The Indian Currency Scandal #371

Former Finance Secretary Arvind Mayaram's premises have been raided by CBI. It takes us back to the central reason for demonetization and how India's currency was compromised. A detailed look

The Indian Currency Scandal #371
Photo by Jan Kopřiva / Unsplash
Morelia Spilotes. Artist: Helena Forde
Photo by Museums Victoria / Unsplash
“I'm not lost for I know where I am. But however, where I am may be lost.” ― A.A. Milne, Winnie-the-Pooh

Things are never what they seem to be.  

Sometimes nations are on the brink of collapse but the demeanor of the politicians shows something else.  Same folks who are busy plotting the collapse themselves.

The saga of how the Indian currency was compromised specifically from 1997 onwards is like a thriller.  How one letter from some anonymous Finance Ministry employees brought focus on a breach that could have taken the nation down with it.

For India was imploding from within.

The raids last week

On January 12, 2023, the Central Bureau of Investigations raided the premises of a former finance secretary, Arvind Mayaram.

Source: "CBI goes after former finance secretary Arvind Mayaram over graft charges"/ The New Indian Express

He had given illegal extensions to the British firm De La Rue, even when it was blacklisted earlier.

Today we will go into the whole saga of India's greatest currency scandal that led to many actions which were unprecedented.  

Demonetization was the most prominent among them.

Implosion from within!

In 2010, the CBI found an astonishing thing when they investigated the RBI vaults because of the counterfeit notes in the 70-odd branches of various banks on the India-Nepal border.  CBI had raided these branches and the bank officials told them something mindboggling - that they had received these notes from the RBI.  

So the question was how?  And why?  They did not anticipate the shocking revelation that they were going to make.

A damning information that was screened out of public view: in August 2010 the CBI raids the vault of the RBI and finds the same counterfeit currency that have been smuggled by the Pakistani intelligence agency ISI. But the point is from where did these notes come to land with the RBI? Either the ISI has hands long enough to have even penetrated the RBI or there is something more fishy, as in, a conspiracy deep and dark enough to destabilize the country’s economy. The CBI had questioned six bank officials but no one knows what did they divulge or what has come out of the CBI inquiry after so many months. Why has the Parliament been kept in dark? The FM and the CBI must come out in public. (Source: The Fake Money Saga)

Just think about this and let it sink in.  India's Central Bank - the RBI - had counterfeit fake currency in its vaults that it was disbursing to the public bank branches itself!

The Indian currency system had been turned against itself from within.  

Nothing in the Indian economy was safe anymore.

On investigation by the CBI, the main culprit came out to be one source.

The British firm - De La Rue.

“This all started, when Chidambaram was the finance minister. He gave the contract for printing currency to a  British company, De La Rue , in London, and the same company was also printing currency for  Pakistan. So, it became easy for Pakistan to get currency papers. All Kashmir agitation was based on the counterfeit currency from Pakistan,” he added. (Source: "Subramanian Swamy blames ex-finance minister Chidambaram for ‘fake currency’ in India" / The New Indian Express)

This company - De La Rue - was printing currency for both, India and Pakistan.

That's a danger to national security.  Right?

A History Lesson

Pakistan Security Printing Corporation (Pvt.) Limited (PSPC), a wholly-owned subsidiary of the Pakistani Central Bank (State Bank of Pakistan) prints currency notes and security bonds for the Pakistani government.

It was established on March 10, 1949.

As a joint venture between the Government of Pakistan and M/s Thomas De La Rue International of the United Kingdom.

Well, De La Re was not just printing Pakistan's currency, it had a freaking joint venture with Pakistan's Central Bank!!

A Security Breach to Rue

In 1997-98, during IK Gujral's time as the Prime Minister, India outsourced the printing of Indian currency notes amounting to Rs 1 lakh crore (Rs 1 trillion) to three countries.  The Parliamentary Committee on Public Undertakings (COPU) brought it up and criticized the Reserve Bank of India and the Union finance ministry at the unbelievable breach in security.

"The committee was informed that 2 billion pieces of Rs 100 denomination and 1.6 billion pieces of Rs 500 denomination of notes were outsourced for printing," COPU chairman V Kishore Chandra Deo said. The committee submitted its report in the Lok Sabha on Friday. The printing contracts were given to American Banknote Company (USA) - 635 million pieces; Thomas De La Rue, UK -- 1.365 billion pieces (Rs 100 denomination) and Giesecke & Devrient Consortium (Germany) -- 1.6 billion pieces (Rs 500 denomination), amounting to a sum of Rs 100,000 crore. (Source: Currency note-printing outsourced! Panel raps RBI, FinMin / Rediff)

The Finance Minister during that time was P. Chidambaram.  Except for 10 days when IK Gujral had that portfolio.

