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Distributors match wits with counterfeiters in the fast-paceddocument security business. Every great hero needs a great villain to defeat. What would Batman do without the Joker, or Superman without Lex Luthor? Perfectly matched, they play a prolonged game of cat and mouse, strategy and adaptation, never decisively defeating each other. The security documents business isn't much different. Distributors must constantly adapt as they go head to head with counterfeiters. "If there weren't so many 'bad guys' out there, I wouldn't be in this [business]," says Steve Singer, president of Micro Format Inc., a distributorship based in Wheeling, Ill. Nearly half of Singer's business consists of providing stock security paper to clients. Contrary to what some might expect, the paper isn't used just for checks, but for a variety of documents, including certificates and prescriptions. "You're constantly seeing new things coming out," Singer says. "I'm seeing an increase in demand for security document paper because there are so many things beyond checks that people want to protect. It's a growing area." Singer continuously updates himself on ways to secure documents. "Learn, learn, learn," he says. "You have to understand the ins and outs of how this thing is done. You can't fake it." The basics aren't difficult to master, he says. Once you have specialized knowledge, it's easier for clients to rest assured. High-tech Protection Understanding technology's impact is one way to stay ahead of counterfeiters. "There have been pluses and minuses in the way of technologies that have advanced the security of a document and in the way of technologies that allow someone to duplicate that document," says Earl Lombardo, president of Lombardo Graphic Consultants, a distributorship in Forked River, N.J. Twenty percent of his business consists of checks. One of Lombardo's clients is the Muskuloskeletal Transplant Foundation. After creating manuals for the group, he began providing 8 1/2 x 11-inch laser checks with two stubs on each perforated page. The checks feature a void pantograph, a microprinted border, warning bands along the top and bottom, an artificial watermark and a microprinted endorsement line on the back. Lombardo sells approximately 30,000 checks per year to the foundation. Distributors' weapons against fraud include Magnetic Ink Character Recognition, void pantographs, watermarks, step-and-repeat designs, chemically reactive paper, fluorescent fibers, multiple or unusual colors, resolution borders, bleed-through and Arabic numbering, padlock icons and warning bands, holograms, Toner Grip™ and prismatic printing. One of the latest innovations is security paper embedded with a chemical that contains unique DNA codes. The paper usually isn't used for checks-while bank officials might be able to verify the presence of chemicals, they can't perform the forensic analysis necessary to identify exact chemicals. Rather, the paper is often used for certificates of authenticity. It's mainly used by customers who can provide an audit trail of the paper's circulation and life cycle. Another new innovation is the electronic watermark, a digitally created security feature included in a document during prepress. For example, a photographer can place an electronic watermark of his name within a photograph before it's printed. If someone else claims the photograph, the photographer can prove ownership by pointing out the watermark in court. According to ExpressIndia.com, the Bank of England holds the rights to an electronic watermark for bank notes. The watermark reportedly incorporates the mathematical chaos theory by including a random pattern of dots that is nearly impossible to reproduce. Technology has also opened new markets for distributors. Intellectual property such as trade secrets and computing products are increasingly valuable commodities. According to the FBI's Financial Institution Fraud (FIF) unit, the United States leads the world in the creation and export of intellectual property but "international enforcement of IP laws is virtually nonexistent." Companies sometimes fight theft by certifying their products with security documents. For example, Microsoft packages display holograms that indicate authenticity. As computers become more affordable, small businesses have quickly flourished with relatively low start-up costs. Lombardo started supplying letterhead and envelopes to a small mortgage company and noticed that, like many start-up businesses, the company used generic checks supplied by a bank. He gained the firm's check business by explaining that he could include the company's logo and add security features such as void pantographs, multiple colors, warning bands and microprinting. The features helped to safeguard the checks and gave the firm a marketable, security-conscious image. As the company expanded over approximately three years, its total account with Lombardo grew from $5,000 to $40,000 per year. Counterfeiters Strike Back Even as technology brings power to distributors fighting fraud, it also works against them. "Technology has gotten so good, it's almost possible to copy anything," says Singer. One drawback is the color copier, the weapon of small-time counterfeiters. "With the advent of color copiers, you can run the original document through and put it back in a matter of seconds," says Lombardo. Even an inexact copy will sometimes suffice. "If you run into a bank on a Friday afternoon and there are long lines, something that looks pretty good will slip by," says Lombardo. In the past few years, though, criminals have favored reproducing documents over copying them. Counterfeiters can afford the computing hardware, and can obtain some generic check software programs from retail outlets. (In some cases, as long as the counterfeit looks "official," it doesn't need to look anything like the original.) One of Singer's clients, an Alabama dentist, discovered that people were recreating his computer-generated prescriptions on their own computers. "He was going out of his mind," says Singer. Singer provided him with paper that featured void pantographs, and the dentist took the extra step of advising nearby pharmacies on the exact appearance of his prescriptions. "All you need is the right software and the time, and you can commit the crime," says Jeff Winter, a Secret Service agent. While it might seem that high-tech counterfeiting is the sole domain of lone thieves or technologically adept youth, he says check fraud is often the work of sophisticated adults-in some cases, entire rings of counterfeiters with international connections. According to the FIF, approximately 60 percent of fraud reported by financial institutions during the past 20 years had been committed by banking insiders. Today, however, outside fraud schemes have become the dominant problem for banks. And the FIF says this