The Indian Kattalio Game: mapping the counterfeit currency network in India

Author:Balasubramaniyan Viswanathan
Position:Department of Defence and Strategic Studies, Gurunanak College of Arts and Science, Chennai, India
Pages:542-558
SUMMARY

Purpose The purpose of this paper is to study the counterfeit currency network in India. This research is an endeavour to bring out various layers which act as source, collection and distribution points in a counterfeit currency network in India. This paper also deals with the fake currency network and its linkages to terrorism. Design/methodology/approach Methodology adopted is a... (see full summary)

 
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The Indian Kattalio Game:
mapping the counterfeit
currency network in India
Balasubramaniyan Viswanathan
Department of Defence and Strategic Studies,
Gurunanak College of Arts and Science, Chennai, India
Abstract
Purpose – The purpose of this paper is to study the counterfeit currency network in India. This
research is an endeavour to bring out various layers which act as source, collection and distribution
points in a counterfeit currency network in India. This paper also deals with the fake currency network
and its linkages to terrorism.
Design/methodology/approach Methodology adopted is a descriptive one which conducts a
content analysis on materials derived from secondary sources supported by information from primary
source data acquired through the Right to Information Act.
Findings – This paper argues that the existing measure of calculating the incidence of counterfeit
notes per million is understated by the relevant stakeholders in India. This measure changes drastically
when other factors such as high denomination notes and police seizures are taken into account, which
has not been attempted, though it is duly acknowledged by the stakeholders. This paper has attempted
to map the locations in India which act as ingress, distribution and circulation points based on
evidentiary data derived from the seizure records. This paper also highlights the fact that criminal
gang-operated networks of fake currency are compartmentalised, while the networks operated by terror
groups are de-compartmentalised.
Practical implications – In the process, this paper attempts to enlighten stakeholders like law
enforcement agencies, banking regulators and counter terrorism community on the penetration levels of
the fake Indian currency note (FICN) networks in India and the need to target these important nodes or
points or layers to break up the FICN network. This also highlights fund-raising mechanisms of terror
groups, where FICN acts as the main funding resource for groups like the Indian Mujahideen for
carrying out low-cost terror attacks.
Originality/value – The key ndings of this research lie in its originality of presentation of facts in a
systematic fashion.
Keywords Counterfeit currency network in India, FICN network, Financing of terrorism in India
Paper type Research paper
Introduction
Indian terror and insurgent groups have been known to be associated with criminal
avenues to ll their coffers. One such criminal avenue is counterfeiting of Indian
currency. Currency counterfeiting has always been the domain of criminal gangs and
maas around the world; however, recent evidence appears to strongly support the
theory that terrorists are increasingly using this route to nance their operations in
India. In India, the incidence of fake Indian currency notes (FICNs) is on the increase,
which is predominantly playing a major part in nancing terror operations. Apart from
precipitating terrorism, it also has an impact on the Indian economy. Given the
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
JFC
23,3
542
Journalof Financial Crime
Vol.23 No. 3, 2016
pp.542-558
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2014-0036
signicance of FICNs in impacting the national security of India, FICN networks have
become a fascinating and an interesting topic for the erudite.
Currency counterfeiting is as old as the printing of currency in India. The history of
Indian currency dates back to 1770, when Bank of Hindustan introduced paper money.
Bank of England introduced the currency notes in the year 1862. Later, printing of
currency notes was started at Bank Note Press, Nasik Road, in the year 1928. Reserve
Bank of India (RBI) took over control of Bank Note Press in 1934.
Historical citations of counterfeiting in ancient India are not uncommon. Kautilya, a
great strategist, who lived in 300 BC, counterfeited one Magadhan coin (the currency of
the Nanda kings who ruled Pataliputra) into eight coins by reminting them, using cheap
metal (Sadasivan, 2011, p. 41). Thus, he bought a boy named Chandragupta for 1,000
Magadhan coins. Chandragupta who became Kautilya’s protégé was later enthroned as
the emperor of Pataliputra under the mentorship of Kautilya. Kautilya also authored
“Arthasastra”, which became one of the important treatises of political science in ancient
India, where he lays down punishment for counterfeiting coins.
In most recent history, independent India has been plagued by counterfeit currency
from 1980s. The rst ever counterfeit currency was discovered in India in the 1980s.
Oblivious to the future potential extent of the problem, nobody fathomed or foresaw the
gravity of the issue which was going to unfold in the coming years.
Similarly and concomitantly, global instances have also buttressed the theory that
counterfeiting currency is an international phenomenon. During the Second World War
in 1942, an ingenious German Secret Service commander named Bernhard Kruger
orchestrated a plan to ood the UK with counterfeit British Pounds. This later came to
be known as “Operation Bernhard”.
In the contemporary era, North Koreans mastered the art of printing South Korean
currencies in the 1960s and, more recently, the US dollars known as “Super Dollars”(Perl
and Nanto, 2007;Nanto, 2009). North Koreans refer to the counterfeit dollars as Kattalio
and the trade associated with them as the Kattalio Game, which earned them US$15-25m
in prots per annum.
Hence, to understand this deep-rooted global phenomenon in India, investigations
and studies about counterfeit currencies have to take into account two dimensions – the
extent of the penetration and the network and its linkages.
Extent of the penetration
Due to the criminal nature of the activity, evaluating the true extent of the problem may
not be possible. Previous attempts to estimate or measure the extent of the fake notes in
the market have not been conclusive. However, governments and individual experts
have attempted to estimate the stock and map the extent and trends of their respective
countries’ fake currencies in the market. Central banks of countries like Canada (Fung
and Shao, 2011a,2011b), Australia (Cowling, 2011), the USA (Judson and Porter, 2010;
Williamson, 2002) and India (Bose and Das, 2013) have all conducted studies on
counterfeit currencies. Apart from these studies, which are conducted by currency
management authorities, other research institutions have conducted studies related to
this realm. The present convention to identify the incidence or oating levels of fake
notes which is widely followed and which is accepted in calculating the fake notes
detected against the total notes in circulation (NIC), which is denominated as fake notes
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Kattalio Game

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