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REVIEW OF DEPARTMENT OF THE TREASURY'S EFFORTS TO COMBAT COUNTERFEITING
THURSDAY, JULY 10, 1997
House of Representatives,
Subcommittee on General Oversight and Investigations,
Committee on Banking and Financial Services,
The subcommittee met, pursuant to call, at 10:08 a.m., in room 2128, Rayburn House Office Building, Hon. Spencer Bachus, [chairman of the subcommittee], presiding.
Present: Chairman Bachus; Representatives Riley and Kilpatrick.
Chairman BACHUS. I will call to order the General Oversight and Investigations Subcommittee of the House Committee on Banking and Financial Services.
Over the last few decades, the percentage of U.S. currency that circulates outside the U.S. has been growing. Today, as much as 70 percent of all U.S. currency circulates, not in the United States, but abroad. This is not a bad thing. Currency that circulates outside the United States amounts essentially to an interest-free loan for the U.S. taxpayer.
One consequence of the international circulation of U.S. currency is that we open ourselves up to those who would use our currency for criminal and possibly even terrorist purposes. If we focus exclusively on domestic counterfeiting of U.S. currency, we ignore 70 percent of the currency in circulation. It is essential that the United States exercise the same vigilance in regard to international counterfeiting as we do in regard to counterfeiting at home.
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In February of 1996, following up on the excellent work of Representative John Spratt, Democrat of South Carolina, this subcommittee held a hearing to examine the threat posed by counterfeiting of U.S. currency abroad. At the hearing we learned that the international counterfeiting of U.S. currency is a problem that cannot be ignored or minimized. Counterfeit money has been linked to drug trafficking and terrorist activities, and the producers of one remarkable strain of counterfeit currency, the so-called ''supernote,'' have successfully eluded law enforcement.
Also at the hearing, GAO Associate Director JayEtta Hecker, who is with us today, testified that, I quote: ''The true dimension of the problem of counterfeiting of U.S. currency abroad could not be determined,'' and that the counterfeit detection data compiled and relied upon by Treasury is, quote: ''incomplete and presents only a partial picture of counterfeiting.''
In the wake of the February, 1996 hearing, I, along with Congressmen Spratt and Leach, introduced legislation directing Treasury to address the shortcomings of the counterfeit detection data identified by the GAO. In drafting this legislation, subcommittee staff worked with representatives of the Treasury Department to ensure that the legislation would help move the ball forward in assessing the threat of overseas counterfeiting without being overly burdensome to the Administration.
To accomplish this task, the Treasury was required by the legislation to develop a detailed audit plan spelling out the methodology they intended to use; one, in assessing the use and holding of U.S. currency overseas; and, two, in developing useful estimates of the amount of counterfeit U.S. currency that circulates outside the United States each year. The legislation was adopted as part of the Antiterrorism and Effective Death Penalty Act, which was signed into law in April of 1996. Because of the expertise the GAO had developed in the matter, Representative Spratt and I asked them to evaluate the Treasury Audit Plan in October of 1996.
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There is an old adage that goes something like this: ''It is better to be safe than to be sorry.'' That is the purpose of counterfeiting provisions included in the Antiterrorism Law. For some time, the Treasury Department and other agencies have maintained that we can effectively understand international counterfeiting by relying upon the Federal Reserve to catch counterfeit currency after it eventually returns to the United States. However, the GAO has raised significant concerns about whether we can simply sit in our ''bunker'' here in the United States and reach reasonable conclusions about what is happening on the other side of the world. This is why Congress passed the international counterfeiting provisions of the Antiterrorism and Effective Death Penalty Act. This is why the Congress has also strongly supported the Secret Service's request that an additional 28 Secret Service personnel be dispatched overseas to combat counterfeiting.
As I mentioned earlier, the legislation requires the Treasury Department to create a plan to develop ''useful estimates'' of the amount of international counterfeiting. This is not a suggestionthis is a law. It was passed by Congress and signed by the President. There is some reason for concern, however, that the Treasury Department may not be taking this statutory mandate seriously. The GAO, in completing its review of the Treasury Department audit plan, concluded that ''The Secretary of the Treasury's submitted plan is unclear and incomplete.''
In response to the GAO findings, Treasury produced an Addendum to the Audit Plan. This Addendum, provided to the subcommittee in April of this year, was intended to clarify the objectives of the Audit Plan and the methods that would be used to achieve these objectives. However, in their initial review of the Addendum, GAO has determined that Treasury has still not fully addressed concerns regarding the validity or usefulness of the counterfeit deterrence data Treasury intends to rely on in preparing their study.
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This subcommittee would like to be in a position to assure the American people that the threat of foreign counterfeiting is being aggressively addressed. I am afraid that, based upon the evaluation of the General Accounting Office, we may not be able to be in a position to make such assurances at this time.
The subcommittee has convened this morning to review the Department of the Treasury's efforts to comply with the anticounterfeiting provisions of the Antiterrorism and Effective Death Penalty Act and to obtain an update on the success of the redesign of the U.S. currency initiated by the Department to help thwart counterfeiting.
We will hear from two witnesses: First, Treasury Under Secretary John Hawke. We welcome you, Mr. Secretary, to discuss Treasury's efforts to comply with the anticounterfeiting measures of the aforementioned legislation. He will also be commenting on Treasury's efforts to post additional Secret Service agents abroad and on the introduction of the recently redesigned $50 bill.
Treasury Department Deputy Assistant Secretary Roger Anderson will also testify and be available to answer questions.
In the second panel, GAO Associate Director JayEtta Hecker will review the findings of the recently released GAO report on this topic.
Chairman BACHUS. Is there any Member of the subcommitteeMs. Kilpatrick, would you like to make an opening statement?
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Ms. KILPATRICK. I will pass.
Chairman BACHUS. Thank you. We appreciate your attendance at the hearing.
At this time, Mr. Hawke, we will ask you to make any opening statements you would like to make, and we won't limit your time.
STATEMENT OF HON. JOHN D. HAWKE, JR., UNDER SECRETARY FOR DOMESTIC FINANCE, DEPARTMENT OF THE TREASURY
Mr. HAWKE. Thank you, Mr. Chairman, Ms. Kilpatrick. I am very pleased to be here today to discuss the Treasury's currency program and the audit plan on the uses and counterfeiting of U.S. currency overseas.
As you noted, Mr. Chairman, with me is Roger Anderson, Deputy Assistant Secretary of the Treasury for Federal Finance. Mr. Anderson and I both serve as members of the Advanced Counterfeit Deterrence Steering Committee, which I chair. The Steering Committee is an interagency committee composed of officials from the Treasury, Secret Service, Bureau of Engraving and Printing, and the Federal Reserve. It was established in 1982 and is charged with the stewardship of the U.S. currency system.
