A frank discussion about China and counterfeits

A persistent question that follows stories about counterfeiting is why do most of the counterfeits come from China and why do they get away with doing this? Unfortunately, the answer lies in differences in our laws, politics, and cultures that may not be as easily resolved as people would like. However, understanding the issues may make it easier to understand how to resolve the problems.

The easiest part of the explanation is the legal standpoint of what we see as counterfeiting versus what the Chinese legal system sees as ordinary commerce. In the United States, every coin ever minted is still legal tender and legally an instrument of the government. Although the Trade dollar was demonetized in 1876, it was remonetized as part of the Coinage Act of 1965 making it legal tender (31 U.S.C. § 5103) for trade in the United States. Even when the United States changes the design of a coin, it remains legal tender.

To protect its currency, the United States has anti-counterfeiting laws that say it is illegal to counterfeit the nation’s money and use in commerce. To protect the collection of collectible coins and currency, the United States created the Hobby Protection Act (15 U.S.C. § 2101 et. seq.) to protect the money supply when it is a collectible and not an instrument of commerce.

In the United States, laws a cumulative. Once passed, they remain the law until repealed or declared unconstitutional by the courts. This is not the way in many other countries. When a new government takes power they are given the authority to rewrite the laws in some form. Not only does this happen with authoritarian governments but in most parliamentary democracies. While new parliamentary governments have restrictions on the changes they make, authoritarian governments do not.

The People’s Republic of China has been run by the Communist Party since 1949. Their rules and laws were changed with the rise of Chairman Mao Zedong and get altered by the party every time a new chairman takes over the party. This includes the control over the money supply. Thus, when the Communist Party took over the country, they demonetized the money produced by the Republic of China and issued renminbi, the “people’s currency.”

In real terms, all coins struck since 1955, the first issued under the current government, are legal tender. Currency printed since 1999, the fifth series are the only legal tender notes. Any other coin or currency note has been demonetized.

Under Chinese anti-counterfeiting laws, it is illegal to duplicate any legal tender coin or currency note for any reason. However, since coinage from previous regimes is no longer legal tender, it is legal strike coins with designs that are no longer legal tender. Chinese laws do not recognize the collection of these coins as a market to protect. Coins are an instrument to facilitate commerce.

Buying and selling coins as an object is just a matter of commerce between individuals under Chinese law and not something that requires protection. While the Chinese buyer can use the obsolete coin as an object of barter, bartering does not hold the same legal status as paying with legal tender currency. Basically, once it is demonetized for new coinage, just about anything goes.

Unlike United States law Chinese law does not recognize the perpetual legal tender status of every coin issued. Chinese law also recognizes that counterfeiting current issues of other countries is also illegal because someone could try to use the coin in commerce where it is legal to use foreign currency. This means that in China, it would be illegal to reproduce a presidential dollar or Washington quarter, but producing Morgan dollars or a set of 1921 Walking Liberty half-dollars is legal in China because these are coins no longer issued in the United States.

When China is asked to assist the United States to stop the counterfeiting of coins, China does not recognize that its people are doing anything wrong. The coins are no longer being made, they are not in circulation, and their laws allow people to make copies of these coins. China does not recognize a collectible coin market. In fact, the only laws they have regarding collectibles are laws protecting antiquities and cultural properties. Under Chinese law, you cannot duplicate the proverbial Ming Dynasty vase and try to pass it off as real but it is legal to reproduce a Rembrandt masterpiece since he is not Chinese and his work was not made in China.

A trade attorney that was consulted for this article confirmed that when it comes to these issues, Chinese law is very protectionist. The claim is that they follow their laws consistently regardless of outside circumstances and they refuse to make exceptions citing the complication with enforcing their laws in a country with a population of more than 1.3 billion people.

Making the problem more difficult, copying and counterfeiting of grading service holders is not covered by Chinese law because they are not government entities. The grading services would have to fight the counterfeiters using Chinese patent and copyright law. A patent attorney confirmed that not only would this not stop the problem, but foreign challenges to alleged patent and copyright violations are rarely successful in Chinese courts.

