New institute aims to foil high-tech counterfeiters


Hard hit by defense spending cuts, the Johns Hopkins University Applied Physics Laboratory (APL) in Laurel is gearing up to research a new kind of war -- this one against counterfeiters.

APL recently signed a 10-year agreement with the U.S. Treasury Department's Bureau of Engraving and Printing to open a Securities Technology Institute, the first center of its kind in the country.

The Howard County lab's researchers will work with other industrial and academic institutions to study technologies used to produce currency and new ways to guard U.S. bills against counterfeiters.

The new adversaries of APL scientists range from small-time forgers to organized crime, from the five men indicted by a federal grand jury in February for producing $60,000 worth of counterfeit $20 bills on Solomon's Island to the ring caught near Montreal in February printing $15 million in fake U.S. $100 notes.

For now, APL's Treasury contract is small: $750,000 for the first year compared with the lab's annual budget of more than $400 million, about 95 percent from military research.

But -- in the wake of last week's announcement of the layoffs of about 350 APL employees this summer -- lab officials hope to avoid more job losses by attracting more contracts for high-tech research innonmilitary fields. "Our mission says we will address problems of national importance, not just defense," said Daniel Dubbel, an APL researcher and program manager for the new institute.

"There will always be smart people out there, trying to make a quick buck. We think we have some good ideas to guard against it," he said. Treasury officials are eager for the help.

"We recognized the fact that we had the knowledge in the printing field, but we lacked the knowledge in the scientific field -- the 'Star Wars' types of things," said Ira Polikoff, deputy assistant director of the Bureau of Engraving and Printing. "If people don't feel confident in our currency, they won't use it."

In Maryland, $4,000 to $6,000 in counterfeit money enters the market each week, according to the U.S. Secret Service. Nationally over the last five years, counterfeiters have put into circulation an annual average of $19 million in fake money.

But most counterfeit money in this country is confiscated before it reaches the public. During the last five years, Secret Service agents in the United States have seized more than $266 million in fake currency.

Counterfeiting of U.S. bills is even more prolific overseas. There is about $380 billion worth of real U.S. currency throughout the world, said Richard Rohde, special agent in charge of the Secret Service's counterfeit division, with about $250 billion of it circulating outside the United States.

International seizures of fake bills since 1990 total more $351 million -- powerful testimony, Mr. Rohde says, to "the overwhelming popularity of the dollar."

In the past, Treasury officials consulted with other government or government-affiliated agencies -- such as the Federal Reserve and the National Research Council -- on ways to stop counterfeiting. Now the core of U.S. currency research will be conducted at APL.

Since it opened in 1942, APL has undertaken defense studies for the federal government, with virtually all its funding recently coming from the Navy.

A $60 million drop in the lab's total funding -- mostly from its Navy contract -- forced the recently announced layoffs of about 8 percent of APL's 2,750 full-time staff and about 20 percent of its 700 contractual employees.

But unlike military work, combating counterfeiting is a growth industry -- particularly because of high-tech copiers and computers. Since 1989, the number of counterfeiters using copiers and computers has doubled each year, according to the National Research Council.

U.S. bills already have eight to 10 different counterfeit deterrents -- including serial numbers, a Federal Reserve seal and a Treasury seal.

In 1990, the Treasury Department added a thin plastic strip to the left side of denominations greater than $1. Imprinted on the strip is wording -- such as "USA TWENTY" -- to guard against reproduction with computers and copiers. The plastic strip and wording are visible when held to a light, but they won't copy or scan easily.

"We're seeing more and more of those hackers with computer-generated notes," said Steve Mason, special agent in charge at the Baltimore office of the Secret Service.

In the Solomon's Island case, agents shut down a plant that produced $60,000 in $20 bills. Bogus bills were passed in Baltimore City and Howard, Anne Arundel, Prince George's and Calvert counties.

Nine people were arrested in that case. Five of them were indicted by a federal grand jury and pleaded guilty in February to counterfeiting and conspiracy to distribute counterfeit U.S. currency. According to court records, here's how it was done:

Using a scanner, the men copied an image of a $20 bill into a personal computer. With a graphics program, they corrected any flaws they saw in the image on the computer monitor and printed the fake bills on a color printer.

The men passed several hundred dollars to the public before Secret Service agents arrested them for trying to sell $21,000 in fake bills to an undercover informant.

Eric Martin Brooks, 25, and Dean Joseph Perticone, 24, both of Glen Burnie, and James Richard Brown, 28, of Hyattsville each could be sentenced to up to five years in prison and fined $250,000. John Daniel Fitzhugh, 24, of Landover and Harry Dean Napier, 30, of Lusby each could be sentenced to up to 15 years in prison and fined $250,000.

Last year across the country, the Secret Service shut down 162 counterfeit printing operations and arrested 2,000 people, Mr. Rohde said.

Typically, professional counterfeiters produce tens of millions of dollars with a printing press and make about 10 cents on the dollar by selling it to another party, such as organized crime.

The Secret Service worked for two years on the case of a Canadian counterfeit printing operation in St. Donat, Quebec, a small town in the Laurentian hills north of Montreal.

"It was one of the most exhaustive investigations," Mr. Rohde said. "At the time of the arrest, they were in the process of printing $15 million in $100 notes."

Now the printing bureau wants to make it even tougher for counterfeiters and is looking to APL for help.

The lab's $750,000 budget for the new institute will help pay for special equipment such as lasers, high-resolution monitors and reproduction equipment. Researchers -- led by Mr. Dubbel and two materials specialists, Richard Benson and John Murphy -- hope to have some viable security ideas in about a year.

"It's going to take a lot of work to come up with a single feature that will work," Mr. Dubbel said.

They're already considering reducing the size of the bills and changing their color. That could be costly because it would require major changes to printing and processing machines, which produce 90 billion bills each year.

They also are looking at ways to use inks that change colors when viewed from different angles, and watermarks that don't copy on color printers.

Some of these ideas might be used in a new generation of bills to be released in 1996. Those bills will be the first set of bills with significant changes since 1929. Their exact design will be announced this year.

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