Let me say at the outset, Mr. Chairman, we appreciate the good working relationship we have had with this subcommittee on issues relating to currency and to the audit plan. We appreciate your input on the audit plan, and I want to just assure you that we do take this very, very seriously. We are committed to very serious efforts to deal with counterfeiting, and I can personally assure you of that from my position as Chairman of the Advanced Counterfeit Deterrence Steering Committee.
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Chairman BACHUS. I would say in response that we do believe you are concerned, that the Treasury Department is concerned, and we do have a good working relationship, and I think we both agree that we are making progress. Part of this is to give you an opportunity to just go into what efforts are being made.
Mr. HAWKE. We appreciate that, Mr. Chairman. I will be relatively brief in my opening statement. I just want to bring you up to date on the new currency, and then Mr. Anderson is going to discuss the audit plan.
Chairman BACHUS. If you could slide the mike a little closer, Mr. Hawke.
Mr. HAWKE. Sure, I am sorry.
During the past few years, the Steering Committee has led the effort to develop and introduce the first significantly redesigned U.S. currency since 1928. In fact, just about a year-and-a-half ago, I testified before this subcommittee shortly before the issuance of the new $100 note. I would like to take this opportunity to provide you with an update on our experience with the newly designed currency, after which, Mr. Anderson will discuss the Treasury's audit plan in greater detail.
The new $100 note was put into circulation in March of 1996 and incorporates an array of anticounterfeit features that enhance the security of our currency by making it more difficult to replicate. Improvements in reprographic technology, such as color copiers and computer scanners, required us to update our counterfeit deterrence features in order to stay ahead of counterfeiters. This technology presents one of the greatest threats to the security of our currency due to its increasingly widespread availability at lower and lower costs.
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Mr. Chairman, I'd like to depart from my text for a moment and demonstrate to you with the reproductions we have here exactly what the features are. Mr. Flynn is passing out to the subcommittee copies of the new currency, as well as the oldlending them to the subcommittee, I should say.
Chairman BACHUS. And, Mr. Hawke, let me say that I don't think the Administration or Treasury has received the credit that they should have received for developing this new currency and introducing it. It came with some risk of public criticism. It has been a very positive step, and that in itself, I think, demonstrates the commitment on your part. I think it demonstrates an ability not to be inactive, but to be proactive and to take a very effective move against counterfeiting, and as this subcommittee has heard, it has made it much more difficult to counterfeit and has had a very positive effect.
Mr. HAWKE. We appreciate that, Mr. Chairman.
Let me turn first to the new $100 note, with which I am sure you are familiar. It has some very distinctive features. First, the portrait of Benjamin Franklin has been enlarged and moved slightly off-center. It has been moved off-center to accommodate one of the new anticounterfeit features, the watermark, which is in the white space to the right. If you hold up to the light the samples that we passed out, you can see the watermark on the right-hand side. The watermark is a reproduction of the portrait of Benjamin Franklin.
In addition, there is embedded in the paper just to the left of the portrait a polymer thread that has the words ''USA $100'' printed on it in microprinting. That thread luminesces red when held under an ultraviolet light, which is a clear indication of whether a bill is counterfeit or not. That is very difficult to reproduce.
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Chairman BACHUS. Is that actually on the left side of that seal?
Mr. HAWKE. It is in the white space, just to the left of the portrait, between the seal and the portrait. If you hold it up to the light, you should be able to see that.
Mr. RILEY. It is on the right side of the $50; is that right?
Mr. HAWKE. That is right, Mr. Riley.
Chairman BACHUS. And on the left side of the $100?
Mr. HAWKE. On the left side of the $100.
Chairman BACHUS. So actually over
Mr. HAWKE. Sean, can you point out where it is on the $50?
One of the reasons for altering the location of the thread on the different denominations is to prevent the bleaching out of lower denomination notes and the reprinting of them with higher denominations. With the thread in different locations, that makes that impossible, or certainly more difficult.
Page 9 PREV PAGE TOP OF DOC Then there is microprinting at a number of places on the note. In the number $100 on the lower left, there is microprinted the words ''USA,'' and in Mr. Franklin's collar, this may be very difficult for you to see without a magnifying glass, the words ''United States of America'' are printed. Those are both counterfeit deterrents, because with lower grade reprographic equipment, it is very difficult to reproduce that microprinting.
In addition, there are concentric lines, both on the obverse and reverse of the bill, which will blur into a pattern when certain kinds of reprographic equipment are used to try to reproduce the bill. It creates kind of an interference. Then in the lower right-hand corner of the note, you will see in green the number $100, and the $50 on the $50. That number is printed in color-shifting ink, and if you take the note and just tilt it back and forth and look at that number, you can see that that will shift from green to black. That has been very difficult to reproduce, and it is an easy way for consumers to identify the authenticity of currency.
In addition, on the $50 we have added a new feature for the visually impaired. On the reverse side of the $50, the numeral $50 is printed in large numbers in dark ink on a white background. This will be included in the lower denominations as well. But this feature has been received very well by the visually impaired community as a way of making it easier for people with limited sight to determine the denomination of the bill.
There are, in addition, other features we don't talk about publicly, but the combination of features both make it easy for individuals to identify quickly what is real and what is not real and raise the stakes considerably for counterfeiters to reproduce the denominations.
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Chairman BACHUS. Well, let me ask, I have not heard in any news reports about this raised $50, and, I mean, I think that is a wonderful idea.
Mr. HAWKE. We just rolled out the design. The $50 hasn't been put into circulation, but we just rolled out the design about 3 weeks ago, at an event at the Bureau of Engraving and Printing. We also had another event in New York at the Lighthouse for the Blind to stress the purposes of the large numeral, and I think it was very well received.
Chairman BACHUS. The older I get, the more impressed I am with this thing, because I just got my glasses.
Mr. HAWKE. We are extremely pleased with the effectiveness of these features since the introduction of the note. And since that time only 3.4 percent of all counterfeit notes passed on the public were Series 1996 $100 notes. Moreover, we found that the security features have performed as expected, and to date the Secret Service has found no counterfeit Series 1996 note that it would characterize as ''highly deceptive,'' and in part I think
Chairman BACHUS. Would you repeat that one more time?
Mr. HAWKE. The Secret Service has found no counterfeit Series 1996 notes that they would characterize as ''highly deceptive.'' What we have seen so far, Mr. Chairman, is efforts to really take advantage of the fact that the new $100 is not in wide circulation yet, and so people really have nothing to compare it with. As it becomes more common in circulation, anyone who gets a real $100 shouldn't have a great deal of difficulty, with what we have seen so far, telling the difference between a real one and a counterfeit by reference to all of these features. In fact, Mr. Chairman, shortly after the new $100 was put into circulation, we prepared a little flyer that I think has been passed out to Members of the subcommittee. We have given very wide distribution to financial institutions and retail stores to alert them to the anticounterfeit features of the new currency and to give them a convenient way of testing anything that comes into their hands.
