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74–334 PS 2001

DESIGN AND SECURITY OF CURRENCY

HEARING

BEFORE THE

SUBCOMMITTEE ON

DOMESTIC MONETARY POLICY, TECHNOLOGY,

AND ECONOMIC GROWTH

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

JULY 24, 2001

Printed for the use of the Committee on Financial Services

Serial No. 107–38

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa

MARGE ROUKEMA, New Jersey, Vice Chair

DOUG BEREUTER, Nebraska

RICHARD H. BAKER, Louisiana

SPENCER BACHUS, Alabama

MICHAEL N. CASTLE, Delaware

PETER T. KING, New York

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

ROBERT W. NEY, Ohio

BOB BARR, Georgia

SUE W. KELLY, New York

RON PAUL, Texas

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

DAVE WELDON, Florida

JIM RYUN, Kansas

BOB RILEY, Alabama

STEVEN C. LATOURETTE, Ohio

DONALD A. MANZULLO, Illinois

WALTER B. JONES, North Carolina

DOUG OSE, California

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

GARY G. MILLER, California

ERIC CANTOR, Virginia

FELIX J. GRUCCI, JR., New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

PATRICK J. TIBERI, Ohio

JOHN J. LAFALCE, New York

BARNEY FRANK, Massachusetts

PAUL E. KANJORSKI, Pennsylvania

MAXINE WATERS, California

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

NYDIA M. VELA ́ ZQUEZ, New York

MELVIN L. WATT, North Carolina

GARY L. ACKERMAN, New York

KEN BENTSEN, Texas

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

JULIA CARSON, Indiana

BRAD SHERMAN, California

MAX SANDLIN, Texas

GREGORY W. MEEKS, New York

BARBARA LEE, California

FRANK MASCARA, Pennsylvania

JAY INSLEE, Washington

JANICE D. SCHAKOWSKY, Illinois

DENNIS MOORE, Kansas

CHARLES A. GONZALEZ, Texas

STEPHANIE TUBBS JONES, Ohio

MICHAEL E. CAPUANO, Massachusetts

HAROLD E. FORD JR., Tennessee

RUBE ́ N HINOJOSA, Texas

KEN LUCAS, Kentucky

RONNIE SHOWS, Mississippi

JOSEPH CROWLEY, New York

WILLIAM LACY CLAY, Missouri

STEVE ISRAEL, New York

MIKE ROSS, Arizona

BERNARD SANDERS, Vermont

Terry Haines, Chief Counsel and Staff Director

SUBCOMMITTEE ON DOMESTIC MONETARY POLICY, TECHNOLOGY, AND ECONOMIC GROWTH

PETER T. KING, New York, Chairman

JAMES A. LEACH, Iowa, Vice Chairman

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

RON PAUL, Texas

STEPHEN C. LATOURETTE, Ohio

DOUG OSE, California

MARK GREEN, Wisconsin

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

FELIX J. GRUCCI, JR., New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

CAROLYN B. MALONEY, New York

BARNEY FRANK, Massachusetts

GREGORY W. MEEKS, New York

BERNARD SANDERS, Vermont

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

MAX SANDLIN, Texas

CHARLES A. GONZALEZ, Texas

MICHAEL E. CAPUANO, Massachusetts

RUBE ́ N HINOJOSA, Texas

WILLIAM LACY CLAY, Missouri

MIKE ROSS, Arizona

(III)

C O N T E N T S

Page

Hearing held on:

July 24, 2001 ..................................................................................................... 1

Appendix

July 24, 2001 ..................................................................................................... 27

WITNESSES

TUESDAY, JULY 24, 2001

Allen, Hon. George, a U.S. Senator from the State of Virginia ........................... 4

Cantor, Hon. Eric, a Representative in Congress from the State of Virginia .... 3

Ferguson, Hon. Thomas A., Director, U.S. Bureau of Printing and Engraving . 13

Snow, Daniel G., Special Agent in Charge, Counterfeit Division, U.S. Secret

Service, accompanied by Tony Chapa, Deputy Special Agent in Charge,

Counterfeit Division ............................................................................................. 15

Students of Liberty Middle School and Patrick Henry High School, Ashland,

VA .......................................................................................................................... 6

APPENDIX

Prepared statements:

Oxley, Hon. Michael G. .................................................................................... 28

Cantor, Hon. Eric ............................................................................................. 30

Ferguson, Hon. Thomas A. .............................................................................. 38

Snow, Daniel G. ................................................................................................ 43

Students joint statement .................................................................................. 33

(1)

DESIGN AND SECURITY OF CURRENCY

TUESDAY, JULY 24, 2001

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC MONETARY POLICY,

TECHNOLOGY, AND ECONOMIC GROWTH,

COMMITTEE ON FINANCIAL SERVICES,

Washington, DC.

The subcommittee met, pursuant to call, at 2:10 p.m., in room

2128, Rayburn House Office Building, Hon. Peter T. King,

[chairman of the subcommittee], presiding.

Present: Chairman King; Representatives Lucas, Ose, Green,

Hart, C. Maloney of New York, and J. Maloney of Connecticut.

Chairman KING. The hearing will come to order. I want to welcome Senator Allen, and of course our colleague, Congressman

Cantor. And I would just like to make a brief opening statement

before we begin. This deals with the second part of our hearing

today, but I doubt that many people consider the design of the

money in their pocket. The design of our currency serves a very important purpose of security. All the precise lines and the special

currency paper that are instantly identifiable by touch let us know

that the bills in our pocket are genuine obligations of our Government.

For more than 60 years, the changes to our bank notes were so

minor, the average person never would have noticed them. But advances in photocopying technology and the computer scanners and

printers gave counterfeiters easy access to cheap, easy-to-use tools.

While the fakes they produced weren’t of great quality, they

sometimes were good enough to pass. About 5 years ago, the Nation’s security printer, the Treasury Department’s Bureau of Engraving and Printing, or BEP, gave us a new series of bank notes

which were harder to fake, and these help protect the security of

our Nation’s currency.

But we are here today because the counterfeiters and their

equipment have gotten better, and it is time to consider a new generation of bills, ones with more security features. And we are going

to receive testimony from Thomas Ferguson, the head of the Bureau of Engraving and Printing; and Daniel G. Snow, the top anticounterfeiting agent of the United States Secret Service, which, besides protecting the President and other top officials, is the anticounterfeiting police arm of the Government.

Director Ferguson and Agent Snow are here to tell us the state

of our current anti-counterfeiting efforts and of our plans to deter

fakes through the new generation of currency that we expect to be

able to see within the next 2 years. They will also tell us a little

2

about what they expect will happen with the introduction of the

Euro currency next January. Euros were introduced in electronic

form 21⁄2 years ago. They will actually appear in physical form on

January 1st. And the Europeans plan to exchange all of their existing marks and franks and lire and Irish pounds for Euros in a 2-

month period.

I know that Secret Service is working directly and closely with

its counterparts in Europe and the rest of the world to stem the

tide of counterfeits. I am studying legislation that could help that

effort. Additionally, last week, I introduced a bill at the request of

the Administration that would allow the BEP to print currency for

other and smaller countries.

But now the real pleasant business of the hearing today. And

once we get counterfeiting out of the way, I just want to say how

privileged we are to have Congressman Cantor and Senator Allen

today, and some of their very special constituents who have a novel

idea for redesign of U.S. bank notes. We have—I guess they are all

sitting out here in the audience—a group of pupils from Liberty

Middle School and Patrick Henry High School in Ashland, Virginia,

to tell us about a very patriotic idea they have to put the Constitution on the backs of all our bank notes.

They have worked very hard on this effort and their appearance

today before this subcommittee is a tribute to their dedication.

Congressman Cantor, as one of his first pieces of legislation, introduced it back in March of this year. I certainly don’t want to steal

their thunder, so I will let the students, and also Congressman

Cantor and Senator Allen, explain the proposal themselves in a few

moments. And I also want to thank Senator Allen for making a

long trip over here to the House of Representatives. I know he was

here a few years ago. It is great to have you back, and it is always

great to have Congressman Cantor.

Now I will yield to the gentlelady from New York, Mrs. Maloney.

Mrs. MALONEY. Thank you very much. It is my great honor to

welcome Congressman Cantor and Senator Allen from the great

State of Virginia, and I’d like to also welcome the young patriotic

team that came up with the idea for the Liberty Bill Act of 2001.

It is not surprising that you have come up with this idea. After all,

Virginia gave our country more Presidents than any other State,

and Virginia has often been called the birthplace of democracy in

the United States. So I welcome the civic responsibility that the

young authors have put forward and the cooperation that their

Congressman and Senator have given them, and I look forward to

hearing their testimony. And all I can say is God Bless America.