Source: Wikipedia

But for now, let us go back to the 2010 era.

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Bedfellows and the Whistleblowers

In a little-known case involving counterfeit currency caught in UP and Bihar, the defending lawyer rather nonchalantly argued that what was the proof that it was fake?  

When the currency was sent to the Indian government labs, they indeed confirmed that the currency nabbed from the ISI agents was actually real!  When sent to foreign labs, it was found that the currency was so close to real that it was extremely difficult to prove it was counterfeit.  In fact, the small difference that helped them prove it was not real was probably inserted on purpose!  Such was the confidence and arrogance of the counterfeiters!

Experts are of the opinion that Indian currency notes are printed in such a way which cannot be faked easily and that Pakistan does not have the technology to support such counterfeiting. This means that currency notes of ISI and RBI have the same source. This can mean only two things, that either some officials of RBI are complicit in this conspiracy or that our entire economy has been hijacked by international mafia. Now the question is who prints the notes? (Source: The Fake Money Saga)

ISI and RBI were together in bed.  That is how not only was the Indian currency so perfectly replicated by the ISI, but it found its way to the RBI's vaults!

It was found by the CBI on further investigation that the mischief was happening at the end of De La Rue, a company from whom RBI imported 95% of its currency paper.  

In fact, RBI’s purchases accounted for over 30% of De La Rue’s profits.  

When De La Rue was blacklisted by the Indian government the company had come to the point of bankruptcy with 2000 metric tonnes of paper lying unused!  At that time, the De La Rue CEO James Hussey – godson of Queen Mother herself – resigned over what was called “paper quality issues”, which sounded fishy, to begin with!

In November 2011, some "unnamed officers of the Ministry of Finance" sent a letter to the Central Vigilance Commission (CVC).  It was in the aftermath of an Indian Express article that showed how De La Rue, the principal currency paper supplier was compromised.  What these FinMin officers had to say was even more significant.

That it was not just De La Rue but other suppliers also who were compromised.

(Source: CVC takes up complaint blaming many suppliers / Indian Express)

BRBNMPL ( Bharatiya Reserve Bank Note Mudran Private Ltd) is the organization that signs currency note contracts on behalf of the RBI.

In September-October of 2010, the BRBNMPL wrote to the Directorate of Currency and Ministry of Finance that not only had De La Rue failed to meet the quality specifications but even the paper supplied by Crane AB of USA and Louisenthal, Germany had failed tests in the Indian laboratory in Hoshangabad.  But interestingly, and predictably enough, passed a "re-test" at these companies' foreign laboratories.

What was really troubling in that note from the "unnamed officers of the Ministry of Finance" was that BRBNMPL's note had omitted the name of the French company, Arjo Wiggins!

The complaint notes, "BRBNMPL in their letter of 3rd November 2010, concealed the failure of paper supplied by Arjo Wiggins ( a French company) from the Ministry of Finance as detected in the tests conducted on Arjo Wiggins paper at Hoshangabad". Documents with The Indian Express reveal that it was in 2002 that the disappearance of 1,217 kg of high-security passport paper from the stock held by Arjo Wiggins in Brazil led to its blacklisting. This was later lifted after intervention of then National Security Advisor J N Dixit and a communication from the Finance Ministry in 2005. (Source: CVC takes up complaint blaming many suppliers / Indian Express)

Such a breach of security by this company and all brushed aside?

So, it was on the recommendation of JN Dixit, the National Security Advisor, and P. Chidambaram's Ministry of Finance communication that Arjo Wiggins' blacklisting was lifted.


Post-2014 - Standing on own feet?

In 2015, after Modi sought help in investigations in the fake currency notes from the US, it came out that the German company Louisenthal was also selling raw notes to Pakistan, resulting in a ban on the company.

“We are only keeping our interests in mind,” the official told The Indian Express. “We have proof that high-quality fake Indian currency notes are being produced in Pakistan and pushed into India through Bangladesh, Nepal, Sri Lanka and Vietnam. The availability of a common supplier could be one of the reasons behind such high-quality fake notes.” (Source: Indian Express)

This is how the Indian currency was compromised at every point – RBI, Home Ministry, Finance Ministry, and the Indian and Foreign printing presses.

Why was the sourcing of paper from De La Rue in London such a big issue?  Pakistan's modus operandi was to purchase paper far in excess of its needs and hand the extra to ISI for the FICN.

A report in Outlook India shared the details.