The Chinese government has no incentive to help the United States or any other country fight counterfeiting in what is perceived by the Chinese as a small market problem. To put the resources necessary into what looks like a petty crime for selling inexpensive, non-circulating duplicate coins that are within Chinese law to manufacture is not worth their resources.

While there is anecdotal evidence that the Chinese government knows about the counterfeit trades and some officials informally support the efforts because they get kickbacks, official Chinese policy denies everything.

A lot has been written about the nature of the relationship between the United States and China since President Richard Nixon’s trip to China in 1972. Neither side trusts each other nor does neither side believe each other. Today, the United States decries the Chinese for buying too much of our debt, allegations of spying, industrial espionage, and cybercrimes. The Chinese say that the United States is trying to bully the world and that these naysayers are making up the stories to scare the world into following them. The United States talks about civil rights violations within Chinese border and the Chinese government tells the United States to mind its own business.

The greater opening of markets between the country and the increase in popularity of bullion coins has made the Chinese Panda a popular coin amongst collectors and investors. Those of us who buy these coins know that even with the production increases since 2010 new issues continue to command a premium greater than other bullion coins.

PCGS representatives showed Congressmen counterfeit U.S. coins in counterfeit PCGS holders during their recent meetings in Washington, DC.  (Photo courtesy of PCGS.)

PCGS representatives showed Congressmen counterfeit U.S. coins in counterfeit PCGS holders during their recent meetings in Washington, DC. (Photo courtesy of PCGS.)

While the Chinese are happy to sell coins and be the factory to the United States, there remains an underlying tone of political and commercial hostility between the nations. A trade attorney said that the Chinese would rather keep the relationship to business between the countries that the United States should stay out of China’s domestic policy. In one example, it was explained that the Chinese central government was upset over how the United States passed judgment over companies in their high tech electronic manufacturing sector because these companies are doing better and is safer than other Chinese manufacturers. To the Chinese government, it is not a problem if a few workers die for whatever reason. There is an ample supply from the population to keep the plants running.

These are the values of the Chinese government. Whether you agree with them or not, Communist Party officials will resent anyone telling them how to manage their domestic affairs. They want advice about how to treat their citizens as much as the United States wants similar advice from China.

All things considered, there is no incentive for China to stop the manufacture of counterfeit collectable coins.

It is not against Chinese law for these people to manufacture coins that are no longer in production. Chinese people who are manufacturing these coins are working in China and many employ other people. It means there are fewer people on what little government assistance the Chinese government provides and they can collect taxes on the incomes.

When a United States trade representatives negotiate with their Chinese counterparts, it gives the Chinese a chance to lecture the United States how they resolved the counterfeiting issues which leads to a discussion on currency handling and management, which is a sore subject in the United States since the United States questions Chinese monetary policies.

Finally, it gives China a measure of moral superiority against the United States. After all, China figured out a way to prevent the impact of counterfeiting of older currency, why can’t the United States do the same?

China has no incentive to help the United States to solve a problem that they perceive does not exist. It is up to the United States to resolve these issues. This is why the industry needs the Collectible Coin Protection Act (H.R. 2754) to allow law enforcement to cut off the supply lines from the counterfeit manufacturers in the United States.

Counterfeiting: Numismatic’s virus

Of all the threats to the numismatics industry one stands out as being the biggest threat: counterfeiting. While thefts and violence of dealers are tragedies, the theft is more localized and easier to deal with because, for the most part, criminals are stupid and leave evidence. Also, since the dealer community is small and there is cooperation from the pawn industry, there is a higher resolution from thefts than expected.

Counterfeiting is worse. Counterfeiting can be a systemic problem that infects the industry in the same way a virus infects your body. To extend the analogy, thefts would be like breaking a finger. It will hurt and cause problems, but the rest of the body will survive. A virus hurts the entire body.

A counterfeit coin is added to the market and is sold to an unsuspecting buyer. The buyer figures out that the coin is counterfeit and is usually embarrassed to admit their mistake. Rather than report the crime or just chalk it up to bad luck, they try to resell the coin, even at a loss, to make up some of the money. The buyer, who is now the reseller, can plead ignorance by claiming buyer’s remorse and say that they decided they did not want the coin.