But also, after this panel, we are going to be looking at some

very important things, maintaining integrity as it relates to counterfeiting of the United States dollar, and that should be a priority.

Maybe the Constitution on the back would make it harder for people to counterfeit. I guess we will find out in the next panel. I am

looking forward to hearing how the Secret Service is working to

maintain the integrity of the United States dollar.

As the testimony will provide, we are seeing some increases in

counterfeiting with a surprising increase of 41 percent in Colombian-manufactured counterfeiting. Also with the increased availability of technology, the challenges which face law enforcement

3

will increase. That is why I feel this hearing is so important, and

we need to keep on top of these issues.

I am also pleased to announce the introduction of H.R. 2509 as

an original co-sponsor with Mr. King. I believe the bill provides an

avenue for the Bureau of Engraving and Printing to lend their expertise and knowledge to smaller countries. The bill provides that

the Bureau of Engraving and Printing be allowed to print currency

and security documents, passports, stamps, for example, for other

countries. As we value the integrity of our currency, let us also assist others in developing a high valued currency for their countries.

I look forward to the testimony, and, again, I welcome all the participants.

Chairman KING. Thank you, Mrs. Maloney.

I understand Congressman Lucas and Congressman Green do

not have opening statements.

Congressman Cantor, if you would lead off first.

STATEMENT OF HON. ERIC CANTOR, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA

Mr. CANTOR. Thank you, Mr. Chairman. I thank you, and I

thank Mrs. Maloney for holding this hearing today, and I am very

pleased to be here to discuss H.R. 1021, the Liberty Bill Act of

2001. Many studies have demonstrated that most Americans have

little knowledge about the Constitution of the United States. While

we all enjoy the benefits of our democracy, fewer and fewer citizens

of this great country can cite the basic rights of freedom guaranteed in this timeless document.

To remedy this unfortunate trend, a remarkable group of students at Liberty Middle School and Patrick Henry High School in

Ashland, Virginia, have proposed a way to give Americans a daily

civics lesson.

On their behalf, I introduced the Liberty Bill Act of 2001. This

legislation is intended to celebrate our Constitution as a living

American symbol, and integrate it into our lives on a daily basis

by simply placing an abbreviated version of the Constitution on the

reverse side of all U.S. paper currency.

This bill would honor our system of law and Government and

promote the teaching of democratic principles around the world.

We as a Nation must be ever mindful of the ideals upon which

the United States was founded, and this legislation would provide

a prominent reminder of our Founding Fathers’ vision for our Nation.

My distinguished predecessor, Congressman Tom Bliley, recognized the value of this concept and garnered over 100 co-sponsors

of a similar bill during the 106th Congress, many who sit on this

subcommittee. This bipartisan bill was introduced in the 107th

Congress with the co-sponsorship of the entire Virginia Delegation,

and support for the concept is growing here in the House.

I also welcome the distinguished Senator, my friend from Virginia, Senator George Allen, who is the author of similar legislation

in the Senate.

I would also like to extend a welcome to members of the Hanover

County school board, the Chairman, Sue Watson, as well as the

Chairman-elect, John Axselle, who are both here from Hanover

4

County, as well as Dr. Stewart Robinson, the Superintendent of

Schools in Hanover.

I would like to applaud Mr. Randy Wright, whose vision and

leadership on this issue brought this concept to reality. Randy has

been an energetic proponent of the Liberty Bill, and his hard work

on this legislation has enabled his students to present their idea

here in the House of Representatives, as well as at the White

House.

Randy has a true understanding of our democracy, and I commend him for his love of teaching. He is a model citizen, an enthusiastic teacher, and an excellent example for his profession. Randy

is also joined by his colleague, Mr. Tony Santos, who is also a

teacher at Liberty, as well as Patrick Henry. You will see from the

presentation that follows that his students have excelled in their

studies and promise a bright future for our country. They have

travelled here today from Ashland, Virginia, to participate in our

democratic process and present their idea to the subcommittee.

I am honored to represent such fine young men and women, and

am impressed by their patriotism and inspired by their potential.

As a representative from the seat once held by James Madison,

I am particularly cognizant of the contributions of our ancestors at

the birth of this Nation. George Washington, Thomas Jefferson,

James Madison, and George Mason, are not just names in a history

book to these students from Liberty Middle School; they are shining examples of our democracy, and their memory embodies our

heritage in Virginia and the United States. Men and women in this

country and around the world are indebted to these patriotic Americans. We cherish their memory, and through this legislation, we

work to preserve their accomplishments.

Thank you very much, Mr. Chairman.

[The prepared statement of Hon. Eric Cantor can be found on

page 30 in the appendix.]

Chairman KING. Thank you, Congressman Cantor. I want to

thank you for bringing these students and teachers and community

leaders and parents here. It really does speak volumes as to the

outstanding people in your district, and it is really an honor for you

to have brought them here.

And now, the distinguished Senator from the State of Virginia,

Senator George Allen.

STATEMENT OF HON. GEORGE ALLEN, A U.S. SENATOR FROM

THE STATE OF VIRGINIA

Senator ALLEN. Thank you, Mr. Chairman, and Ranking Member

Congresswoman Maloney. Thank you all, and all Members of the

subcommittee for holding this hearing. And I agree with every single thing that my good friend, Congressman Eric Cantor, has said.

He is an articulate strong leader, shares the values that I think all

of us understand are at the foundation of our country and carrying

forward into the future. Eric and I both agree this is a very creative idea and a great way, an innovative way to help spread, not

just amongst the few that study our Constitution and our system

of Government—about how our Government is organized; the separate branches; the amendments and so forth in the Constitution.

Not just folks who pay attention to it all the time, but indeed, I

5

think people would pick up one of these bills, and they would look

on there and they would say that all right, the First Amendment

protects freedom of religion, freedom of speech, freedom of the

press, the right to assemble peaceably and the right to petition

Government. People may not know all of that. I guarantee you

most people probably forget the idea that the 8th Amendment prohibits cruel and unusual punishment, and you can imagine wisecracks about people—you know, they are saying—they are hanging

around with you and driving down the road is an 8th Amendment

violation. But nevertheless, it would be a way they would learn

about it.

You also learn through it the history of this country, where you

see the beginning amendments and certainly how the Executive,

Judicial and Legislative Branches work, and the organization of

the States. They will see how the full blossoming of the promise of

this country was not all in the Bill of Rights, which unfortunately,

many people don’t even know the first ten amendments in the Bill

of Rights and how they protect us.

But then you see how, over the years, that the rights were finally

given to those who were African-Americans, how even later, those

rights to vote and participate in Government were given to women.

And how the Constitution, yes, it is our foundational document, but

most importantly, it is not just our history and heritage. It is a living document that still applies, and when one thinks of how much

and how often money goes through our hands, this is a great way,

Mr. Chairman, and Members of the subcommittee, to help encourage and help educate our citizenry today. And to the extent that

the American currency is put into circulation in various other countries, Panama, for example, uses United States currency as their

currency.

So it is something that I think is a great idea. It came from children, young adults, let us say, middle school students at Liberty

Middle School, carried on by students at Patrick Henry High

School. Most appropriately, I think, and it is something that is just

a great way to teach Americans about their Government, their protected rights, spread our ideals around the world, educate Americans about the importance of this historic document and remind us

daily of the rights and prerogatives and protections we have, but

also the responsibilities that we all have as American citizens.

So I hope that you, Mr. Chairman, and Members of the subcommittee will be—I am sure you will be as impressed and inspired

by the wholesome presentation. I saw this presentation last February. I carried around a sample of the smaller version of the bill—

it is now worn out—in my speech folder. They have improved it for

2001.

This is a much better version than what you gave me. Of course,

I wasn’t elected yet. Once you get elected, you get better versions,

I reckon. But nevertheless, I strongly support this legislation. Let

me remind every American about our treasured heritage, the protections, the reason this Government was created, to protect our

rights, our God-given rights and returning the Constitution to

where it belongs, figuratively and literally, in the hands of American people.

Thank you, Mr. Chairman, and Members of the subcommittee.

6

Chairman KING. Thank you very much, Senator Allen.

Now Congressman Cantor, are you going to introduce the students or bring them up?

Mr. CANTOR. Mr. Chairman and Members, I present to you the

students of Liberty Middle School and Patrick Henry High School

of Ashland, Virginia, and their presentation of the Liberty Dollar

Bill Act.

