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.