Overseas counterfeiters, mostly from China, also setup broker networks where they sell their creations to United States-based sellers for them to sell to unsuspecting buyers. While many use online sources to sell these counterfeits, many will try to sell them to low-end coin shops, bullion traders like the ones who setup in hotel rooms, and pawn shops. Unfortunately, they are successful in selling of these items to what should be trusted dealers keeping them in hobby circulation like a virus coursing through your veins.

The problem is not limited to raw coins. Counterfeiters have figured out ways to counterfeiting both the NGC and PCGS holders along with their holographs and seals in order to fool potential customers. Since both companies make it easy to look up serial numbers via their websites, counterfeiters will use the serial number of a real coin and counterfeit that coin for the holder. Both NGC and PCGS have been doing as much as technology allows when upgrading their holders and holographic seals to thwart counterfeiters.

A reminder of the issue landed in Inboxes today from Doug Davis of the Numismatic Crime Information Center. Rather than describe the warning, here it is in its entirety:

COUNTERFEIT SUSPECT

Dealers in Illinois, Missouri, Oklahoma and Kansas should be on the look out for a suspect selling counterfeit coins and bullion within the last ten days. The suspect has been identified as Gabe Owen and sometimes uses the alias Garet or Gabriel Owen. Owen is a white male and uses a Kansas driver’s license or a passport as identification. The vehicle driven by Owen is a white Yukon or Tahoe.

Owen is attempting to sell gold bars, one ounce gold eagles, a 1795 PCGS VF dollar and silver eagles. The same suspect was identified in similar incidents and reported by NCIC approximately one year ago.

We are working with authorities to get a current photo. At the present time there is no outstanding warrant for this subject.

A basic tool against counterfeiting is education. You should know and understand what you are buying. While this sounds basic, you have to think about the coins you are purchasing. For example, collectors of Morgan dollars might think they know what the coin looks like and what to look for, but do you really know? Could that variation in the strike be a known variety, known as VAMs after ground breaking research into Morgan dollar die varieties by Leroy C. Van Allen and A. George Mallis? What if it is a real Morgan dollar that was once cleaned or tooled that would be at least worth its value in silver?

Even if you do not have the education give a definitive answer, how many times have you heard the target of a scam say that something did not seem right or that they questioned a lot of what the seller was saying? More times than not, these instincts are usually right and the few times they are not right, you should feel better knowing that at least you had the sense to listen to that inner voice because you might need it next time.

Always remember, if the deal is too good to be true, it probably is not a good deal!

While counterfeiting is illegal and there are protections under the Hobby Protection Act, the only person that can be prosecuted is the seller. Under the law, the only other person who could be prosecuted is the manufacturer. In most cases, the manufacturer is outside of the United States and beyond the reach of law enforcement.

One tool that can help is H.R. 2754, the Collectible Coin Protection Act. The Collectible Coin Protection Act updates the Hobby Protection Act by allowing law enforcement to target the distributors as well as the sellers. By making the changes H.R. 2754 prescribes, it allows law enforcement to cut off the supply lines from the counterfeit manufacturers.

H.R. 2754 passed the House of Representatives on July 30, 2013 and was sent to Senate for their consideration. However, the bill is sitting in the Senate Commerce, Science, and Transportation waiting to be scheduled. Even if your senators are not a member of this committee, if they hear from constituents that this is a concern, they will speak with the committee chairman Sen. Jay Rockefeller (D-WV) or the ranking member Sen. John Thune (R-SD) to bring this to a vote.

Be part of the antidote to this virus and go to senate.gov, use the pull down menu in the upper-right corner of the page to select the state you live or work. Please contact both of your senators and let them know that you support the Collectible Coin Protection Act. When you contact your senators, tell them that the bill is revenue neutral. It will not add to the deficit and will not require additional appropriations.

In the meantime, please be careful and educate yourself before making that purchase. Buy the book before you buy the coin may be more important now than ever.

The advantage is that almost any book at almost any price is a bargain. You cannot buy them much cheaper. The profits come from knowing what is between the covers. The best collections are built on knowledge, not price sheets.