rise can be attributed to technological advances and information networks. To combat fraud rings, distributors and manufacturers should combine forces, says Lombardo. "There has to be a constant sharing of ideas and technologies," he says. Marvelous Moves Even superheroes rely on a little help from their friends. Here are some tips to help you protect customers from document fraud: Find strong allies. Make connections among area police. Companies hit by fraud aren't likely to announce their problems, but police might give you a good sales lead. Send up the safety signal. Include security documents in your initial pitch to a prospective client. Talk with a company principal who is more likely to care about security issues. Ask about the company's measures to prevent fraud. Drive the point home by demonstrating how easy it is to duplicate the client's documents. "You can build a sense of confidence and security because you know your product," says Lombardo. Set the right example. "Eventually in the process of educating people about our company, we make them aware of checks and security features," Lombardo says. Practice what you preach by securing your own documents with decorative samples. "That becomes your calling card," Lombardo says. "A check is a great vehicle to do that." Explain due diligence. If a company is reluctant to invest in security documents, Lombardo reminds them that intangible assets are just as valuable as cash and need protection. "Penny wise, pound foolish," he says. "[Introduce] the possibility of putting the document in the wrong hands-[it] can destroy the company." A check without security features can mean double trouble. According to experts, companies can be held liable for fraudulent checks if they didn't show "due diligence" by taking steps to prevent fraud. The concept of due diligence began in 1990 when Articles 3 and 4 of the Uniform Commercial Code were revised, switching fraud prevention responsibility from banks to the companies issuing documents. Be accessible. If you have an Internet presence, small businesses have one more way of finding you. Singer says that on some evenings, he spends two hours answering email, but that it's always worth it. One evening, he gained seven accounts through email, he says. Honesty is the best policy. How many security features does your customer really need? For some, multiple features might be a waste of money; for others, it is imperative. Distributors can gain credibility by giving honest assessments. However, it's also good to remind customers that a variety of security features can't hurt. Manufacturers and distributors suggest mixing overt and covert features. "No one security feature will secure a document," says Singer. Be super-attuned to safety. Keep track of your documents' security long before they reach customers. Evaluate your manufacturer's safety measures. Consider camouflaging secure documents during shipping and storage. Boxes shouldn't be labeled "checks." Instead, label them "accounts payable" or "payroll forms." Know which employees are working with security documents. Provide the one-two punch. Evaluate how the client plans to handle its security documents. "Let employees know these documents have been set up to offer as complete as possible security features. I think that's a deterrent," says Lombardo. If the document is a check, ask the company if it has a positive pay system with its bank. Positive pay helps to confirm checks' validity electronically. Keep your X-ray vision on related industries. For example, changes in the banking world might increase demand for security documents. According to a 1997 report by the United States Small Business Administration Office, the U.S. banking industry rapidly consolidated from 1982 to 1997, largely because of loosened state restrictions on branching and holding-company acquisitions. "Banks are getting bought up all the time," says Tab Doyle, president of Miami, Fla.-based distributorship Rotary Business Forms. Ironically, it would seem that check fraud occurs more often at larger banks than smaller ones. According to a 1998 survey by the American Bankers Association, banks with $5 billion or more in assets were the hardest hit by check fraud in 1997. Make sure checks are compatible with area banks. Doyle constantly re-alerts banks on spotting security features such as chemically reactive paper and void pantographs. Even so, he says one of his clients was hit by check fraud three times in the past year. "If the bank doesn't follow instructions, [security features] won't work," Doyle says. If you keep up-to-date on security document basics, you can stay on top of business. "You need to be familiar with the product," Doyle says. "With that comes confidence, and that's all you really need." Rita Tiefert is an assistant editor at FORM Magazine. Email her your comments at rtiefert@dmia.org. Thanks to Datagraphic Inc., Roswell, Ga.; Pro Forms Inc., Visalia, Calif.; Verify First Technologies, Paso Robles, Calif.; and Xtension Technologies Inc., Laguna Hills, Calif., for assistance.
8 Links for More Information www.aba.com The Web site of the American Bankers Association includes news and a comprehensive list of links to sites containing financial information. www.abagnale.com This is the Web site of Frank Abagnale, a former counterfeiter who was released from prison on the condition that he would become a security document consultant for the FBI. Abagnale wrote the book Catch Me If You Can, an account of his exploits as a con man, and provides seminars on check fraud statistics, security features and related laws. www.cbanet.org The Web site of the Consumer Bankers Association provides news, conference notices and press releases. www.cfenet.com The Web site of the Association of Certified Fraud Examiners includes conference notices, a newsletter, a catalog, member polls and links to fraud news from a variety of publications. www.dmia.org/sol_center.html For DMIA members only, the Solution Center offers a security documents mini-web that includes sales tips, marketing ideas, hot links, reference materials and a detailed glossary of terms such as bleed-through numbering, chemical reactive papers and split-fountain printing. www.fbi.gov Click on the "Programs and Initiatives" link at the FBI's Web site for general information about FBI research and initiatives on protecting intellectual property and preventing financial crime. Also linked to the main site is "Uniform Crime Reports," which contains annual overviews of criminal activity. Adobe Acrobat Reader 4.0 or higher is necessary to view the crime reports. www.fdic.gov The Federal Deposit Insurance Corp.'s Web site includes data about banks, law summaries and insurance news. www.fraudnews.com This service of Fraud Defense Network, Alpharetta, Ga., includes fraud-related news, products, job postings and vendor links. |
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