STATEMENT OF STUDENTS FROM LIBERTY MIDDLE SCHOOL

AND PATRICK HENRY HIGH SCHOOL, ASHLAND, VA

[The following students, including those who spoke individually,

participated in the recitation: Emily Ambler, Rina Amin, Whitney

Arnold, Jill Beard, Kaitlin Bourne, Kay Breeze, Stacie Brown, Michael Bumbry, Lindsey Buraker, Sarah Carter, Morgan Cougot,

Anne Duncan, Carmen Franck, Chesney Grizzard, Amy Harris,

Karena Jackson, Tina Jackson, Lindsey Keiter, Caitlin Kelliher,

Rachel Lynch, Jessica Nesselhauf, Matthew Nutter, Kari Roth, Stephen Sepe, Kate Taylor, Audra Vanderland.]

Ms. FRANCK. Chairman King, Ranking Member Mrs. Maloney

and Members of the Domestic Monetary Policy, Technology and

Economic Growth Subcommittee, thank you for conducting this important hearing today. It is truly an honor to be able to speak to

you on behalf of the Liberty Bill Act, a bill before Congress to place

an abbreviated version of the Constitution on the back of $1 bills

or possibly other currency.

We represent Liberty Middle School and Patrick Henry High

School, where the Liberty Bill originated nearly 31⁄2 years ago, yet

we merely speak for the many students of our school, other middle

schools, high schools and now colleges that have joined our efforts.

America’s history and culture are full of examples of respect for our

Constitution and our love of liberty. Lincoln’s Gettysburg Address

ends with:

Mr. BUMBRY. ‘‘That this Nation, under God, shall have a new

birth of freedom and that Government of the people, by the people,

and for the people shall not perish from the Earth.’’

Ms. FRANCK. In the movie, ‘‘Mr. Smith Goes to Washington,’’ Jefferson Smith says:

Ms. DUNCAN. ‘‘Liberty is too precious a thing to be buried in

books. People should hold it up in front of them every single day

of their lives and say, ‘I am free to think and to speak.’ My ancestors couldn’t. I can. And my children will. People ought to grow up

remembering that.’’

Ms. KEITER. Ancient Greece and Rome had forms of democracy,

but these nations eventually fell apart, replaced by tyrannies and

monarchies. For over a thousand years, governments ruled over the

peoples of all nations. But in 1215, a candle for freedom and liberty

was lit when King John was forced to sign the Magna Carta, and

people began to challenge the relationship between citizens and

their governments.

From 1690 to 1789, many more candles were lit for freedom and

liberty as the enlightenment philosophers questioned further the

relationship between people and government, eventually believing

government should answer to the people.

7

Ms. BROWN. The enlightenment philosophers produced mostly

talk and writings. But in America, the talk became action. The

Declaration of Independence stated that ‘‘all men are created

equal.’’ That people have a right to ‘‘life, liberty and the pursuit of

happiness’’ and that the Government should come ‘‘from the consent of the governed.’’ We fought a war to win these rights and

freedoms.

In 1787, we illuminated the world when our Founding Fathers

wrote what would become the model for all modern democracies,

the Constitution. Our Constitution is a beacon of light for the

world. The oppressed still stand up on occasion for freedom and liberty as they did in China’s Tiananmen Square. Shouldn’t all people

be able to hold up our U.S. currency as a symbol of freedom of modern democracy, like a candle in darkness?

Like a candle in darkness, shouldn’t the Constitution be on the

back of the U.S. currency?

Mr. BUMBRY. George Washington, President of the Constitutional

Convention; James Madison, father of the Constitution; Ben Franklin, and many other great Americans met for four hot months in

1787 to ignite history’s greatest light of Government. They argued,

fought, compromised and gave their all to create a lasting democracy of liberty and freedom found in the Preamble, the Articles,

and the Amendments of our Constitution.

They protected this philosophy and these ideals by separating

the power of Government into three branches—Legislative, Executive and Judicial. And creating checks and balances among these

branches of Government. They further divided the Government

with divisions of power between the Federal and State governments.

While our currency celebrates some of the men who first wrote

the Constitution, it doesn’t celebrate their most noble achievement,

the living document which they put their lives into. Shouldn’t the

greatest of American achievements be in the hands of all Americans to be preserved, protected and defended? Shouldn’t the Constitution be on the back of the U.S. currency?

Ms. COUGOT. A survey by the National Constitution Center, a

body created by Congress in 1988, found that 75 percent of Americans say that ‘‘The Constitution is important to them, makes them

proud, and is relevant to their lives.’’ However, the survey found that 94 percent of Americans don’t

even know all of the rights and freedoms found in the First Amendment, and 62 percent of Americans cannot name our three

branches of Government.

Six-hundred-thousand legal immigrants come to America each

year. Many of these immigrants become American citizens through

the naturalization process and must learn more about the Constitution than many natural-born citizens know.

If America’s most patriotic symbol, the Constitution, were on the

back of U.S. currency, wouldn’t we all know more about our Government? And shouldn’t we?

Ms. BURACKER. What is the cost of telling the world about representative democracy, about freedom, about equality?

The National Automatic Merchandising Association, which opposes the Liberty Bill if it places the Constitution on the back of

8

the $1 bill, says that it will cost $420 million to update the 4.2 million vending machines to recognize new bills.

Sounds expensive. It isn’t. The cost is only $100 per machine for

one year. That is less than 30 cents per machine per day. That’s

right. 30 cents a day for one year.

If it is too expensive to update vending machines, then the Constitution could go on other currency. As more people are exposed

to these essential rights, more nations will turn to our form of Government. Then they will also turn to our free market economy,

opening additional markets for American businesses, which, of

course, expands opportunities for trade and for income.

Ms. ARNOLD. What is the cost of telling the world about representative democracy, about freedom, about equality?

The United States Information Agency, which promotes our national interests abroad through educational programs and radio

broadcasts, has a budget of over $500,000,000. Yes, half-a-billion

dollars to tell other people the ideals found in our Constitution.

The Congressional Budget Office estimates the one-time cost of the

design of the Liberty Bill to be $500,000.

Could the half-a-billion dollar yearly expense of the Information

Agency be reduced if we let our half-a-million dollar Liberty Bills

carry our message around the world? Could we cut back on programs and taxes if we let our money do the talking?

Ms. AMIN. What is the cost of telling the world about representative democracy, about freedom, about equality?

The Treasury Department’s Financial Management Service reports that there are $558 billion of United States currency in circulation. Of that, $7.4 billion are circulated in $1 bills. Two-thirds

of our currency is in circulation outside of the United States. Imagine the impact of 7.4 billion $1 bills exchanging hands over and

over each week with the 6 billion people in the world, each exchange being the opportunity to discuss and ignite a new or renewed passion for democracy.

Once printed, the cost of exchanging the ideas of freedom, billions and billions of times each day, forever, is free.

Ms. JACKSON. What is the cost of telling the world about representative democracy, about freedom, about equality?

The Center for Strategic and Budgeting Assessments estimates

that the cost of the war in Kosovo for America was over $2 billion,

and that the ongoing peacekeeping will cost as much as $3 billion

a year.

If the world were more aware and accepting of the religious freedoms we celebrate in our First Amendment, would there have ever

been a war? If the government of Kosovo were challenged by a free

press, would that government have been able to oppress its own

people? If the Constitution were written on the back of U.S. currency, wouldn’t it become the world’s second constitution, and

wouldn’t there be less war?

Ms. BROWN. You ask, what is the cost of telling the world about

representative democracy, about freedom, about equality?

The Revolutionary War, the War of 1812, the Civil War, the

Spanish-American War, World War I and World War II, the Korean War, the Vietnam War, Desert Storm, the War in Kosovo.

9

These are the costs of the ideals we cherish found in our Constitution.

Stand in front of any monument to our fallen heroes. Run your

fingers across the names inscribed on the Vietnam War Memorial,

or stand at the hallowed ground at Arlington National Cemetery.

These are the real costs of the philosophy we love found in the Constitution.

So, can anyone put a cost on mankind’s highest achievements?

Or are they priceless?

Ms. DUNCAN. Perhaps with the exception of religious writings,

the Constitution is the most important document ever written. The

first three words say it all. ‘‘We the people.’’ It belongs to us.

The Founding Fathers also wrote in the Preamble of this great

document the words, ‘‘our posterity.’’ They wrote the Constitution

for the generations that would follow them. It belongs to us!

With Article VII of the Constitution, the Founding Fathers required that ratification for our Government come from the consent

of the people. ‘‘We the people’’ gave our consent. It belongs to us.

