canada: the computer-savvy do-it-yourself counterfeiter. He proved that with enough ingenuity, millions of dollars could be printed illegally by only a few people working on equipment bought at Office Depot.



The year Mr. Weber was arrested, Canada introduced a new design for its money, known as the Canadian Journey series. The banknotes were again said to be the most advanced yet – and the most resistant to counterfeiting.



The bills, which depict scenes of Canadian culture such as hockey and Inuit carvings and are the ones widely circulated today, ushered in new security features aimed at beating the counterfeiters. Most noticeable is a shiny holographic stripe down one side of the bill that shimmers in the light. Less apparent is a ghostly image of the Queen or prime minister featured on the bill, which is watermarked into the paper. Hold the note up to the light, and the hidden face becomes visible.



In spite of these measures, Canada’s counterfeit numbers continued to climb. Currency designers had been working fast to create the new series, but technology was moving faster. Counterfeiters were able to get newer and better computers and printers. And there was no shortage of incentive.



The production and distribution of fake money works a lot like illegal drugs: A producer like Mr. Weber makes millions of forged bills and sells them at a wholesale rate to a distributor to put distance between himself and the laundering process.



A good counterfeit note will usually be sold in bulk at about 20 or 30 cents on the dollar. The buyer will then break it up into smaller parcels, and sell those for 40 cents on the dollar to runners, who will flip those bundles for 50 cents on the dollar. At that point the money reaches the last person in the chain, who will attempt to launder it by passing the banknotes at a store, usually in a hurried transaction, much like the two men in the Hyundai outside Ottawa were doing.



For counterfeiters, perhaps the biggest upside of fake cash is that the asset can be unloaded fast, unlike stolen goods. Paper money is the most liquid asset there is.



The Canadian Journey series turned out to be forged in even greater numbers than the Birds of Canada series it had replaced.



By the time the grey Hyundai was pulled over with a stack of fake Canadian Journey notes inside – complete with replica watermark and holographic strip – Canada’s counterfeit rate had ballooned to 470 PPM. That year alone, 552,692 forged banknotes were passed, a record number. Canada’s PPM level was as much as 100 times the ratio of some G20 countries.



Though most countries don’t make their PPM numbers public, a document released by the U.S. Secret Service in 2005 disclosed that the United States, which spends billions of dollars to fight counterfeiting each year, had a PPM rating of just 6.5 (albeit the U.S. figure is based on 28 billion notes in circulation). Even Mexico, which has battled serious counterfeiting problems of its own, was lower than Canada at 83 PPM.



That year, the Bank of Canada declared in an internal memo that counterfeiting levels were at “dangerous” levels. In search of a solution, Canada turned to the one country that seemed to have the problem in check better than anyone else: Australia.



HOW POLYMER MONEY WAS BORN



In 1966, David Solomon was a young chemist working on developing new kinds of paint for the Dulux company when he was invited to an emergency meeting of Australian scientists.



The country had just introduced its first dollar banknote that year, after severing ties with the British pound. The Australian Reserve Bank spent three years designing what it thought was the most secure currency possible, equipped with the best modern anti-counterfeiting technology of the day, including watermarks and raised ink printed on cotton-based “rag paper” that has since become the standard for money in places like Canada.



But within weeks, a flood of high-quality forgeries began to circulate. They were so convincing that authorities could barely distinguish them from the real ones, were it not for the fact that the counterfeiters had used the same serial number on each fake bill.



Even more problematic though, was that the forgeries had been made with paper bought at an ordinary office store. And since there was no problem mimicking the substrate, there was no telling how much fake money was out there. The hard-hit Australian $10 note soon became a pariah currency and was refused in stores across the country.



Unable to stop the flood of fake bills, the central bank convened physicists, chemists and psychologists to come up with a solution.



Mr. Solomon, the youngest scientist in the room, had a special interest in polymers – better known as plastics. He stayed quiet for most of the meeting, but to him the answer was simple: Money needed to be printed on material that couldn’t be easily replicated by forgers.



“Why don’t we use polymer?” Mr. Solomon said, using what he calls “a fancy word for plastic.”



The room fell silent, Mr. Solomon, now 81, recalls. Some people laughed. Plastic money?