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Chairman BACHUS. Has this been widely published? I think that is fascinating. I read that earlier, but I hadn't seen that.
Mr. HAWKE. We distributed hundreds of thousands of these last year. The American Bankers Association and some of the other trade associations were helpful to us in getting it out to their members. Some have reproduced it in newsletters and magazines, and so it has been given very wide circulation. The object was to have something that a cashier or a retail teller could have conveniently at their work station, and if they had any question about a bill, they could run down the list of these tests and see exactly what they should be looking for.
We are also pleased with the rollover of the new notes for the outstanding older series of notes. Through May of this year, only 14 months after the introduction of the first notes, 42 percent of all $100 notes in circulation are the new Series 1996 notes. And this compares very favorably with a replacement percentage of 36.9, at the same point following the introduction of the Series 1990 $100 notes. So, we have penetrated more rapidly than in the past. The Series 1990 notes were the first U.S. currency notes to include the security thread and microprinting.
An aspect of the rollover that is perhaps more important than the percentage of new notes in circulation is the manner in which the rollover has taken place. From the first day of issuance, the introduction of the new notes has proceeded smoothly and virtually without incident. Even in areas where past experience warranted concern because of experience with other currency, such as Russia and the rest of the Newly Independent States, where redesigns of the domestic currencies were often destabilizing because there were recall programs associated with them, the introduction of our new currency has gone extraordinarily well in a business-as-usual environment. We were prepared to meet extreme contingencies, none of which developed, and I think it is a credit to the public education campaign and the great cooperation we got from the State Department in getting the word out throughout the world.
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Chairman BACHUS. I don't want to interrupt you, but as I said earlier, I am simply amazed that the public took this so well, and I believe part of the reason was that there was a real appreciation that this was necessary to safeguard our currency and to fight counterfeiting. And it has been well received, particularly in this time of antigovernment, antiauthority, you know, the undercurrentthe whole conspiracy thing that we run into, you know. I am just amazed someone hasn't tied this to some conspiracy theory.
Mr. HAWKE. Well, I think, Mr. Chairman, that another reason for that is that there is great confidence throughout the world in the integrity of U.S. currency, and that is a value that we have put at the highest level of importance in the new currency program. The users of U.S. currency, who come from literally every region of the world, have demonstrated their confidence in the preSeries 1996 currency by continuing to use the older series of notes and, for the most part, acquiring the Series 1996 notes through the normal course of business, rather than by rushing to exchange older notes for the new ones, which is what we were concerned about. In fact, in most of the countries we visited, there hasn't developed a clear preference for the Series 1996 notes. We expect, however, this will gradually change as a larger percentage of the notes outstanding become the Series 1996.
Another crucial aspect of the smooth rollover has been our public education campaign. This was an integrated multiagency, worldwide effort to inform, educate and train users of U.S. currency about our redesign efforts. We have utilized a variety of media outlets and vehicles ranging from printed materials to public service announcements, to paid advertising, and we mobilized support that included the United States Information Agency and embassies around the globe. In the end, we found the awareness of the new currency to be extremely high.
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And finally, we worked in concert with many of our counterparts overseas. The Central Bank of Russia, for instance, helped ensure its commercial banks did not use the introduction of our new currency as a means by which to heavily discount the older series notes, which could have impaired some confidence in our currency. Wholesale currency banks distributed information to their customers and helped spread our messages, including the reasons for the redesign and the assurances there would be no recall of the older series of notes.
In summary, we are extremely pleased with the introduction of the note. We are building on that success as we move forward. Four weeks ago, as I said before, Secretary Rubin and Chairman Greenspan unveiled the $50 note, which incorporates all the security features of the $100, as well as the large numeral as an aid to the low-vision and aging communities. As we speak, the Bureau of Engraving and Printing is producing the new $50's, and we expect that they are going to be issued in the fall. We are on schedule for the subsequent issuance of the new $20 note next year, with lower denominations to follow after that.
Despite our success so far, we are continuing to make strides to stay ahead of the technology curve. Through efforts such as those of the Security Technology Institute at the Applied Physics Lab of Johns Hopkins University, we are already pursuing the security features that will be part of the next generation of U.S. currency, a generation that, due to the rapid pace of technological change, is likely to be only several years, rather than several decades, away.
That concludes my remarks. Thank you for this opportunity to provide this update. I would now like to turn to Mr. Anderson, who will present a more detailed discussion of our audit plan.
Page 14 PREV PAGE TOP OF DOC Chairman BACHUS. Ms. Kilpatrick.
Ms. KILPATRICK. Thank you, Mr. Chairman, and for your presentation, Mr. Hawke.
A couple things. I don't see these enough, which is why I am kind of a little concerned here. I notice on the old $100 bill, as opposed to the new one, something you didn't point out, the coloration seems to be different. Is that because of the oldness of the bill, or is, in fact, the new $100 bill a bit darker in color? It might just be the two I have. They are not the same color.
Mr. HAWKE. That is probably just a variation in the bills, because the $100 you have is one that has been in circulation, and the other one is brand new.
Ms. KILPATRICK. And the new one that has ''test'' written on it, is that counterfeit, and you know that because ''test'' is written on it?
Mr. HAWKE. I guess it is not technically a counterfeit, but it is a test version of the new $100 that the Bureau produced just for use in forums such as this.
Ms. KILPATRICK. Are these in circulation with ''test'' on them?
Mr. HAWKE. No, the ones that are in circulation
Ms. KILPATRICK. Don't have ''test'' on them?
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Mr. HAWKE.Have regular serial numbers on them and don't have that word.
Ms. KILPATRICK. Have you found since the introduction of the Series 1996 that the preference of counterfeiting $100 bills has decreased overwhelmingly?
Mr. HAWKE. Well, we believe that counterfeiting efforts relating to the old Series 1990 notes has fallen off. To be sure, there have been several efforts to counterfeit the new $100.
Ms. KILPATRICK. But they have been unsuccessful, I am assuming?
Mr. HAWKE. They have been largely unsuccessful, in the sense that very little has passed. There have been significant seizures by the Secret Service before notes got into circulation.
Ms. KILPATRICK. And what is the highest incidence of counterfeiting, which bill is it; would it be the $20, the $50, the $100 bill?
Mr. HAWKE. I think the $100, since the $100 is the bill that is most commonly in circulation principally overseas. Out of the $422 billion in U.S. currency outstanding, $265 billion of that is in $100 notes.
Ms. KILPATRICK. So over half?
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Mr. HAWKE. That is far larger than any other denomination, and most of that is overseas.
Ms. KILPATRICK. My last point. I am intrigued by this black and white and green $100. Is that a new phenomenon?
Mr. HAWKE. That is brand new on the new $100, and that was one of the features that was developed in this program.
Ms. KILPATRICK. Very good. Thank you, sir.