A Central Bureau of Investigation (CBI) report to the Finance Ministry has reiterated the claim that Pakistan government Printing Presses in Quetta, Karachi, Lahore and Peshawar, were churning out large quantities of FICN. Reports indicate that the paper for the fake notes is sourced from London. Indian investigators also believe that the Pakistani government imports currency-standard printing paper far in excess of official needs. The extra quantum is handed over to the ISI for FICN production. (Source: Currency Of Terror / Outlook India)

The De La Rue saga was closed by India in 2016 when it was part of the Panama Papers.  There was evidence that it had authorized a "15% commission" - a euphemism for bribes - to get the banknote contracts in India.

For decades, the company was a major supplier of these sensitive materials to India too, but it has not been able to win any major contract since 2016, when its name cropped up in the Panama Papers with evidence that it had authorised a payment of a 15% commission via its subsidiary company, Portals, to its Indian agent for securing banknote contracts. (Source: The story of De La Rue: currency printing firm at centre of CBI’s Mayaram case / Indian Express)

So you see why the CBI raids on the ex-Finance Secretary make sense.  Although one can quibble on the timing and the delay in the whole thing - and that it should have happened much earlier.  The legitimacy of the raids may not be in question.

Given how terrible and comprehensively the Indian financial and banking system had been compromised, on 8 November 2016, the Government of India announced the demonetization of all ₹500 and ₹1,000 banknotes. 

That did not stop the fake currency from being used as a weapon or an economic option by Pakistan, but it gave the Indian Rupee and Central Bank a chance to restore itself.

Just for context - by 2011, Pakistan's ISI was making INR 500 crores from FICN as per one estimate.

ISI pockets ₹ 500 cr annually from fake Indian notes: officials
ISI pockets ₹ 500 cr annually from fake Indian notes: officials

After demonetization, things changed.

Since 2016, De La Rue hasn't gotten a major Indian contract for the supply of currency paper, security threads, or security holograms.  Even though it had created a company called De La Rue India Private Limited for manufacturing special-purpose machinery.  It, however, never got a real contract for currency.

The FIR said the UPA government entered into a five-year agreement with De La Rue in 2004. The contract was extended four times till December, 2015. The extension granted by Mayaram was the fourth. The CBI said prima facie it  appears that Mayaram committed offences under sections 120B (criminal conspiracy) read with sections 13 (2) and 13(1)(d) of the Preventions of Corruptions Act 1988. (Source: "CBI goes after former finance secretary Arvind Mayaram over graft charges"/ The New Indian Express)

The security paper is not easy to manufacture.

But for a country that can send a satellite to Mars, how tough could that be?

India's indigenous supply of currency paper

India has only one plant that manufactures paper for new notes.  That is in Hoshangabad, MP.  Every year, India uses around 22,000 metric tons (MT) of currency paper.  The Hoshangabad plant produced 2,800 MT of India's needs.  The rest was imported.  In 2015, the production lines were increased so that the plant could produce 12,000 MT of paper.

The government will set up two more units of paper mills of 12,000 tonnes capacity at Security Paper Mill in Hoshangabad (Madhya Pradesh) to produce large denomination currency notes domestically. (Source: Government to set up 2 more units at Hoshangabad to print bank notes / Indiatimes)

That was a big dent.  But not enough.

In 2015, Prime Minister Modi pushed RBI to make paper and ink within India.

Prime Minister Narendra Modi wants the Reserve Bank to use Indian paper and ink to print currency notes and set a target date for achieving the objective as part of the 'Make In India' campaign. (Source: Economic Times)

But even now, the paper for printing Indian currency and security products (like passports) is imported from Germany, Japan, and the UK.  

In July 2022, however, the RBI officials went to Odisha to discuss the setting up of a plant in Balasore for another 12,000 MT.  Between the expanded Hoshangabad and the new one at Balasore, India should have enough paper for printing its own currency.

Source: "Know Why RBI Officials Were In Balasore, Bank Note Paper Mill MD Called On Odisha CM"/ Odishabytes

One does not know when India will be independent - Atmanirbhar - in this area of end-to-end currency printing.  But it is critical to national security.

Just as an aside - there is a little-known fact that is often not brought out.  Make what you want to about it.

Roberto Giori, a major shareholder of its Swiss partner companies, called De La Rue Giori, was among the passengers of the hijacked Indian Airlines flight IC-814. Following the hijack, intelligence circles were agog with speculation about what impact the presence on board of the “currency king” of Switzerland — Giori had dual citizenship of Switzerland and Italy — would have on events. (Source: The story of De La Rue: currency printing firm at centre of CBI’s Mayaram case / Indian Express)

As Arvind Mayaram's raids show - the saga of the Indian currency scandal has not ended yet.  It will open up more pandora's boxes in the days to come.

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This movie is a Vimeo Staff Pick and shows how Americans are fighting to keep their lives and sanity intact in the face of this crisis.

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