I could not have said it better!

Last quote from “Aaron Feldman: Buy the Book Before You Buy the Coin,” by Mike Marotta, MSNS 7935.
Image of counterfeit coin and slab was taken by the author at the 2014 F.U.N. Show.

Counting Down the Top 10: #3 Fighting Counterfeits

Counterfeiting coins and currency has been a problem for both the government and the numismatic industry. Government has shown it will go to extensive lengths in order to change the $100 note in order to stop currency counterfeiting. In fact, currency has had a long history of trying to fight currency counterfeiting.

For collectors of United States coins, there is a problems with the counterfeiting of classic coins primarily from China. In China, it is legal to reproduce obsolete

An example of a Morgan Dollar cut in half to match a date with a mintmark to have the coin appear something it is not. Coin was in a counterfeit PCGS slab and caught by one of their graders.

An example of a Morgan Dollar cut in half to match a date with a mintmark to have the coin appear something it is not. Coin was in a counterfeit PCGS slab and caught by one of their graders.

foreign coins. The thought is that the coins are obsolete and would not be accepted in commerce. However, when one of these “entrepreneurs” creates a fake coin that mimics a valuable rare variety, that causes a problem amongst collectors.

Those who create counterfeit coins are not making “tributes,” as has been the stance of the Chinese government. They are reproducing rarities and trying to pass them as real coins. In some cases, these counterfeiters are even trying reproduce the third-party grading service slabs in order to get them past scrutiny.

In the United States, Industry Council for Tangible Assets and the Gold & Silver Political Action Committee has been working to have congress update the Hobby Protection Act (15 U.S.C §§ 2101-2106) to provide for more protection to the buyer. Aside from strengthening the requirement to have copies appropriately marked and marketed, it allows for duped buyers and the government to take action against the resellers. Currently, the Hobby Protection Act only allows for action against the manufacturers and not anyone else in the supply chain. By opening the supply chain to prosecution it is hoped that it will choke off the supply.

This past August, the House of Representatives passed the Collectible Coin Protection Act on a unanimous voice vote.

PCGS representatives showed Congressmen counterfeit U.S. coins in counterfeit PCGS holders during their recent meetings in Washington, DC.  (Photo courtesy of PCGS.)

PCGS representatives showed Congressmen counterfeit U.S. coins in counterfeit PCGS holders during their recent meetings in Washington, DC. (Photo courtesy of PCGS.)

The bill, H.R.2754, has been referred to the Senate and is currently waiting for action in the Commerce, Science & Transportation Committee. To support the law, to to senate.gov and use the pull down menu in the upper-right corner of the page to select the state you live or work. Please take the time to contact both of your senators. In fact, if they hold town hall meetings in your area, you can use that opportunity to talk with them personally.

Collectible coins are not the only problem. Great Britain has been having problems since the issue of new £1 coins entering circulation starting in 2010. Even though arrests have been made, there remains an undetermined amount of counterfeit coins in circulation.

Last summer, counterfeiters were arrested in Greece and Turkey for producing fake 2 Euro coins. These counterfeits look very similar to the standard 2 Euro coin with the standard Greece reverse. A real 2 Euro coin is a bi-metalic coin that does not separate. The counterfeits will separate and are lighter than the real version.

In Canada, the Royal Canadian Mint has changed the Loonie and Toonie to include micro engraving to thwart counterfeiters. The RCM has also changed the composition of the coins which will help them last longer.

Counterfeit coins and currency will continue to be a problem. Every change, no matter how small, is not only good for the economy, it is good for the hobby.

Images of the new Loonie and Toonie courtesy of the Royal Canadian Mint.

Law to help fight fakes makes progress

The fight against fakes has taken a significant step forward with the passage of the Collectible Coin Protection Act in the House of Representatives before congress left for summer recess.

Formerly H.R. 1849, the current was reintroduced by Rep. G.K. Butterfield (D-NC) to resolve a technical issue. All of the co-sponsors for H.R. 1849 co-sponsored H.R. 2754 with the addition of Rep. Lee Terry (R-NE).