Thank you, Mr. Chairman.
Chairman BACHUS. All right. Mr. Riley.
Mr. RILEY. Mr. Hawke, this is fascinating. As a new Member to the subcommittee, how widespread is counterfeiting? I am sure you may have covered this in some of your prior hearings, but how pervasive has it been in the past few years?
Mr. HAWKE. Mr. Riley, there have been different estimates of the amount of counterfeiting that takes place, and, of course, part of the audit plan we are here to discuss, part of the intent of the audit plan, is to improve our methods for estimating the amount of counterfeiting that does exist.
Page 17 PREV PAGE TOP OF DOC I would say that counterfeiting, which is a problem that we take very seriously no matter what the volume of it is, has been very, very small in terms of the total amount of currency outstanding.
Mr. RILEY. One percent, half of 1, 10?
Mr. HAWKE. Let me give you some figures. In fiscal year 1996, I mentioned we had $422 billion of currency outstanding. We detected only $205 million in counterfeits worldwide, and the largest part of that was seized by the Secret Service before it got into circulation. Only $36 million actually were picked up in circulation. That is $36 million out of $422 billion outstanding.
And another measure that we have of counterfeiting is what is picked up by the Federal Reserve. That means currency that has gone through the retail system and gone into the banking system and been transferred by banks back to the Federal Reserve. The Federal Reserve sees, we estimate, about 15 percent of all U.S. currency that circulates abroad each year, so they get a pretty good sample of what is in circulation abroad. And the detection rate for all $100 bills during calendar year 1996, was 62 notes per million, which was down from 75 notes per million in calendar year 1995. Now, that is just $100's. For all notes, all denominations, it was only 7 notes per million, a total of $8.3 million worth of notes that was picked up by the Fed. So that suggests that there are relatively small amounts of counterfeits getting through the system to the point where the Fed's sophisticated detection equipment has to pick it up.
Mr. RILEY. You said a moment ago thatI think42 percent of the $100's have been replaced to date; is that true?
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Mr. HAWKE. Forty-two percent of all $100's outstanding are the new Series 1996.
Mr. RILEY. And did I understand you to say that there is no ultimate plan to recall any of the old $100 bills?
Mr. HAWKE. That is correct, Mr. Riley. That has been a very important foundation stone of our currency program. The United States has never recalled its currency, and that is an important aspect of the worldwide confidence that is placed in our currency. Other countries, when they issue new currency, have frequently recalled the currency with a deadline after which it can't be used, and that creates a sense of panic and a lack of confidence in the currency.
Mr. RILEY. And I can understand why that would be the case, but without some type of ultimate recall, what prevents a counterfeiter from going back and continuing to counterfeit the old $100?
Mr. HAWKE. That is certainly possible, and the penetration rate of the new currency is really a deterrent to that, because as soon as old currency comes back into the system, into the Federal Reserve System, it is taken out of circulation, so there is a constant process of taking the old out of circulation and putting the new in.
Mr. RILEY. So, if I understand you right, you rely primarily on just the uniqueness of the old $100, within a period of another year or year-and-a-half, something like that?
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Mr. HAWKE. Basically, that is right, Mr. Riley. The old currency will eventually disappear, or virtually disappear, as it gets circulated back into the Fed and is immediately taken out of circulation, and the new currencyall $100's being issued by the Fed today are the new design.
Mr. RILEY. OK. Thank you, Mr. Chairman.
Chairman BACHUS. What we will do right now is we will let Mr. Anderson testify in response to the GAO report and whatever else you want to deal with, and then we will have additional questions from the panel.
STATEMENT OF HON. ROGER L. ANDERSON, DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE, DEPARTMENT OF THE TREASURY
Mr. ANDERSON. Thank you, Mr. Chairman, Members of the subcommittee. I will summarize my remarks and ask that my full statement be included in the record.
Chairman BACHUS. No objection.
Mr. ANDERSON. I appreciate this opportunity to discuss the Treasury audit plan for studying the uses and counterfeiting of U.S. currency overseas. The members of the ACD Steering Committee have worked closely to produce this plan, and we have already started to implement it.
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As Under Secretary Hawke mentioned, two of the primary reasons for the successful introduction of the Series 1996 $100 note were our comprehensive worldwide public education campaign and the coordination with our counterparts overseas. An especially important element in each of these areas was our International Currency Awareness Program, or ''ICAP.'' This program organized joint Treasury, Secret Service and Federal Reserve teams to visit selected regions throughout the world to meet with U.S. embassy, foreign government, financial institution and law enforcement officials to discuss the uses, flows and counterfeiting of U.S. currency. Our teams made six trips over a 2-year period to South America, Russia and the Newly Independent States, Southeast Asia, Western Europe and the Middle East.
These trips enabled us to gain valuable information about the nature of U.S. currency, usage and counterfeiting overseas.
As you mentioned, Mr. Chairman, the Antiterrorism Act of 1996 requires us to audit the international use and counterfeiting of U.S. currency every 3 years. The questions that the Act requires the audit to answer are some of the same questions the Steering Committee has examined and continues to examine on a regular basis.
First, what are the uses and holdings of U.S. currency overseas; and second, what is the Treasury's estimate of the amount of counterfeit U.S. currency that circulates outside of the U.S. each year?
We began to formulate our audit plan early on. As we worked with your staff, Mr. Chairman, we determined that our ICAP experience would provide a good starting point. As we discussed in our plan and in the addendum, the Steering Committee is using a variety of information to try to answer the Act's questions.
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The best sources of information to answer the first question are our survey trips. Since last September we have conducted two surveys in Southeast Asia and one in South America. We have scheduled four more surveys to include Turkey and Central Asia, Eastern and Central Europe, the Caribbean and Latin America, and India and Pakistan before we submit our first audit report in the fall of 1999.
The most important and comprehensive information to answer the second question comes from the Federal Reserve's currency shipment and receipt data. In a statement to this subcommittee last year, Theodore Allison from the Federal Reserve described the Fed's processing operations. I wish to highlight today three points from his statement:
First, the Federal Reserve receives a sufficient quantity of currency to have an up-to-date and reasonably accurate view of notes in circulation.
Second, the levels of $100 counterfeit notes detected in 1995 were very lowless than 1/100 of 1 percentor 75 counterfeits in every one million $100 notes inspected. Deposits of $100's at the Federal Reserve that originated outside the United States had a lower proportion, about 55 counterfeits in every million notes processed.
Third, the successful passing of counterfeits within the United States and abroad is insignificant from a macroeconomic perspective and has no discernible effect on public confidence in U.S. currency.
Mr. Hawke has updated the numbers in Mr. Allison's statement. In 1996, the percentages of domestically and internationally circulating $100 notes that the Fed inspected increased to about 117 percent and 17 percent, respectively. Our window on counterfeiting became better last year, particularly in regard to counterfeits circulating outside the United States. That window showed, during 1996, a slight decline in counterfeit $100's in circulation, as the detection rate fell from about 75 counterfeits per million notes processed to about 62 counterfeits per million.