The Founding Fathers wrote in Article V the amendment process, knowing that future generations, ‘‘their posterity,’’ could alter

the Constitution to meet the changing needs of the people. Twentyseven times the Constitution has been changed by amendment. It

belongs to us.

We the people, posterity, ratification, amendments, the Constitution of the United States of America. Shouldn’t it be in the hands

of all Americans—on the back of U.S. currency? Because it belongs

to us.

Ms. KEITER. The Constitution is all the more beautiful, all the

more important, when you see the history and growth of our great

Nation as we matured and improved through the amendment process. The Constitution, unfinished, still being written, a living document for all Americans.

Mr. NUTTER. When the Constitution was first written, it was not

written for African-Americans. African-Americans were not given

equal rights in the Constitution, but the 13th, 14th, and 15th

Amendments changed our Nation. These amendments abolished

slavery, defined citizenship, and guaranteed the right to vote regardless of race. The amendments on the back of our currency

show a part of African-American history woven into the fabric of

the Constitution, a living document for all Americans.

Ms. FRANCK. When the Constitution was written, women too,

were treated as inferior. They were not allowed full participation

in our Republic, but the 19th Amendment changed that. It said

that women could vote. The 19th Amendment on the back of

United States currency celebrates a part of women’s history and

the beauty of a Nation of change found in our Constitution, a living

document for all Americans.

Ms. JACKSON. Perhaps Barbara Jordan, while a Member of the

House of Representatives, said it best, ‘‘ ‘We the people. It is a very

eloquent beginning. But when that document was completed on the

17th of September in 1787, I was not included in that ‘We the people.’ I felt somehow for many years that George Washington and

Alexander Hamilton just left me out by mistake. But through the

process of amendment, interpretation and court decision, I have fiVerDate 11-MAY-2000 11:02 Nov 19, 2001 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 74334.TXT HBANK1 PsN: HBANK1
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nally been included in ‘We the people.’ My faith in the Constitution

is whole. It is complete. It is total.’’

Ms. ARNOLD. In 1998, the students of Liberty Middle School and

Patrick Henry High School in Ashland, Virginia, first proposed that

Congress adapt an abbreviated version of the entire Constitution to

be on the back of the United States currency. Congressman Tom

Bliley and Senator John Warner agreed and introduced the Liberty

Bill Act to the 105th and 106th Congresses.

This year, Congressman Eric Cantor has presented, and Senator

George Allen will soon present, the ‘‘Liberty Bill Act’’ to the 107th

Congress. We just call it the ‘‘Liberty Bill.’’ While the results of this

change will be many, we would like to tell you the six we think are

most important.

Ms. AMIN. First, the Liberty Bill ensures that Americans have a

deeper knowledge of the framework of their Government and a better awareness of where their liberty and freedom originate.

Second, the Liberty Bill teaches the progress of American history

as we amended the Constitution.

Ms. DUNCAN. Perhaps that is why the Fleet Reserve Association

said of the Liberty Bill, ‘‘It should thrill all Americans.’’

Mr. NUTTER. Third, the Liberty Bill spreads the philosophy of

representative democracy and the freedoms we cherish around the

world while saving millions and millions of dollars from Federal

programs.

Fourth, the Liberty Bill will expand the American economy by

encouraging nations to become republics and open their markets to

global trade and the global economy.

Ms. BURACKER. Maybe that is why the Wall Street Journal, who

knows a little something about money, economics and business,

said that when Members of the 106th Congress met with the students to listen to the Liberty Bill presentations, that it might have

been their most ‘‘glorious moment.’’

Ms. FRANCK. Cinco, los soldados alrededor del mundo podran

sostener la moneda corriente de los E.E.U.U. Y explicar porque

estan dispuestos a dar sus vidas para los mismos ideales que llevan

con ellos en sus bolsillos Y sus corazones.

And for those who don’t speak Spanish: Fifth, American soldiers

around the world will be able to hold up United States currency

and explain why they are willing to give their lives for the very

ideals they carry with them in their pockets and in their hearts.

When Lieutenant Shane Osborn and his crew gave the Chinese

some American money as souvenirs, imagine the power and message of our currency if it had had our Constitution proudly and

boldly written on it.

Ms. JACKSON. The Military Order of the Purple Heart simply

said, ‘‘We cherish this idea.’’

Ms. COUGOT. Sixth, the Liberty Bill celebrates the Constitution

as an American symbol, and ensures that we continue to preserve,

as James Madison said, ‘‘The hope of liberty throughout the world.’’

Ms. BURACKER. Members of the Domestic Monetary Policy, Technology and Economic Growth Subcommittee, that must be what the

Topeka Capital-Journal meant when it said, the Liberty Bill ‘‘May

be the greatest idea ever originated in any school system.’’

11

Ms. KEITER. Following the Constitutional Convention, Ben

Franklin was asked what kind of Government the Founding Fathers had given to the United States. He replied, ‘‘A Republic, if

you can keep it.’’ The Constitution on the back of our currency not

only celebrates this great Republic, it deepens people’s knowledge

and understanding of where our Republic comes from, what it

means, and it helps us ‘‘keep it,’’ as Dr. Franklin challenged.

Mr. NUTTER. And there are other reasons.

The Liberty Bill promotes human rights around the world as people are exposed to Amendment 1, which protects freedom of religion, freedom of speech, freedom of the press, the right to assemble

peaceably, and the right to petition Government.

Ms. AMIN. The Liberty Bill promotes human rights around the

world as people are exposed to Amendments 4, 5, 6, 7, and 14 that

ensure all people equal treatment and the same due process under

the law, including fair, speedy and public trials, trials by jury, and

the right to a lawyer.

Ms. COUGOT. The Liberty Bill promotes human rights around the

world as people are exposed to Amendment 8 that forbids cruel and

unusual punishments.

Mr. BUMBRY. The Liberty Bill promotes human rights around the

world as people are exposed to Amendment 13 that forbids slavery.

Ms. DUNCAN. Thus, the Liberty Bill increases the acceptance of

diversity and equality around the world as the Liberty Bill becomes

the tangible symbol of human rights.

Ms. BROWN. In the 106th Congress, over 100 Representatives cosponsored the Liberty Dollar Bill Act, including the Majority leader, the Majority Whip, eight committee Chairmen and three Ranking Members. It was one of only five bills in the House co-sponsored by both the House Speaker and the House Minority leader.

Now, in the 107th Congress, the Liberty Bill has been introduced

by Congressman Eric Cantor. It currently has more than two dozen

co-sponsors. Congressman Cantor, thank you for sponsoring the

Liberty Bill.

Ms. KEITER. Our deep American philosophy is sometimes taken

for granted in the everyday business of making laws. Yet, no country can survive that forgets its philosophical bearings. The Constitution on the back of the $10, the $5, the $2, or hopefully the

$1 bill, where it will be seen by the most people, will remind all

the world of the freedoms and liberties of our American culture,

based in the Constitution. The ideological light that gives substance, value, and meaning to the laws by which we live.

Ms. ARNOLD. Chairman King, Ranking Member Mrs. Maloney,

and Members of the Domestic Monetary Policy, Technology and

Economic Growth Subcommittee, we hope you will vote in favor of

the Liberty Bill Act and send it to the House. Of course, we hope

the vote is unanimous. Send a clear, strong message to the world

that we are proud of our Constitution, and what it stands for.

The peace and good will of the Constitution will cast a far greater light if all Americans and citizens of the world have it in hand,

so that it can be read and the philosophy of American freedom and

democracy shared.

We know there will be opposition. People will tell you reasons

why the Liberty Bill should not pass and cannot be done, but we

12

believe that those reasons are weak when compared to the reasons

for why it should pass.

Many times, we have been told to stop dreaming the impossible

dream. Standing here today is proof that Congress does listen to

the people. People not yet old enough to vote, people who have little influence and little money. Yet, you have listened. We carry the

impossible dream, and we are proud to stand here today with you,

the most democratic body of Government in the world, and say

that, yes, in America, the impossible dream is possible.

Thank you for listening to us today, and now we present to you

the Constitution.

[All students recite the Bill of Rights.]

ALL STUDENTS. Amendment 1: Freedom of religion, freedom of

speech, freedom of the press, right to assemble peaceably, right to

petition.

Amendment 2: The right to bear arms.

Amendment 3: Do not have to quarter soldiers during peacetime.

Amendment 4: No unreasonable searches and seizures.

Amendment 5: Rights of the accused.

Amendment 6: Right to a fair trial.

Amendment 7: Right to a trial by jury in civil cases.

Amendment 8: No cruel and unusual punishments.

Amendment 9: Unenumerated rights go to the people.

Amendment 10: Reserves all powers not given to the national

Government to the States.

