Global Policy Forum

By John Schmid

On May 12, 1998, a small package was loaded into the hold of Air France Flight 2522 in Paris bound for Munich. The 1-kilogram parcel had arrived at Charles de Gaulle Airport under armed guard, but once on board it was to travel unescorted. After a 20-minute ground delay, the flight was airborne, touching down in Munich at 7:55 p.m.

The 2-pound package contained a top-secret weapon in the European Central Bank's strategy to combat counterfeiting of euro banknotes, which are set to go into circulation in January 2002. Within the jet's locked hold was a printing plate for embedding a high-security hologram into the new euro bills. The plate was on its way to Munich for the first large-scale test production run.

But the trial never took place. On arrival at Munich, the masterplate had disappeared. Air France officials scoured the hold and the entire Boeing airliner for clues but came up empty.

The heist, which had the scent of an organized crime job, still baffles the authorities three years later. Worse, the breach underscores an array of serious questions about the overall security of the new currency. Counterfeiting is only one of the nightmares confronting the authorities entrusted with the smooth transfer of the 12 euro-zone nations to a single currency. A possible surge in money laundering, encouraged by the wide cross-border reach of the euro, also is keeping criminal investigators on alert.

In particular, the police are keenly watching Russia, the Balkans, Central and Eastern Europe and northern Africa for a rise in black market activities of all sorts. The transport and stocking of mountains of cash as E-day arrives is also putting euro-zone police forces on alert for a rash of holdups.

"People will keep a deep and lasting memory of good and bad things incurred during those fateful days," the European Parliament wrote in a recent report. "Should problems occur, it might expose the entire European project to criticism. The stakes are high."

As the airport theft suggested, criminal rackets recognize a golden opportunity in the euro changeover - in essence, the biggest financial transaction of all time. At the stroke of midnight Jan. 1, the euro will instantly be as attractive to the underworld as is the dollar, now the world's most counterfeited currency.

The counterfeiting already has begun, according to Britain's National Criminal Intelligence Service. Britain may lie outside the euro zone but the agency says it has collected evidence that crime gangs are printing fake euro notes.

The euro poses black-market benefits that even the dollar cannot match. The single currency will glide without a trace across a newly borderless Europe in bills denominated in large values scarcely seen in the region. The E500 note - the highest denomination - is more valuable than any national European bill except for the 1,000 Deutsche-mark note. The E500 is also about five times the value of the biggest dollar note in circulation, the $100 bill. Whether measured by weight or volume, that means more euros can be jammed into a briefcase than dollars or existing European currencies.

"There is little doubt that the euro will replace the dollar as the currency of choice for organized crime in Europe," said Mark Tantam, head of fraud management in London at the Deloitte Touche consulting firm.

The transition to the euro is particularly tantalizing to a new breed of crime syndicate outside the euro zone. These organizations, which have been in full swing since the fall of communism, have shown themselves eager to operate on a pan-European scale. Criminals are already trafficking in everything from stolen cars and art to drugs and illegal waste. Now, they are aiming to exploit the new currency not only in the euro zone but also in less developed countries, where the euro will circulate widely as a shadow currency and in many cases command greater trust than local banknotes.

Counterfeiting of existing currencies is on the upswing. The German Interior Ministry says it has pulled 63 percent more fake marks out of circulation in the first quarter of the year than during the like period last year. An estimated one-third of all marks circulate outside Germany, most of them in Central-Eastern Europe, the Bundesbank has estimated. Police officers in Kosovo claim to see fake marks almost everyday. In the East-West crossroads of Berlin, the local police say the number of counterfeits has doubled.

Officials are concerned about the ease with which forged bills now enter circulation through the well-oiled distribution channels of the underground economy. Willy Bruggemann, senior deputy director for anti-fraud activities at Europol, the European Union's top police agency, said professional forgers often unload entire batches of bogus bills in just one or two big-ticket cash transactions related to real-estate or black-market art.

"Russians always pay cash anyway," he said. Furthermore, currency forgeries are getting better - and enticing unassuming accomplices. Organized crime already adopts the latest technologies in its counterfeiting efforts. Three of every four counterfeits are printed on sophisticated offset presses with copies good enough to fool most people, said Derek Porter, head of Europol's anti-counterfeiting team. Thanks to laser scanners and sophisticated color photocopiers, a cottage industry of e-forgers will also likely emerge, Europol maintains. "The copy will be extremely good and so a nonalerted person could be tricked by this," Mr. Bruggemann said.

He added that the technology is liable to entice the innocent into crime. Mr. Bruggemann said he worries that "a young student, expert with computers, might start out of curiosity and then find a financial interest in producing fake notes."

The authorities are not sitting idly by. Europol is fashioning agreements to share intelligence with East European countries that are candidates for EU admission. The European Central Bank and Europol also will work together. The ECB will collect forgeries from central banks in the region and study them at its Counterfeit Analysis Center. Several times a day, the ECB will download its findings to the Europol's Counterfeit Euro Database.

Nine full-time Europol police officers will comb through the findings, hoping to tell which fakes are local operations and which belong to wide cross-border distribution efforts. The system goes live on Jan. 1.

But Russia and other countries that are not candidates for EU admission will not have operational agreements with Europol by E-Day, Europol admits.

Money laundering ahead of the currency launch is well under way, experts say - and may be partly responsible for the euro's sagging exchange rate. The experts say that organized crime syndicates are getting a jump on laundering their hoards of cash to escape possible tighter scrutiny later.

Hans-Werner Sinn, president of the Munich-based IFO economics research institute, says criminals across Europe already have begun to swap mark cash into dollars to avoid having to report "black money" during the changeover. The volumes have created enough demand for dollars that this has helped depress the euro rate, Mr. Sinn said.

But the early transactions may be an unnecessary precaution on the part of the criminals.

"The fear is that the difficulty of detecting the laundering of euros will mean most such activity could go unreported, further encouraging criminals to take advantage of the opportunity that the single currency provides," Mr. Tantam said. "What will be a suspicious transaction when everyone is changing money?"

While these clandestine activities may swamp law enforcement, street cops face a more dangerous and overt type of crime. As E-day comes, retailers will have to stock unusually large amounts of cash to service customers in two currencies. Despite protests from retailing groups and the European Parliament, the ECB is refusing to introduce the notes until Jan. 1 - and not a day earlier - mainly to deter counterfeiters. Increasingly, officers will be on alert for stagecoach-style robberies of cash transporters. France will deploy thousands of police officers, paramilitary guards and soldiers.

The changeover, said Europol's Mr. Bruggemann, is "the biggest police operation in Europe's history."

The 12-nation central bank is waiting until Aug. 30 to begin a massive public relations campaign to educate EU citizens on the euro's security features, including the shiny holograms, the foil stripes, special threads, microprinting, special inks and watermarks. Europeans now have only an incomplete idea of the appearance of new notes and coins. Posters and brochures have kept the details and security elements deliberately indistinct and grainy. Public disclosure of security features has also been delayed for as long as possible.

"People generally are not fully aware of the security features in their national currencies," Mr. Porter said. "The counterfeiter does not have to reproduce a perfect replica of the genuine note. There is no point in that."

The disappearance of the hologram printing plate from Air France Flight 2522 jolted the EU into a higher level of security for the currency. The setback compromised the initial design of a key security feature for the notes. But the European Central Bank has since called for a redesign of the hologram. All sensitive euro-related deliveries now travel under tight security, which includes escorts. The banknote printing specifications are guarded under maximum safety conditions at the central bank.

Referring to the approaching E-day, Europol's Mr. Porter conceded dryly, "It will be an exciting time to be a cop."

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