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We consider the Federal Reserve data to be a reliable indicator of counterfeiting activity for several reasons:
Number one, the data are broadly based. Reserve banks made cash payments during 1996 that were destined for, and received deposits from, more than 80 countries.
The sample is very large. Reserve banks received, and were thus able to inspect, 17 percentor one of every sixof all $100 notes in circulation outside the United States during 1996.
Third, Federal Reserve figures are similar to other available data.
During 1996, the Federal Reserve improved its method of collecting data on banknote shipments to and from locations outside the United States. For cash payments to depository institutions that are forwarded to branches or customers abroad, participating institutions are now asked to identify each ultimate country of destination. Likewise, for cash deposits, participating institutions are asked to identify each country from which the deposit originated.
We believe the Fed's data allows us to derive reasonable estimates of the amount of genuine and counterfeit currency that circulates outside of the country at any one time.
Of course, these estimates assume that the sample of currency the Fed receives each year is representative of the entire stock of U.S. currency in circulation. We have used the ICAP and subsequent overseas audit surveys to assess the validity of that assumption. To date, without exception, the evidence has indicated the sample is representative. We have seen nothing to suggest a significant amount of U.S. currency, counterfeit or otherwise, can circulate for an extended period of time without entering the banking system and eventually the Federal Reserve.
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We are confident the information we review allows us to ascertain the magnitude of the counterfeiting problem. This information clearly shows the counterfeiting of U.S. currency remains a de minimis economic problem, with the odds being minuscule of a particular individual actually incurring a loss due to counterfeiting. Nevertheless, we take counterfeiting very seriously, as evidenced by the Secret Service's zero-tolerance approach to this crime.
Before concluding, I would like to mention additional things we have learned from ICAP and overseas audit surveys.
First, what we have found, in addition to a wide variety of reasons for why people use U.S. currency, is that these individuals serve as an effective front line against counterfeiting. Foreign users of currency are keenly aware of its features, and cash handling professionals are quite adept at detecting counterfeits.
Second, one of the most important benefits of the programs is the opportunity to build and strengthen our relationships with our counterparts overseas.
In summary, Mr. Chairman, the news we have to report is good. Introduction of the $100 note has gone well. We are making preparations for the issuance of the newly designed $50 this fall, and the $20 next year. We are well into the overseas currency audit process. We continue to build productive relationships with our counterparts overseas, and the information we have gathered thus far has held up in support of our estimates of worldwide counterfeiting levels. Nevertheless, we will continue to look critically at all of the available information.
Page 24 PREV PAGE TOP OF DOC We will also continue to look forward and take steps that will allow us to remain ahead of the counterfeiting threat, a threat that will no doubt be with us as long as our currency serves as a standard of stability and acceptability throughout the world.
Chairman BACHUS. Thank you.
What we are going to do, I want to ask you one question, Mr. Hawke, on a little collateral issue, and then we will go vote and then come back and ask questions of the panel, if that is all right.
On a different subject, Mr. Hawke, I noticed yesterday, there was the TIPSthe Treasury Inflation Protected Securities, Treasury calls them TIPSwere offered the 5-year option, and that some of the securities dealers raised the yield by 15 basis points because they said there was some soft demand, and that they had not been as well received as they may have initially thought. Do you consider that initiative a success?
Mr. HAWKE. I will let Mr. Anderson elaborate on this, but we do consider it a success. The amount of bids that we got yesterday was more than three times the amount that we were issuing.
Chairman BACHUS. Is that right?
Mr. HAWKE. And we had roughly $25 billion worth of bids for the $8 billion that were being issued, and I think the bidding reflected people's relative lack of concern about inflation.
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Chairman BACHUS. And, I mean, the success of holding inflation down, obviously, has a lot to do with softening the demand for them, which is good news. I mean, you are sort of being penalized for your success against inflation, which is a great penalty.
Mr. ANDERSON. Mr. Chairman, we do consider it a success. We view the introduction of inflation indexed securities as a very long-term process. We have made several important steps in this process, but there is still a lot more to do. Yesterday's auction, as Mr. Hawke mentioned, had more than three times the number of bids for securities offered. The number of bids was up from our last auction. The number of bids from retail customers was up from our last auction. So overall, we do consider it a success, yes.
Chairman BACHUS. What is the ratio called?
Mr. ANDERSON. Bid-to-cover ratio.
Chairman BACHUS. That was 3-to-1 or 1-to-3?
Mr. ANDERSON. It was 3.3-to-1.
Chairman BACHUS. Which is very good.
Mr. ANDERSON. Not only is it better than our last auction of indexed securities, it is higher than the cover ratio we usually get on fixed rate, 5-year note auctions.
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Chairman BACHUS. Which is usually what, 1-to-1.5?
Mr. ANDERSON. For the last year, the average cover ratio has been 2 1/2-to-1.
Chairman BACHUS. OK. I appreciate that.
We will vote at this time and return.
Chairman BACHUS. We will reconvene our hearing at this time. I am going to introduce into the record a copy of the Treasury Department's publication, ''Know Your New Money,'' because I think this is very well done, it is very practical, and I think not only banks, but I think the public would be very interested in that.
Mr. HAWKE. Thank you, Mr. Chairman, we appreciate that.
Chairman BACHUS. So without objectionI didn't hear any objection.
Mr. Hawke, as of our February of 1996 hearing, we talked about the Secret Service case involving the counterfeit note designated as C14342, also known as a ''supernote,'' and that case was still open in February of 1996. Has that matter been closed?
Mr. HAWKE. Mr. Chairman, I can't really comment on the status of particular cases at the Secret Service, but the Secret Service does assign case numbers essentially to different iterations of counterfeit notes that come into their possession, and they are still tracking those different varieties and different iterations of those notes. We would be very happy to give you a private briefing on exactly where those things stand.
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Chairman BACHUS. OK. I appreciate that. And I realize that the details of these investigations are classified at the highest levels. I just wondered whether we had any good news, or whether we had solved the case? That was my basic question.
Mr. HAWKE. The Secret Service does, I think, a terrific job, Mr. Chairman, from my observation of them, tracking down counterfeiters, but it is a constant challenge. The lure of easy money, I think, brings counterfeiters on-stream in different places. They constantly pop up, and the Secret Service is very effective in chasing them down. But when the Secret Service finds a counterfeit note, they will, after a period of time, put out a circular indicating how it can be identified, and then the counterfeiters fix the defect or whatever it is, so you get a basic family of counterfeit notes that really just reflect different iterations that correct earlier defects.