Written in 1787, ratified in 1788, the Constitution, a living document, took effect in 1789.

Chairman KING. Well, thank you very much. As the Chairman,

I will take the prerogative to ask everyone to give a round of applause to these students. I also must say I feel a bit sorry for our

two witnesses who are going to follow them. It is a very tough act

to follow. But I can certainly now see why Congressman Cantor is

so proud of this middle school and high school and teachers and

community leaders, because this was a tremendous presentation

you made today, very moving, very informative, and Congressman

Cantor, do you have any questions you think should be asked?

Mr. CANTOR. Mr. Chairman, Mrs. Maloney, I just want to thank

you again. I think you have seen some of Virginia’s best and

brightest engaging in what I see as the world’s greatest civics lesson with the proposal to spread that throughout our land and to

continue to help preserve the establishments of our Founding Fathers.

So I have no further comments, Mr. Chairman. Just thank you

again, and thanks to the students for their terrific performance.

Chairman KING. Thank you, Congressman Cantor. Thank you,

Senator Allen, very much and thank all of you. It was very educational experience for all of us, and again I want to commend you

for the great job you have done. Thank you very much.

Also out of my own curiosity, will Randy Wright please point

himself out, Randy Wright? OK. This is the gentleman that apparently deserves all the credit for this. So congratulations to you for

a job truly well done.

[The prepared statement of the students can be found on page

33 in the appendix.]

13

Chairman KING. And now I will ask the witnesses of our second

panel to come forward.

Good luck to you two guys.

Mr. FERGUSON. Yeah. Thank you, Mr. Chairman.

Chairman KING. I want to welcome Thomas Ferguson, who was

already introduced, and also Daniel Snow. I appreciate you being

here today. It is obviously a very important matter you are going

to be testifying on, a matter that is very critical to our Nation’s security, and I would ask if Mr. Ferguson would begin with his statement, and I would ask Congressman Lucas just to preside briefly

while I leave the room.

STATEMENT OF HON. THOMAS A. FERGUSON, DIRECTOR, U.S.

BUREAU OF PRINTING AND ENGRAVING

Mr. FERGUSON. Thank you, Mr. Chairman, Congresswoman

Maloney and Members of the subcommittee for inviting us here

today and for holding this hearing on this very important topic.

I appreciate the opportunity to report on the initiatives of the

Bureau of Engraving and Printing, (BEP), particularly on our

anticounterfeiting program.

The Bureau is the security printer for the United States. It produces a number of products that require special printing processes

and techniques to protect against counterfeiting and fraudulent alteration. The Bureau uses capital systems, state-of-the-art highspeed presses, electronic inspection systems and other sophisticated

equipment, in combination with the exceptional technical competence of our workforce, who efficiently produce billions of Federal

Reserve notes, postage stamps and other U.S. security printing.

The Bureau’s operations are financed through an industrial revolving fund. So we do not receive annual appropriations from Congress. Instead, we are reimbursed directly by our customers for the

products that we produce. Our two largest clients are the Federal

Reserve System and the United States Postal Service.

The Bureau works cooperatively with the Federal Reserve System, the Department of the Treasury and the United States Secret

Service to improve the security of Federal Reserve notes. Our goal

is to incorporate cost-effective security features to deter counterfeiting, as well as to help the public easily authenticate their

money as genuine U.S. currency. It is vital that we keep pace with

the evolving methods of counterfeiting in order to maintain the integrity of, and the public’s confidence in, our monetary system.

In the mid-1990s, the Bureau introduced the first major redesigned currency in over 65 years. The design changes were needed

to combat the emergence of a new breed of counterfeiters who increasingly used computers, scanners, color copiers and other emerging technologies to replicate notes.

All notes, with the exceptions of the $1 and $2 bills, were redesigned and introduced into circulation by the year 2000. The new

design incorporated a number of security features, including a

large off-center portrait, an embedded security thread that glowed

under ultraviolet light, color shifting ink, watermarks, expanded

use of micro-printing and moire patterns that do not copy accurately.

14

The redesigned currency has been effective in combatting counterfeiting by making it more difficult to produce a high quality

counterfeit note. Today, most of the counterfeit notes produced in

the United States are made by using computer and inkjet technology and are below average quality, which means that they can

be detected with proper visual scrutiny.

The percentage of counterfeit currency appearing worldwide remains extremely small, approximately 5/100-of-1-percent of the

approximatly $550 billion of genuine currency in circulation. In fiscal year 2000, the United States Secret Service reported that approximately $40 million in counterfeit U.S. currency was passed on

the American public. The odds that an American citizen will ever

encounter a counterfeit note in the course of his or her lifetime are

extremely low, and it is our goal to keep it that way.

While the redesigned currency has been successful in staying one

step ahead of the counterfeiters, rapid computer and other technological advances will not afford us the luxury of waiting another 65

years before augmenting the design of our Nation’s currency. In

fact, we anticipate the need to change the design of our currency

every 7 to 10 years.

To prepare for the production of the next generation of currency,

the Bureau is testing an array of anti-counterfeiting features that

involve various types of papers, inks, embedded security features,

as well as offset and other printing technologies. Additionally, we

have initiated a Bureau-wide training program to enhance the

skills of our employees who will be required to utilize these new

techniques.

Recently, we began an expansion of the Bureau’s Western Currency Facility in Fort Worth, Texas, and the modernization of the

DC facility to accommodate the additional production steps that are

anticipated for future currency designs.

Treasury has submitted a legislative proposal to Congress that

would authorize the Bureau to produce security products on behalf

of foreign governments and States of the United States on a reimbursable basis. Presently, the Bureau’s authority to print security

document applies to Federal Government agencies only.

Periodically, foreign governments request assistance from the

Bureau to design and/or produce currency, stamps or other security

printing products. The bill’s limited authority could allow the Bureau to develop new and innovative security features outside the

current traditions of U.S. currency design, for possible application

to future generations of U.S. currency.

The authority in the legislation is limited to times when the demand for U.S. currency, postage stamps or other products is below

the Bureau’s production capacity. The measure precludes the Bureau from producing products on behalf of a foreign government,

unless the Secretary of State determines that such production is

consistent with U.S. foreign policy. And our use of this authority

will be consistent with the Administration’s competitive sourcing

initiative and its commitment to public-private competition.

This concludes my opening remarks, Mr. Chairman, and I will be

happy to respond to questions by you or other Members of the subcommittee. Thank you.

15

[The prepared statement of Hon. Thomas A. Ferguson can be

found on page 38 in the appendix.]

Chairman KING. Thank you, Mr. Ferguson.

Mr. Snow.

STATEMENT OF DANIEL G. SNOW, SPECIAL AGENT IN CHARGE,

COUNTERFEIT DIVISION, U.S. SECRET SERVICE, ACCOMPANIED BY TONY CHAPA, DEPUTY SPECIAL AGENT IN

CHARGE OF THE COUNTERFEIT DIVISION

Mr. SNOW. Thank you. Mr. Chairman and Members of the subcommittee, it is my pleasure to speak with you today and discuss

the counterfeiting of U.S. currency and its impact on the integrity

of the financial system of the United States. With me today is Tony

Chapa, Deputy Special Agent in Charge of the Counterfeit Division,

and until very recently, Resident Agent in charge of our Bogota,

Colombia office.

Although best known among the public as the protectors of our

Nation’s leaders and visiting world dignitaries, the Secret Service

continues its historic mission to suppress counterfeit activity, a

mission that began in the 19th Century and continues into the 21st

Century. Technological improvements with computers and

reprographic equipment, coupled with the increasing expansion of

international, organized criminal syndicates, has challenged the Secret Service to develop innovative and investigative techniques.

Numerous worldwide and domestic counterfeit investigations

conducted by the Secret Service indicate that counterfeiting U.S.

currency has become a crime that has no territorial borders. Counterfeiting is a crime that is as likely to be committed by an organized criminal enterprise in Colombia, South America, as it is to

be committed by a local street-level criminal in America. And counterfeiting is on the rise. Counterfeit U.S. currency passed in the

United States during the first 8 months of this fiscal year increased

18 percent over fiscal year 2000.

Today’s counterfeiters are often criminals who, because of the

relative ease of the crime, choose counterfeiting over other nonviolent crimes. But today’s counterfeiters are also represented by

ruthless offenders, involved in violent crimes such as narcotics trafficking and homicide.