On July 30, H.R. 2754 was brought to the floor of the House of Representatives on the suspension calendar. Bills on the suspension calendar are those that are considered non-controversial and have broad support. For this bill, Rep. Michael Burgess (R-TX) was the floor manager and moved to suspend the rules and pass this bill. After a brief introduction, Rep. Butterfield spoke on behalf of the bill.

If you want to read what was said, it begins near the bottom of the second column of page H5147 in the Congressional Record. [PDF]

H.R. 2754 passed the House of Representatives on a unanimous voice vote.

The bill will be sent to the Senate but will not be considered until after the summer break.

It is not too early to contact your senator to ask for their support. Just go to senate.gov and use the pull down menu in the upper-right corner of the page to select the state you live or work. Please take the time to contact both of your senators. In fact, if they hold town hall meetings in your area, you can use that opportunity to

Collectors who live in North Carolina’s First District, can send email to Rep. Butterfield to thank him for his help. Everyone else can send him a quick note on Twitter to @GKButterfield to show your appreciation!

You can read the Collectible Coin Protection Act and track the bill’s progress at http://www.govtrack.us/congress/bills/113/hr2754.

Second chance to Help Fight Against Fakes

Following the failure of the House of Representatives to even consider the Collectible Coin Protection Act in the 112th Congress (H.R. 5977), Representative Lamar Smith (R-TX) kept his promised and re-introduced the bill into consideration for the 113th Congress. On May 7, 2013, H.R. 1849 was assigned to the House Energy and Commerce Committee. The bill was introduced two days before the National Money Show, the current co-sponsors are Reps. Bill Cassidy (R-LA), Steve Scalise (R-LA), and Henry Waxman (D-CA). Fred Upton (R-MI) is the Chairman of the Energy and Commerce Committee and Waxman is the Ranking Member. Both Cassidy and Scalise are members of that committee.

The bill is exactly the same as H.R. 5577 that was introduced late in the 112th congress.

Rep. Steve Scalise is a new addition to this bill. He represents Louisiana’s 1st District that covers an area north and to the west of New Orleans that includes Metarie and Slidell. Scalise attended a reception at the National Money Show where he expressed his commitment to see the bill pass.

Scalise is the newly elected chairman of the Republican Study Committee (RSC), a caucus of House Republicans “organized for the purpose of advancing a conservative social and economic agenda in the House of Representatives.” In an interview during the National Money Show reception, Scalise said that would be H.R. 1849 an effective tool to help the hobby and since it is revenue neutral, he will recommend it to the 174 members of the RSC.

Currently, the Hobby Protection Act (15 U.S.C. §§2101-2106 and 16 CFR 304) does not allow for enough protection for the buyer. Aside from requiring the word “COPY” to appear on a copy, it does not allow for buyers or the government to take action against resellers, only the manufacturers.

When the Hobby Protection Act was first enacted in 1973 and updated in 1988, the online world did not exist the way it does today. It was easier to trace the manufacturers and the overseas sellers than the distribution channels are today. By the time a counterfeit coin reaches the United States, it could have been bought and purchased several times before being noticed. Then there is no remedy for those who have been duped.

Another problem is that the counterfeiters are learning to counterfeit slabs. Both NGC and PCGS have seen their slabs counterfeited or altered holding counterfeit coins. Both NGC and PCGS have the same problems with trying to protect their brands against counterfeiters.

The introduction of the bill is the result of the work of the Industry Council for Tangible Assets (ICTA) and Gold and Silver Political Action Committee (GSPAC), and the numismatic community working with key representatives to craft an effective legislation. It is also written to ensure support from congress. Benefits of the new law are as follows:

  1. Include the distribution and sale of items not properly marked as being a COPY
  2. Expands the provisions to include “any person who provides substantial assistance or support to any manufacturer, importer, or seller” who knowingly engages in any act or practice that violates the Act;
  3. Expands the ability for those who were sold counterfeit items to include the counterfeiter, their agent in the United States, or anyone who knowing “transacts business” in violation of this Act;
  4. Extend trademark violations and remedies to help third-party certification services protect against counterfeit holders.