Chairman BACHUS. OK. Second, I understand that the GAO has provided Treasury with a copy of their prepared statement, that they will be offering here this morning, and they did that a couple of days ago, and in that statement GAO appears to state that the original audit plan prepared by Treasury was unclear and incomplete, and that the audit plan addendum does not fully address concerns regarding how Treasury intends to analyze and then report information on the uses of genuine U.S. currency abroad.
Mr. Anderson, I didn't think you fully addressed that in your prepared remarks, but obviously Treasury has some confidence in the opinion of the GAO, or you wouldn't have asked for the GAO comments in the early phases of developing the audit plan. Does the Treasury simply dismiss the concerns raised by the GAO regarding the audit plan and the audit plan addendum?
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Mr. ANDERSON. No, Mr. Chairman, we appreciated the comments of the GAO on our audit plan and discussed it with them several times as they were preparing their report, and I think our addendum responds to their concerns and reflects our appreciation of their input.
The comment that is in the testimony about usage of U.S. currency abroad is something that is not easily ascertainable from the current data we get from the Fed. We know where money goes to and where it comes from, but how it is used is not easily determined from the Fed data. What we have found so far is that there is no single model for why or how U.S. currency is used abroad. It depends on a number of things, whether the money is used for savings, whether it is used for business activities, whether it is money sent home by workers abroad, whether the economy in which it is being used is suffering from hyperinflation, or whether it is simply a newly developed economy without a sound banking system. All these variables mean that the currency is used for different reasons and in different ways abroad.
Our trips are teaching us a lot about how people use the currency, and so we are asking these questions as we perform the audit, and we hope over time to have a series of modelsor a series of explanationsabout how currency is used in different areas or in different regions.
Chairman BACHUS. In the methodology section, you mentioned the possibility of developing models for Argentina and some of the former Soviet Bloc countries. Have those models been created?
Page 29 PREV PAGE TOP OF DOC Mr. ANDERSON. We are in the process of analyzing the information we have gotten from our trips. They are not done yet.
Chairman BACHUS. What would the models entail; can you describe what they would include and how they would work?
Mr. ANDERSON. I think that it is premature to say what they would be, other than to say that there would be explanations of who uses the money in what capacities, and how the money gets moved on.
Chairman BACHUS. OK. You know, we had a discussion last yearFebruaryabout placing these additional 28 Secret Service agents overseas, and I think we all realize the need to have people in the field overseas. Could you give the subcommittee a status report on that effort?
Mr. ANDERSON. Certainly. At the time of the February, 1996 testimony, of the 28 positions that Secret Service had requested, 18 had been approved by the State Department. Since then the number has gone up to 21, and 2 additional requested positions have been approved. So the number of additional positions is 5, and the Service is continuing to work with the State Department on the other requested positions.
Chairman BACHUS. OK. How many Secret Service agents does Treasury currently have posted abroad, and how do you measure their success?
Mr. ANDERSON. Currently we have 40 Secret Service positions overseas, and we measure their success by their success in deterring and capturing counterfeits.
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Chairman BACHUS. And their arrests and prosecutions and recovery of counterfeit currency?
Mr. ANDERSON. As Mr. Hawke pointed out, the vast majority of counterfeit currency is seized before it ever gets into circulation.
Chairman BACHUS. Let's just say you have 40 agents out there, and obviously they are spread pretty thin. They are in certain countries. There are certain countries where there are none. Are you seizing the counterfeit currency in the countries where the agents are?
Mr. HAWKE. I believe so, Mr. Chairman. The Secret Service works very closely with local law enforcement officials in its overseas activity. I think it is probably fair to say that in the best of all worlds, we could do even more if we had more people over there, but there are obviously other constraints, including the ability of our embassies and outposts abroad to take care of a large volume of law enforcement people in their facilities.
Chairman BACHUS. Mr. Anderson, how will the information you obtain on these future overseas visits which you talk about, how will that information be gathered and analyzed and used to respond to the requirements of the Antiterrorism and Effective Death Penalty Act?
Mr. ANDERSON. The people who go on each of the surveys prepare a report for the Steering Committee on what they have learned on the survey, and then the information will be combined, models will be created, assumptions will be tested to prepare the audit that is due in the fall of 1999.
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Chairman BACHUS. OK. I think that concludes the panel.
One thing I may want to ask you, Mr. Hawke, the CDFI matter. I know that was referred to the IG about 6 weeks ago. They have indicated to us that they may have their report available this week. Do you think that is possible or probable, or what kind of timetable we could get on that?
Mr. HAWKE. I have not discussed it with the IG, but my understanding is that we are very close to being presented with the report, Mr. Chairman.
Chairman BACHUS. So, you thinkby ''very close''you think maybe this week or early next week?
Mr. HAWKE. It probably could be this week.
Chairman BACHUS. I very much appreciate your attendance. I think that the introduction of the new currency has been a major undertaking with risk. It has been very successful. It is a wonderful tool against counterfeiting. It does move us into, I think, a more modern age. I mean, we are in a modern age, but it moves our currency more in keeping with our technology and I think obviously, from some of the numbers I see, has proved to be a real barrier to many counterfeiters, and has been, I think, accepted by the public as something that they realize is necessary.
Mr. HAWKE. Mr. Chairman, we appreciate your interest and the interest of the subcommittee and your cooperation with us in this project, and we look forward to continuing to work with you.
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Chairman BACHUS. And I do want to say this: I think the GAO and the Treasury have somewhat of an adversarial relationship, but I think that their work and your response to it, I think, through their efforts we have had positive movement. They have, sort of, caused you to go back and examine some of your approaches, and I think it has been positive. I think they have worked the way they should work and have done their job well, and I see that in some of the movement and in some of your responses.
Mr. HAWKE. Mr. Chairman, we don't consider it an adversarial relationship. We have a very high regard for the professionalism at the GAO. In fact, very early in the game, when we were talking about how we were going to respond to this audit plan request, we all recognized the desirability of having GAO look at our preliminary plan before we put it in the final form. So, we were really grateful for their input.
Chairman BACHUS. What I guess I should have said is, I hope we don't view it as an adversarial relationship. I think sometimes we fall into that, but I want to stress how important it is for us for there to be that good relationship, and cooperation. And I applaud them for their thorough investigation, and I do applaud you for going back and putting an addendum together, and I know that this is a very complex matter, and there are certain restraints, and part of those are just the lack of resources to combat the problem.
Mr. ANDERSON. Sometimes, Mr. Chairman, we who study or work with an issue daily have a lot of unstated assumptions that we all understand, and GAO has been very helpful in making us put down on paper the things that are unstated assumptions.
Page 33 PREV PAGE TOP OF DOC Mr. HAWKE. We all share the same objective. We are all working in the same direction.
Chairman BACHUS. And I consider this an ongoing process, and this is something we need to visit and something of critical importance to the United States people, that their currency is protected and that all efforts are made to keep our currency safe and reliable.
I will excuse this panel, and we are going to call the GAO panel at this time.