Staying ahead of the technologically-advanced counterfeiter of

the 21st Century continues to be a challenge and a priority for the

Secret Service. With reprographic equipment, computers and computer software continuing to become more sophisticated and affordable, counterfeiters have been able to increase both the volume and

the quality of their product. Domestically-passed counterfeit U.S.

currency that has been manufactured utilizing digital technology

rose from $174,000 in fiscal year 1995 to over $18 million in fiscal

year 2000. Currently, 94 percent of the domestic counterfeit printing operations suppressed by the Secret Service in this fiscal year

has been digitally-based. These significant increases are due largely to a growing number of criminals attracted to the seeming simplicity of the crime, made possible by today’s technology.

In response to this growth in digital counterfeiting, the Secret

Service is pursuing legislative changes to counterfeiting statutes

16

that clearly define the fraudulent use of digital images as a violation of law.

The Secret Service is also staying ahead of modern counterfeiting

operations through its involvement in the currency design process.

The Secret Service enjoys a close working relationship with the Bureau of Engraving and Printing, as well as the Federal Reserve

Board during the design phase of U.S. currency.

Over one-third of the $40 million in counterfeit U.S. currency

passed to the American public this past year was transported or

‘‘muled’’ into the United States from foreign countries, most often

Colombia. But Colombian-manufactured counterfeit also poses a

threat to the stability of the dollar in countries outside the United

States as well as those countries that seek economic assistance by

‘‘dollarizing’’ their economies. For example, Ecuador officially

‘‘dollarized’’ its economy in April of 2000 in an attempt to slow inflation and the devaluation of its local currency.

As the U.S. dollar became the ‘‘coin of the realm’’ in Ecuador, Colombian counterfeiting operations began targeting the country by

flooding the region with counterfeit currency. The Secret Service

response to the threats posed by Colombian-based counterfeiting

and ‘‘dollarization’’ follows our traditional methodology. The Secret

Service pursued and received funding from ‘‘Plan Colombia’’ to increase our presence in Colombia and to fund Colombian law enforcement units that will, under the direction of the Secret Service,

solely target counterfeit U.S. dollar operations. The Secret Service

is also studying a plan that includes the creation of additional field

offices in Central and South America to address the increasing

challenges created by ‘‘dollarization.’’

In closing, counterfeiting will continue, to some extent, as long

as genuine currency is a medium of exchange. However, the Secret

Service continues to pursue ever-changing tactics of the modern

counterfeiter and to educate law enforcement, the financial community, and the public about the security features of genuine currency.

Since our inception, the Secret Service has protected the security

and stability of the dollar by stemming the flow of counterfeit.

Without constant attention to this task, the modern counterfeiter

could jeopardize the foundation of our financial system and our Nation’s currency. The Secret Service will continue to aggressively

pursue this goal, as it has for more than 135 years.

Mr. Chairman, this concludes my prepared remarks. I would be

pleased to answer any questions that you or Members of the subcommittee may have.

[The prepared statement of Daniel G. Snow can be found on page

43 in the appendix.]

Chairman KING. Thank you very much, Mr. Snow. I have actually several questions.

The first question is to Mr. Ferguson. Can you testify what is the

raw cost of redesigning currency exclusive of the special security

features and also as a follow-on to that, my understanding is that

U.S. bank notes cost about 4 cents to make. Would new security

features raise the cost and how much?

Mr. FERGUSON. OK. Thank you, Mr. Chairman.

17

The cost of redesigning currency, exclusive of the security features, is very minimal. It would require just the reengraving of

plates. We amortized those costs over a huge amount of product.

So the incremental cost is in the hundreds-of-a-cent per note.

The major cost of redesigning, though, are the additional security

features. As you add new and very exotic materials, new methods

of printing, organize new production steps, you add to the manufacturing cost.

When we changed in 1996, the incremental cost was approxi- mately $1 per thousand or one cent per note. So we would expect

around the 25 percent increase to change the cost of currency. The

higher value notes now cost approximately 6 cents a note, adding

approximately a penny-and-a-half to 2-cents a note.

Chairman KING. I realize that some of the design features in the

new series of currency are yet to be developed and will remain secret in any case. What are some of the types of features that we

might see?

Mr. FERGUSON. As both myself and Agent Snow testified, the

largest threat to our currency at the moment appears to be coming

from the digital explosion that is happening. The systems that we

are looking at now for inclusion in currency tend to be things that

would counter those kinds of systems, anti-digital things, things

that would be able to encode notes so that computer systems would

not copy those. Similar to things that are in the notes now that

would prevent copiers from reproducing notes. We are also looking

at the addition of authentication features that can be used by highspeed equipment and vending equipment, things that would allow

the general public to be able to easily recognize and authenticate

their currency. So a wide range of features that would attack a

wide range of types of counterfeiting.

Chairman KING. I don’t know if you mentioned H.R. 2509 or not.

Actually, it is legislation that I have introduced to allow the Bureau to print foreign currency under certain conditions.

Mr. FERGUSON. Yes. And we thank both the Chairman and the

Congresswoman for co-sponsoring that.

Chairman KING. How would passage of this legislation allow you

to print currency, how would this benefit the American taxpayer?

Mr. FERGUSON. American currency has, for a number of years,

been extremely traditional. We have produced it using virtually the

same technologies and techniques for all of my career, and for all

of the last 50 or 60 years. By being able to produce for other countries, we would be able to test and evaluate and develop the skills

that are necessary to produce currency with new and innovative

techniques, new materials, new technologies. It would allow us to

generate these skills, test the equipment, determine how effective

they are, especially within our operation. So that when we turn

those on in production for the public on their currency, we would

have already had the experience.

Next to that, it would be, I believe, helpful to countries outside

of our United States to be able to take advantage of some of the

expertise that we have and giving them some advice and assistance

that otherwise they may not be able to get.

Chairman KING. Agent Snow, is it necessary to redesign our currency as often as every 7 to 10 years?

18

Mr. SNOW. Mr. Chairman, yes, I agree with Mr. Ferguson. We

have found that in order to stay on the cutting edge in the combatting of counterfeiting, it is now necessary, with the rapid changes

in reprographic technology, to have that ongoing process of looking

at potential security features, having the time to sufficiently evaluate those features and then deciding as to whether or not they will

keep us one step ahead of the counterfeiter.

Chairman KING. One more question before I yield to Mrs.

Maloney.

The media often portrays digital counterfeiting as a nuisance

crime, primarily committed by juveniles. Can you comment on the

accuracy of that and how serious it really is?

Mr. SNOW. Yes. Thank you for that question.

You are correct; the media often does portray digital counterfeiting as a kiddie crime. Sometimes in that process it is minimized. Whereas we do see a significant percentage of juveniles experimenting with this new reprographic equipment in the area of

counterfeiting, it is important to know that the bulk of that $19

million that we expect to see in losses to the American public this

year do not come from that group.

A very small percentage of the juveniles who are actually participating in counterfeiting are manufacturing large amounts of counterfeit. It is the organized criminal groups that I mentioned in my

testimony, many that have ties to organized crime, gang activity,

drug activity, that are actually spreading the large volumes of

counterfeit to the American public.

We do believe that through our education campaign—and we do

target juveniles in our education campaign, although we always

take the counterfeiting extremely seriously regardless of who perpetuates it—we do believe that through a positive outreach to the

juveniles, we can bring home the message that it isn’t something

that they should become involved in.

Chairman KING. Thank you, Agent Snow.

Mrs. Maloney.

Mrs. MALONEY. Thank you very much.

Mr. Ferguson, Mr. Snow mentioned that we need to redesign the

currency periodically to protect our currency. Is there another way

that we can accomplish this without the expense of a complete redesign?

Mr. FERGUSON. I believe that any good currency system relies on

three things. A very good solid currency design with good security

features, an educated public and strict law enforcement. Without

any one of those, you don’t have a very good system.

Certainly, we can help the American public greatly by putting

out the word, by hearings like this, getting information into their

hands about how they can authenticate their own currency, what

to look at, how to recognize the feel, the look, the security features

in a bank note that make it genuine.

But with advances in reprographics out there, we are going to

have to keep changing it from time to time in order to minimize

the cost on society. The costs on the Government aren’t that high;

they tend to be higher on people having to change their systems.

We are looking at trying to concentrate those changes on the

higher value notes which tend to be counterfeited more, for examVerDate 11-MAY-2000 11:02 Nov 19, 2001 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 74334.TXT HBANK1 PsN: HBANK1
19

ple, not changing the $1 and $2 notes this last time around. But,

unfortunately, in order to maintain a very secure currency system,

we believe that it needs to be changed periodically.

Mrs. MALONEY. Is there a system in place, Mr. Ferguson, where

the Secret Service keeps you apprised of new counterfeiting issues

as they relate to law enforcement?