Mr. Solomon was thinking like a scientist: His idea was to choose a substrate that was harder to obtain so that forgers wouldn’t be able to mimic it so easily. Control the substrate, he believed, and you can effectively control counterfeiting.



He was not the first to think of this. Throughout history, civilizations have tried and failed to control the basic material for currency. Facing a shortage of copper in the 13th century, when Chinese rulers introduced the first paper banknotes, they used wood from mulberry trees to make their money. To protect access to the paper, guards were stationed at mulberry forests. Counterfeiters and substrate thieves were punished by death.



In the 15th century, Aztecs used cocoa beans as currency. Three beans bought an avocado, 100 beans purchased a turkey. Since cocoa didn’t grow naturally in the arid Mexican mountains and had to be imported, the beans were believed to be rare enough for trading. However, counterfeiters soon figured out that eaten beans could be repurposed by filling the shells with brownish mud and mixing them with actual cocoa beans. The sudden proliferation of fake currency caused rampant inflation in the Aztec economy.



Polymer money relies on the same restriction of access to the base material. Making thin flexible plastic is hard, since it involves fusing microscopic fibres together. Create the plastic incorrectly and it will be brittle, or flimsy like a shopping bag and susceptible to tearing. A common method for an Australian bank teller to test a polymer banknote is to snap it quickly – as though pulling it apart by the edges. If it rips in two, it’s a counterfeit.



Back in 1966, though, Mr. Solomon needed a way to prove that his crazy idea could work. He began making plastic money himself. In an empty shed, he set up a crude printing shop and began churning out polymer-based notes that looked exactly like real Australian money, except for the fictitious denomination: He used $7, just in case any test-money went missing.



“We made 50 million banknotes in the back of that shed,” Mr. Solomon says. “We had to convince people that they would stand up to the wear and the handling of a banknote.”



Testing new kinds of money isn’t easy, because you can’t put the bills into circulation. Mr. Solomon and his team researched the chemical composition of sweat and body oils and began counterfeiting those too. He put bags of the plastic money through endless trials, tumbling them in a bin like clothes in a dryer to see what would happen.



As it turned out, the bills were not only difficult to counterfeit, they were also more durable, lasting at least 2½-times longer than a paper bill. His tests also answered an important question for the police: Could they still lift fingerprints off the notes? The answer was yes.



The Australian Reserve Bank decided to convert the entire money supply to polymer notes, making it the first country to take such a leap. The first bills emerged in 1988. Mr. Solomon called his invention plastic money, but the government thought that sounded questionable. “The bank had a prejudice against plastic. They considered it cheap and nasty,” he said. So the official name became polymer.



As Mr. Solomon printed his bills, though, he stumbled on a remarkable discovery. The banknotes were made by printing images on a sheet of clear plastic, starting first with a white base coat. But Mr. Solomon learned that if parts of the substrate were left blank, the bill would have a clear plastic window. This was a magnificent invention, since it would make trying to fake a polymer bill using paper or other non-clear material next to impossible. How could paper have a see-through window? This would give the counterfeiters fits, he thought.



In the 17 years Australia has used polymer currency, the country has reported an average counterfeit ratio of just 6.8 PPM, with most of those notes coming from crude attempts at printing replicas on paper, which makes them easy to spot. Australia has needed to design only one series of polymer banknotes that has lasted decades, though counterfeiters have been actively trying to forge plastic money during that time.



This year, a group of men are on trial in Australia for passing fake notes. While previous attempts by other forgers were amateurish, using a crude mixture of paper and flimsy plastic film, these notes were different. The counterfeiters were using nylon to make their fake money. It was one of the best attempts yet, but it still wasn’t close, according to police.



For his efforts, Mr. Solomon now belongs to the London-based Royal Society, an elite fellowship of 1,400 scientists whose members include Isaac Newton, Albert Einstein and Stephen Hawking.



HOW CANADA CHANGED ITS MIND



Even as Canada’s counterfeiting problem escalated, the shift to polymer was viewed as too expensive. A polymer note costs 19 cents to produce, compared to 9 cents for a typical cotton-paper note. So the upfront costs of switching are high, even though the bills last longer.