Mr. HAWKE. Thank you, Mr. Chairman.
Chairman BACHUS. I appreciate your attendance and your cooperation.
Mr. ANDERSON. Thank you, Mr. Chairman.
Chairman BACHUS. At this time, the subcommittee would like to welcome Associate Director JayEtta Hecker from the GAO. We welcome you, Ms. Hecker, and you may want to introduce your colleague there for the record.
STATEMENT OF JAYETTA Z. HECKER, ASSOCIATE DIRECTOR, INTERNATIONAL RELATIONS AND TRADE ISSUES, GENERAL ACCOUNTING OFFICE
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Ms. HECKER. Certainly.
Mr. Chairman, it is indeed a pleasure to be back before your subcommittee again and to have Ms. Kate Monahan, who has headed up our work for the last 2 1/2 years on counterfeit analysis, so we are both pleased to be here.
Chairman BACHUS. Thank you. And let me say right at the start that I think your contributions to this entire subject have been very beneficial. They have been tremendously helpful to this subcommittee. You have been very responsive. You haven't shied away from the tasks that we have asked you to investigate, and I think your efforts have already borne a lot of fruit. Obviously, Congress has endorsed your views with legislation, and, you know, it has been difficult at times, and I know you have tied up resources in this matter, but I think you have excellent understanding of this matter, and I think you have probablyas Treasury saidI think you have had a positive effect on them, and I would encourage you to continue the good work you are doing. But, I do want to applaud you, and I think this is a very good report that you have given us, and I thank you for that.
Ms. HECKER. Thank you so much, Mr. Chairman. Actually, a lot of the spirit of my statement is really to turn it back to you and your subcommittee, because I think it is your interest, and persistent interest in this matter, that has really made the difference in getting this progress that has been made achieved. So, we thank you for our recognition but, I think in turn, the subcommittee's interest and your particular persistent focus have made the difference.
Page 35 PREV PAGE TOP OF DOC Chairman BACHUS. Thank you. And I hope you don't view that my compliments to the Treasury are in any way inconsistent with my comments to you.
Ms. HECKER. No. As Under Secretary Hawke said, I think we have developed a complementary and collegial relationship, and I think the very quickness of the Treasury to submit the addendum and recognize the concerns we raise was testimony to that.
Chairman BACHUS. I agree, and I consider that a very positive step.
Ms. HECKER. Indeed.
Chairman BACHUS. Very refreshing in the atmosphere that we sometimes find ourselves in here in Washington, where no one wants to do anything but just to totally deny, and, you know, they have actually recognized that there are things they hadn't been doing that they could do better, and they should do that, every agency should do that. So, I think it is refreshing that by reading your report, their addendum, it is obvious that the thought process is going on and that we are making progress. And I know you have a statement at this time, and I want to allow you to make that and answer any questions.
Ms. HECKER. Thank you, Mr. Chairman. Actually, I just have a few historical points to review how we got where we are.
My beginning would be with the original hearing that you held in February of 1996, where the basic concerns about Treasury and Secret Service counterfeiting data were raised; second, our review of the audit plan that was then required by the antiterrorism legislation; and finally, the addendum and its responsiveness to the original mandate of that legislation.
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As you recall, in the February, 1996 hearing, we had been asked to look at the extent of counterfeiting and the adequacy of the deterrent effort of the Secret Service and other parts of the U.S. Government. And basically, a typical GAO effort is to look for the data, and that is where we got stuck, because we were very concerned that the data on counterfeiting was so seriously flawed that we weren't in a position to respond to the basic question of what the extent of counterfeiting was, and secondarily, how effective, adequate, or efficient the response of the Secret Service was.
You know, we looked at the trend lines that showed some apparent increases in detection, but the problem was that all the data were only detections by the Secret Service, and we persisted in telling them that ''Detection isn't an estimate of the size of counterfeitingclearly you must have more.'' And that is where we really raised concerns, because at that time we didn't get the response that, ''Well, here is our comprehensive effort to make estimates, to use Federal Reserve receipt data, to look at the differences in uses in different countries,'' and so forth. So, the condition at that time wasthe position that the Secret Service took in estimating the total of counterfeiting was what they seized, and clearly, we have moved substantially forward from that.
Another problem we identified originally was this detection data was skewed by large seizures. That doesn't give you trend data because if you get a huge seizure, particularly the ones where they say they kick in the door and there is a huge pile of uncirculated counterfeits, you know, that could be massive amounts one year and small amounts, but that doesn't tell you really the magnitude of the problem over time. You need more systematic, scientifically-grounded analysis to really see whether there is a trend.
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We were then very concerned, and I think it was in that hearing that we strongly got the point across that the basic detection data was not a reliable indicator of the magnitude of the trend of counterfeiting. And it was your leadership and response in getting the section of the Antiterrorism Act passed that basically mandated the audit plan, telling Treasury, ''It is time to give us more rigor in how you estimate counterfeiting.'' And we think that was really a good thing, and we have heard it acknowledged here that those were the kind of assumptions they hador operating sensesthat they had, but it was time to improve the transparency, particularly in relationship to the subcommittee, and perhaps at times on a classified basis, and more rigorous representation of what the size of the problem was.
This audit plan, as you know, was originally submitted as required in October of 1996. Now, the problem with that, as you yourself have summarized, is that it was really woefully incomplete. It didn't have objectives. We do audits all the time, and the beginning step of any audit is, ''What are you trying to learn?'', and this audit plan of six pages just listed primarily data sources.
Another fundamental problem is it had no methodologies. Again it had a lot of data sources, people they would talk to, good sources, but talking to someone doesn't give you an analytical framework for turning that data into information and allowing you to analyze it and respond to the requirements of the Act.
There are a couple of other problems, but mostly we felt that the audit plan really didn't outline for the subcommittee how Treasury would respond to the ultimate mandate, and that was to get better data on uses and on real estimates of both the genuine and counterfeit currency in circulation abroad.
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The Treasury, as we have agreed, and we have heard today, responded very quickly to submit an addendum. They felt, again, that they had these things in mind. They did have an idea of what objectives they had in mind, and they even had methodologies that, in part, had been published work within the Federal Reserve and some other steps that they implicitly had thought about, but hadn't put down in the original audit plan.
They submitted the addendum, and we have reviewed the addendum, and there are some substantial improvements. As I said, it has the objectives and methodologies we find reasonable for estimating counterfeit and genuine currency. What is more, they went further. They gave you the estimates, so not only did they give you the methodologies, but they applied them and developed some rough estimates, which is all one can expect. These aren't areas you get certain numbers to a decimal point; you get rough estimates, and they provided those estimates, and I think for the first time we now have some public data, a baseline if you will, using a somewhat more rigorous defined methodology of what the estimates of both counterfeiting and genuine currency abroad is.