Mr. FERGUSON. Yes, there is, Congresswoman. We both, along

with the Federal Reserve System, participate in the Advanced

Counterfeit Deterrent Steering Committee that is chaired by the

Department of the Treasury. And we meet periodically and go over

the statistics, review the type of counterfeit notes that are being

passed, where they are being passed, how they are being manufactured, how they are being detected at the public level or at the

commercial level, so that we can take advantage of the good things

in notes and correct those things that we need to.

So we work along with the Federal Reserve, hand-in-hand on

those operations, and share information regularly.

Mrs. MALONEY. Do you feel we are adequately addressing the

availability of new technology as it relates to the counterfeit production of currency?

Mr. FERGUSON. By that, do you mean are we addressing what is

available to the public to use?

Mrs. MALONEY. Yes. Are you on top of the changes daily?

Mr. FERGUSON. Well, the computer world out there is booming.

The technology seems to be doubling in speed. And the price is getting cut in half every 6 months or so. We try and stay ahead of

that. We feel very confident that the changes that we made in 1996

were very effective. The changes that we are studying now will be

effective in the future.

But it is, in fact, a very challenging battle for us to stay ahead

of that kind of booming technology.

Mrs. MALONEY. Mr. Snow, you mentioned earlier that there is a

surprising increase of 41 percent in Colombian-manufactured counterfeiting. Is that related to the drug trafficking and the drug cartels; is that what is happening there?

Mr. SNOW. We do see some correlations between drug distribution and counterfeit distribution. The increase that we are seeing

this year in Colombian-based counterfeiting coming into this country is a reflection of some very organized criminal enterprises that

we have identified and are working very closely with the Colombian law enforcement officials to address.

One very positive note on that is that just yesterday a law went

into effect in Colombia that raised the maximum penalty for counterfeiting of U.S. dollars from 6 years to 10 years. That, in essence,

takes the crime out of what was a finable offense and raises it to

the equivalent of our felony. From that we will see longer jail terms

for Colombian counterfeiters. It will open up the possibility for extradition to the United States.

We hope that that will help us to address this growing problem.

Mrs. MALONEY. Well, you more or less said that you are working

with foreign law enforcement to address this issue and that they

have literally changed, legislatively, the law to cooperate with this

growing problem.

20

Are there other areas for improvement legislatively, besides the

one you just mentioned, of raising the fine?

Mr. SNOW. Well, the Secret Service believes that working as

closely as we can with our foreign law enforcement partners

throughout the world is our best approach. And we are going to be

talking with the Administration about the possibility of increasing

our presence in the areas in and around Colombia, the ‘‘dollarizing’’ regions of Central and South America.

Mrs. MALONEY. Finally, is there any area for improvement legislatively to address the counterfeiting here in the United States that

we could put forward that would help you do your job?

Mr. SNOW. Again, I think we are exploring now the possibility of

being very specific in the language that addresses the manufacturing implements of counterfeit currency, to identify the digital

image of a dollar bill with intent to defraud, to use it to defraud,

as a violation of law.

Whereas in the past we had hard plates that were used to counterfeit, it was very clear, if you held a counterfeit plate, that it

could only be used for counterfeiting. Digital images now can be

captured off the internet, they can be improved digitally. That itself

can become a product that is of value to potential counterfeiters.

We are discussing at this point the possibility of that kind of legislation. And, again, we will be discussing that with the Administration.

Mrs. MALONEY. And, finally, what are your opinions of the Liberty Bill Act? Would that be possible to do? You know, they said

it would cost $500,000 to do it, the technology. Could that be counterfeited easily? What is the practicality of implementing the very

patriotic idea that was put forward by the young people on the first

panel?

I am sure you were here to hear them, weren’t you? Is it possible

to do what they are proposing, or would it be very simple to counterfeit it? What is the response to their proposal from a technology

point of view?

Mr. FERGUSON. From the standpoint of the potential being able

to produce it originally, instead of counterfeiting it, as with all text,

could be engraved in the plate and printed onto the back of the

notes.

On the higher value notes, the current layout that they have

would have to be changed in order to allow room for the watermark. But on the lower denomination notes, it would fit and could

be produced on the note. It would have absolutely no counterfeit

deterrent value. It can be reproduced by digital systems or other

types of counterfeiting the same as other types of text on the note.

It would not be, I would say, either better or worse as far as the

counterfeit deterrent than other types of printing.

Mrs. MALONEY. Is it better to have images and pictures than the

words to counter counterfeiting?

Mr. FERGUSON. Well, on the face of the note, certainly we believe

very strongly that the portrait is the very best security feature that

we have that is printed on the note. People are used to looking at

people’s faces. There is a lot of detail and a lot of texture in a

human face. We are used to looking at those. So people tend to

focus on that; they notice differences.

21

We use a very elaborate hand-engraved process that gives a very

lifelike image to the engraving. So a lot of counterfeit notes look

flat and lifeless. On the back of the note, the text versus a building,

I wouldn’t know if one had any more counterfeit deterrent value.

I would turn that over to Agent Snow.

Mr. SNOW. Thank you. I commend the students for an excellent

presentation. It was very moving. And I agree with Mr. Ferguson

that technically it provides no deterrence to counterfeiting. However, the Secret Service is constantly looking for anything that may

dissuade the potential counterfeiter. If this, in fact, appeals to the

integrity or the patriotism of a potential counterfeiter, we would

salute it.

Mrs. MALONEY. My time is up.

Chairman KING. Congressman Lucas.

Mr. LUCAS. Thank you, Mr. Chairman.

Mr. Snow, here in really only a matter of months the Europeans

will be conducting an amazing exercise in converting in something

like a dozen countries, their currencies that they have used for

years, decades, centuries, over to the Euro.

Have you been, or has the United States Government, been

working with the European Central Bank in regard to how they address the potential for counterfeiters out there? And I say that in

regard to, as these sums of money come out from under, in some

cases, mattresses, there will be a deluge. Some of it will be U.S.

currency that will be appearing in those banks to be converted for

Euros.

Have you been in touch, been working with those people as to

how they address that challenge?

Mr. SNOW. Yes. Our understanding is that as the Euro is introduced, there may be an increased demand for U.S. dollars in Europe, that whenever that occurs there may be an increased opportunity for counterfeiters.

But we are working with the European Central Bank and with

Europol so that we can continue our close working relationship

that we really have enjoyed bilaterally, with most of the European

Union nations.

But we are anticipating, for example, joint training exercises,

something that will give us a basis for working together in what

we anticipate to be the most likely attacks against the Euro and

the dollar from the same operation.

Mr. LUCAS. Because clearly, the local banking authorities will

recognize marks and they will know a counterfeit from a noncounterfeit franc, but as these sums come in, ultimately the dollars

that they do exchange out for Euros may potentially wind up coming back to us. I can see where that is a good question.

To follow up on Mrs. Maloney’s questions, the comment about the

challenges that we face in Colombia, I have been on this subcommittee now for my fourth term. And there have been different

hearings conducted by you and your predecessors—perhaps Colombia now, but at different times there have been hot spots, shall I

say, around the world, where very organized counterfeit efforts

have been massed against us using state-of-the-art technology.

Are there presently other places besides Colombia where we face

those challenges?

22

Mr. SNOW. There are other places in the world that counterfeit

the U.S. dollar, a variety of places around the world that counterfeit the U.S. dollar. But, as you mentioned, over the long haul, the

Colombian situation really is at the top of that particular group.

Certain areas, certain criminal organizations, will come and go.

We have had some recent successes in Bulgaria, for example,

where we have, through our Rome field office, successfully dismantled some printing operations of what were a fairly damaging operation.

But I think it is safe to say that the Colombian issue, which has

been with us for probably over 20 years, my entire career anyway,

is probably the single most identifiable location where counterfeit

U.S. dollars are produced.

Mr. LUCAS. And under present Federal statutes, do you have all

of the necessary authority that you need to work with your law enforcement counterparts around the world on those kind of issues?

Mr. SNOW. Yes. We have currently the 18 USC 470, which gave

us extraterritorial jurisdiction in violation of our counterfeiting

statutes here domestically, anywhere in the world, and is just now

coming in use. And it is a very effective tool.

Recently, in the Miami district, a Colombian-based counterfeiter

was indicted on counterfeiting charges. He was picked up in Ecuador, is now in a Miami jail, somebody who has been counterfeiting

the U.S. dollar for over 15 years.