But in 2004, those concerns began to fade away when the Bank of Canada confronted the extent of the counterfeiting problem.



The money found in the grey Hyundai wasn’t perfect, but it was more sophisticated than any fake note seen before. Most notably, the counterfeiters had managed to duplicate the thin holographic stripe introduced on the Canadian Journey series specifically to thwart people like Wesley Weber.



The trail from the grey Hyundai led RCMP to a print shop in an industrial area of North Toronto, where officers found millions of dollars worth of fake $20 bills stacked in rows. In all, RCMP figured out the men had produced $6.7-million of fake notes at this site alone. Jaws dropped as the officers walked in the room.



“This was the largest counterfeiting manufacturing plant in Canadian history,” said Cpl. Laurence, head of the force’s anti-counterfeit division.



From there, RCMP tracked the ring of counterfeiters to another print shop in Markham, Ont., where $4.2-million worth of counterfeit $20 bills were uncovered in 2007.



The sophistication of the ring was mind-blowing. In addition to being able to reproduce the shiny holographic stripe on the $20 bill by using metallic foil purchased from a novelty supplier in California, the group figured out how to mimic the special watermark embedded in the paper, by using several layers of white ink to reproduce the face of the Queen.



What is more troubling, though, is that all of that fake money seized at the two print shops doesn’t even show up in Canada’s counterfeiting statistics – because it never made its way into circulation.



In 2008, the counterfeiting rate had fallen to 76 PPM, or 76 bills for every one million real ones. Though the number appeared to be retreating nicely from Canada’s record-high PPM in 2004, it was misleading. Had these seized bills made it out onto the streets, Canada’s numbers would have shot up to levels never seen before. A new counterfeiting crisis had been averted – but only narrowly.



The Bank of Canada decided to make the switch to polymer.



Canada will buy the polymer substrate from Australia, which until recently held the sole patent on the material and kept the recipe a closely guarded secret. Few companies have been able to set up and make the polymer substrate that Mr. Solomon invented. Chemical giant DuPont attempted a rival product in the 1980s, but gave up when it couldn’t make the material tough enough.



The substrate will be imported in secure shipments that are treated with the same precaution as transporting actual currency. The polymer money will then be printed in Canada by the two printers who inked the country’s paper money in the past, BA International Inc. and Canadian Banknote Co. Ltd.



By protecting the polymer substrate, the strategy is akin to placing hundreds of guards around the Mulberry forest centuries ago.



THE GREAT MONEY SCRUB



As Canada’s polymer money is introduced over the next two years, paper banknotes will be rounded up and removed from circulation in the largest scrubbing of Canada’s system of paper currency. Old paper notes that find their way to banks will be sent off to the Bank of Canada to be burned. Polymer bills will then be released.



The Bank of Canada issues between 300 million and 400 million new notes a year, replacing torn, taped, defaced and crumpled bills with crisp replacements as needed. At that rate, it would take four to five years to replenish the entire supply of notes. But the central bank will be attempting to replace paper money in the span of about three years, swapping out the cash much faster than usual.



Counterfeiting rates have fallen steadily in Canada in recent years, particularly after the ring in Ontario was dismantled by RCMP.



The country now reports a parts-per-million ratio of below 40, which is finally in line with what most G20 nations consider acceptable. But a recent internal survey by the Bank of Canada indicates trust has been slow to return: Five per cent of retailers still do not accept the $100 bill, an improvement from nearly a decade ago, but still not complete acceptance.



Though money is called legal tender, businesses aren’t bound by law to accept it. The term just means that the note is backed by a stated value. Store owners can turn down cash if they wish – and many do.



At a Wendy’s restaurant in Etobicoke, Ont., a sign on the window warns customers that large denominations are not welcome: “Due to increased concerns over counterfeit $100 bills, Wendy’s can not accept $100 bills from any customer.”



The new polymer $100 bill has been in circulation for less than 24 hours when one of them is handed to the cashier to pay for a $7 meal. After close inspection, the cashier nods and accepts the strange new bill.



It is a small but significant change in thinking for a business that lost confidence in some of the country’s banknotes during a decade of rising counterfeit numbers. But there is still a long way to go. This is just one location, and polymer money has barely started circulating. The great money scrub has only just begun.

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