As you yourself noted, there was still a limited area that had not been resolved, a concern that we had with the original audit plan. That has not, in our view, been totally resolved in the addendum, and it is about the uses of currency. And I think there was some good discussion today of why usage is very important, because currency is used so differently in different countries, that could affect how good your estimates and assumptions are about your extrapolations either from Fed data or other data, what the actual magnitude of either genuine or counterfeit currency might be in that country.
Page 39 PREV PAGE TOP OF DOC We continue to hear confusing words, and I think we continue to hear it today. You asked some questions about this model. The original audit plan talked about a model for studying uses, and now we heard some backsliding today, ''Well, no, there is not really a model, there are lots of different models.'' But, we still don't see any models. We have been to 18 countries, and yet there isn't a structure, a rigor. We are not saying we must see an econometric model that has certainty to it, but some structure of the major variables that, again, might provide more rigor and form and consistency to estimates over time. So, the uses area, in our view, is still a little vague.
We do think, however, that we are in a much better position than we were a year-and-a-half ago when we reported that the Secret Service had no good idea what the amount of counterfeit currency was, or what the possible trend might be. We are definitely in a better position here, and I think what is different is we have better transparency and better development of a more rigorous process, methodology, and baseline for both the Congress and the public to be able to believe the reassurances that we always continue to hear, that it is not a problem. It is interesting, and it is unusual when you hear about it, but, no, it is ''1 in 10,000,'' I think was their estimate. It is not something everyone is going to run across, although someone in the San Francisco office did come across a counterfeit that Kate was called on to detect and sent it over to the Secret Service right away. So they do still occur, but those reassurances really need data behind them, and I think that is where we have moved forward. And, again, I commend you and the subcommittee for their leadership in really improving the transparency in this area of important public policy.
That concludes my statement.
Page 40 PREV PAGE TOP OF DOC Chairman BACHUS. Thank you.
If Treasury develops these models, we are somewhat limited in knowing what information will be in those models, but would you comment on what information they have indicated will be in the models, whether they made any indication, and what type of information can be gathered, and what usefulness it will have?
Ms. HECKER. I think they have been relatively clear about the types of factors, how the currency is used; whether it is used for remittances; whether you have a lot of workers who are sending currency overseasthat can make a big difference how currency is used in a country, because often that is in dollarswhether it is the primary unit of value; that there is either a hyperinflation or just limited confidence in the local currency that people trade in dollars, deal in dollars, physically, within their own domestic economy. These are a couple of the factors. There are others, but it is getting some structure around how are you going to measure those. Just to say the Treasury is going to do more field visits and talk to people about how it is used, doesn't give the answers about how it is going to be used, but, maybe Ms. Monahan would like to add something.
Ms. MONAHAN. In the original plan, Treasury cited a number of areas of emphasis or factors, as Ms. Hecker said, to develop a single model. Then they realized that a single model wouldn't work. So, they said they were going to develop a number of models using factors, such as economic indicators, to group other countries. For example, they intended to apply a model of currency usage in Argentina or Russiaones they keep bringing up because the currency is widely used thereto countries with similar indicies. Doing so, they intended to project their conclusions from their analysis of uses in Russia or Argentina to countries with similar indicators. That is where the plan seemed to fall apart. They have already gone to Russia and Argentina and about 18 different locations, and yet, they have not developed a beginning or draft model to work with and test in the other countries. The original plan said they would specify a model and test it. But, after already going to 18 locations, we still don't see what they are testing.
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They also have a list of data sources and interview questions, but the questions are open-ended. Information can't be generalized from these questions. You can only get anecdotal information. That doesn't provide information to develop a model.
Chairman BACHUS. We are still relying on foreign officials to supply this information, as I understand.
Ms. MONAHAN. Through the interviews, yes, foreign officials provide the information. Also, the Secret Service data includes what they get from foreign officials and from the Federal Reserve. But you are still relying on foreign banks and what they will report. Our experience in the past, from speaking with foreign banking officials, is that they will give you some information, but it may not always be complete. Some officials speak off the top of their heads. You get little data from them. The same is true for foreign law enforcement.
Chairman BACHUS. You all were also tasked with looking into the investigation on the supernote, and can you report your progress there?
Ms. HECKER. I think, as you know Mr. Chairman, our major problem there was the concern about the intense sensitivity of the matter, that it was an open investigation, and that while we received some high-level briefings that we were able to pass on and share, it did not appear to be something we felt we could audit and meet our standards of really being able to get into the issue enough to produce even a classified report. So, we have suspended that dimension of the work.
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But I think this work, actually, on getting better data, baseline data, of both currency and circulation and counterfeit is really a good part of getting more rigorous threat assessments and more structured management at both the Secret Service and the Treasury Department, because those original questions we were asked about the extent of the problem and the adequacy of the resources requires this data. Without the data that this audit plan is now beginning to generate, we will never be in a position to assess the adequacy of the resources and their effectiveness. Even though this is more of a management data side of it, it is the fundamental building block of allowing usand youto be in a position to assess the adequacy of their response for any type of counterfeit, whether more routine ones or not.
Chairman BACHUS. Are you in communication with Treasury at this time concerning the further development of this question there? Are they asking for your input?
Ms. HECKER. Our input has ended, really, with the preparation of the report that we have submitted to you on the audit plan, our discussions with them on the specific things we thought belonged in an addendum, and today really is the first time we have publicly commented on the addendum, so we don't have any further discussions at this point. But I don't think there is anything else to add. I think it is time for them to pull their work together and try to perhaps improve the rigor of some of these open areas, and then report, as required, to the subcommittee.
Chairman BACHUS. Can you lay out for me, just sort of a bare-bones skeletal timetable, what you think is a reasonable timetable for the Treasury Department to do these things?
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Ms. HECKER. Well, that, of course, is defined in the statute you basically gave them.
Chairman BACHUS. Of course, they are already overdue on that, aren't they?
Ms. HECKER. No, I don't think so. The audit plan was in on time, and then I think it was 6 months after the audit plan they were supposed to initiate the audit. Was it 6 months?
Ms. MONAHAN. I believe Treasury's report providing the results of the audit is not due until 1999.
Chairman BACHUS. So, we are really not behind?
Ms. HECKER. In fact, I think they are way ahead, because they have given you the two estimates, and, in fact, that is one of the reasons why we raised the issue of what the additional objectives and value of the four additional field studies they are planning are, because they have already got the data, and the uncertainty is what they do when they do these usage studies, when they talk to people. Our open issue is, you know, what remains to be done to actually submit the first report that is not required until 1999. Then, there are two more reports, I am sure you recall, 3 years after that, another one in 2002 and another one in 2005.
Chairman BACHUS. OK. I appreciate your attendance, and I am glad to know we are on time on something up here on the Hill. All right. Thank you very much.
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Ms. HECKER. Thank you, Mr. Chairman.
[Whereupon, at 11:51 a.m., the hearing was adjourned.]