Mr. LUCAS. And to touch for one more moment on the concept

that the Chairman and the Ranking Member have discussed, this

potential for the redesigning of our currency on a regular basis, the

7-to-10-year figure being thrown out, looking at how technology has

advanced and will continue to advance, is it fair to say this is

something our fellow citizens are just going to have to get used to

if we are going to maintain the integrity of our medium of exchange?

Mr. FERGUSON. It would certainly appear that way, Mr. Congressman. The changes are so rapid that our goal is to get ahead

and stay ahead. And we don’t know at this point anything that

would get us 20 years ahead, because we don’t know what is coming up.

When we changed, we spent a lot of time in the 1980s worrying

about copying machines and not so much worrying about individual

ink-jet printers, which at that time were crude and big dots and

blots. They now do photographic quality. You can buy a digital

camera and make your own photographs at home. So the technology continues to advance at such a degree that I believe it will,

in fact, require continuous change of our currency.

Mr. LUCAS. Thank you, gentlemen.

Thank you, Mr. Chairman.

Chairman KING. Thank you, Mr. Lucas.

Mr. Ose.

Mr. OSE. Thank you, Mr. Chairman. I want to make sure I understand a couple of things here.

Mr. Ferguson, I think your testimony said there is $550 billion

worth of American currency in circulation around the world?

Mr. FERGUSON. Yes, sir.

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Mr. OSE. Roughly. And that each year, the Bureau delivers about

7.5 billion different notes and 15 billion stamps to the Federal Reserve and the Postal Service, respectively?

Mr. FERGUSON. Yes.

Mr. OSE. The currency that is delivered, like the $1 bills, the $2

bills, the $5 bills, what is their life span? Like, a $1 bill lasts 6

months? A year?

Mr. FERGUSON. The current estimate for a $1 note is 18 months,

although some recent statistics would suggest it is probably closer

to 20 months.

And the higher denominations last longer. $5s and $10s last 2-

to 21⁄2 years. The $20s last about 3 years; $50s and $100 bills, the

estimate is 8 to 10 years, and, in fact, most likely longer than that.

It really depends of the velocity of exchange. It is really the number of transactions that a note goes through during its life.

Obviously the $1s have the highest usage rate.

Mr. OSE. OK. On the Federal Reserve notes that are delivered

to the Federal Reserve system now, we are producing those in our

own production facilities?

Mr. FERGUSON. Yes. In Washington and Fort Worth, Texas.

Mr. OSE. How much of the current currency production capacity

that we presently have is sitting idle?

Mr. FERGUSON. Well, the maximum capacity, and it is machine

capacity not employee capacity, is about 12 billion a year.

Mr. OSE. $12 billion or 12 billion notes?

Mr. FERGUSON. Notes.

Mr. OSE. So we are at 7.5 billion notes versus 12 billion in capacity?

Mr. FERGUSON. Yes.

That number is lower than normal. Our normal production is

somewhere around 9 billion to 9.5 billion. We, in 1999, in order to

get ready for Y2K, produced 11.3 billion notes to have currency

available if people wanted to withdraw it. That inventory of currency is being slowly eroded so that our production rates for this

year and next year are lower in order to allow that inventory to

be utilized.

Mr. OSE. There was a comment about the new materials and

equipment that is available for the production of different currencies. As it relates to American currency, I presume that staff at

the Bureau is staying current in all of the different types of security measures that are available at present?

Mr. FERGUSON. Yes, sir. We spend a great deal of time analyzing

the different features that come out in currency meetings with our

colleagues around the world, meeting with our security printers,

meeting with people from universities and other organizations that

are developing, researching different types of security features.

We are also testing and evaluating all of these features. For the

1996 design we looked at over 125 security features. We actually

bought and tested 25 different features.

Mr. OSE. Would it be fair to say for the benefit of America’s taxpayers that the Bureau is probably doing everything that it can to

explore those different security features and the like to protect the

value of our currency?

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Mr. FERGUSON. I certainly would like to. That is absolutely true,

sir.

Mr. OSE. I think your testimony earlier was that the ability to

print currency for foreign governments would allow the Bureau to

test and evaluate skills with new materials and equipment, primarily focusing on the efficacy of such security efforts and educating our staff as to how best to use these skills to further protect

American taxpayers; which begs the question, if you are doing everything that you can now, how is adding production going to improve what you are doing in everything you can now do?

Mr. FERGUSON. Good. We are keeping up with everything as far

as the knowledge base. The great difference is that with United

States currency, our volume is very, very high, 7 billion minimum.

In order to add a new manufacturing step, to bring in new equipment and to put it on the floor and to turn it on for that entire

program, requires, in the case of adding one manufacturing step,

perhaps five different pieces of equipment, three shifts a day. So

you are talking 15 crews trained, ready to go.

It would be beneficial to be able to get some real-life experience

producing real products under production requirements as opposed

to just testing. Testing is beneficial, it keeps us knowledgeably up,

but it doesn’t keep all of our work force ready and prepared to go,

those 15 crews set to go.

It would be very advantageous to us to have practical experience

using those new techniques on a product that we have to meet

quality requirements, cost requirements, delivery requirements and

have that experience.

Mr. OSE. Thank you, Mr. Chairman. I see my time has expired.

Chairman KING. I have no further questions.

Mrs. Maloney advises me that she has none.

Frank Lucas, do you have any?

Mr. Ose.

Mr. OSE. I have two, Mr. Chairman. May I?

Chairman KING. Mr. Ose is recognized.

Mr. OSE. Thank you.

Further questioning on the use of this technology. As I read the

Chairman’s legislation, H.R. 2509, I don’t see any change in the

methodology by which the Bureau goes about protecting the value

of American currency.

I see an expansion in terms of the products that the Bureau

might be involved in.

I am just trying to make sure that the American taxpayers aren’t

losing something with a diffusion of focus, if we add foreign government instruments to their charge.

Could you respond to the question of, would any of the steps that

you currently take now to protect the American dollar from counterfeiting, or security measures involved therein, would any of

those change under H.R. 2509?

Mr. FERGUSON. Well, the potential would certainly be there to

change. For example, if we were to be able to produce a product

that had foil features like holograms, or kinograms which are being

now utilized on the Euro, we would be able to produce that. It requires a different manufacturing step that we don’t have, we don’t

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utilize now at all. It would give us the opportunity to evaluate how

our work force did that to get experience and training.

If you look at the Euro that will be coming out, or a lot of foreign

currencies, they have different types of security features that we

currently don’t use. It would be an opportunity for us to gain a

great deal of actual production experience doing that.

So I believe that, in the end, it would aid greatly to the value

for the American public. We recover all of our costs, so there is not

a cost implication for the American public. And I believe that any

additional knowledge that we can gain, any additional experience

that we can gain, can only serve the Americans in the future.

Mr. OSE. I presume under these new security features that you

just referenced, the foil features and the like, that if they were

practical for use in American currency that we would use them; am

I correct?

Mr. FERGUSON. If they were cost-effective and they were securityeffective and met with all of the other requirements that we have,

yes.

Mr. OSE. And there is nothing in the current statutes that precludes you from investigating their efficacy in meeting our standards for use in American currency today?

Mr. FERGUSON. Correct. And we do investigate the efficacy. It is

the practical experience and the manufacturing that we would

gain, not the intellectual knowledge. It is the day-to-day ability to

crank out 8 or 9 billion of those pieces.

Mr. OSE. We had this question come up in the predecessor to this

committee last session, Mr. Chairman, where the question was actually somewhat a little bit different in the sense that the Treasury

was being asked to engage in seigniorage for other countries. And

I don’t believe this is the concept here.

This is merely production of foreign currency that would then be

sold at cost to foreign governments. I think Mr. Snow’s testimony

talks about ‘‘dollarization’’ as opposed to printing dollars and selling them to foreign countries for use in their currency base. And

I want to be very clear about the difference between what we are

talking about here today as opposed to what we considered last goaround.

So I thank the Chairman.

Chairman KING. Thank you, Mr. Ose.

I want to thank Mr. Ferguson and Agent Snow for their testimony today. I would ask that you be available in case any Members have written questions to submit to you, and we certainly appreciate your answers. I want to thank you for your cooperation,

for your assistance, the job you do, and also wish you the very best,

because this is a very, very serious matter affecting our national

security, and certainly we will work with you in any way we can.

I know, on behalf of Mrs. Maloney and myself, we thank you for

your efforts.

I will just say that the hearing record will remain open for 30

days to allow Members to submit statements, questions or extraneous materials. And I would also ask that the individual names

of all of the students from Liberty Middle School and Patrick

Henry High School be entered in the record. The hearing is adjourned.

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[Whereupon, at 3:35 p.m., the hearing was adjourned.]

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A P P E N D I X

July 24, 2001

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