These new provisions will allow collectors, dealers, and grading services to bring legal actions that are much more effective, with much stronger remedies than previously existed. It will allow those harmed to work with the Justice Department to bring criminal actions, where apporpriate.

WE STILL NEED YOUR HELP

The only way to ensure that H.R. 1849 becomes law, especially since we are approaching the end of this session in an election year, is to contact your member of congress will let them know that the numismatic community supports this Act and that their support is important.

To contact your representatives, visit house.gov and enter your Zip Code at the top right of the page. When you contact your representative, you should mention that H.R. 1849 is revenue neutral and will not require additional appropriations. The bill will go a long way in combating counterfeit rare coins in the marketplace, saving collectors and investors millions of dollars in fraudulent transactions.

To read a copy of the bill and to track its progress, you can use govtrack.us. Sign up for a free account then visit this link for information about this bill and how to track its progress.

An example of a Morgan Dollar cut in half to match a date with a mintmark to have the coin appear something it is not. Coin was in a counterfeit PCGS slab and caught by one of their graders.

An example of a Morgan Dollar cut in half to match a date with a mintmark to have the coin appear something it is not. Coin was in a counterfeit PCGS slab and caught by one of their graders.

DISCLAIMER: I am working as Political Coordinator for the Gold and Silver PAC.

ANACS Revelation Shows We Continue to Have Counterfeit Problems

It was reported that the third-party grading service ANACS has found a counterfeit 1934 Peace Dollar. Although the coin appears to be made with a genuine planchet, indications of heavy polishing and other flaws seen under high magnification has ANACS questioning the coin’s authenticity.

Senior ANACS Numismatist Michael Fahey was interviewed for the Coin World article does not believe that the counterfeiters used a previously struck coin and that the dies were made using a transfer process.

NGC discovered the “Blundered O” not included in the VAM references.

However, not everyone agrees with some of the diagnostics. Numismatic Guarantee Corporation commented that the tooling inside the “O” in the motto may indicate that a specific die variety may have been used. NGC pointed an auction of an known authenticated coin that shows what they called the “Blundered O.”

Regardless of whether one point is valid or not, the fact of the matter is that the ANACS staff who examined the coin found a lot of evidence that leads them to believe the coin is counterfeit. Finding counterfeit coins that get by experienced dealers and nearly fools the graders is a serious matter for the hobby. This is why the Hobby Protection Act needs to be strengthened so that we can stop something like this from hurting the hobby.

I will remind everyone that it is not too late to write to your representative and ask him or her to support H.R. 5977 the Collectible Coin Protection Act. In short, the Collectible Coin Protection Act will allow collectors, dealers, and grading services to bring legal actions that are much more effective, with much stronger remedies than previously existed. It will allow those harmed to work with the Justice Department to bring criminal actions, where appropriate.

The only way to ensure that H.R. 5977 becomes law, especially since we are approaching the end of this session in an election year, is to contact your member of congress will let them know that the numismatic community supports this Act and that their support is important. It can be worked on during the lame duck session and members of the Industry Council for Tangible Assets (ICTA) and the Gold and Silver Political Action Committee are working to see this law passed.

WE STILL NEED YOUR HELP!

There are only 11 co-sponsors of this bill as I write this post. We need more co-sponsors to get the attention of the House leadership.

First, see if your member of congress is not a sponsor of this legislation. The best way is to visit govtrack.us, scroll down and and select the “show cosponsors” link. If your representative is not there, here is a sample note to send them (complements of the ICTA):

As your constituent, I urge you to sign on as a co–sponsor of HR 5977, “The Collectible Coin Protection Act.” The bill was introduced on June 12 by Representatives Lamar Smith and Fred Upton, chairs of the Judiciary and Energy & Commerce Committees, respectively.

HR 5977 provides a means whereby US citizens can take legal action against purveyors of the high-quality counterfeit US coins entering our marketplace from China by expanding enforcement power of the Hobby Protection Act. The Hobby Protection Act has been in effect since its passage in December, 1975, but lacks enforcement power that HR 5977 now provides.

HR 5977 is revenue neutral and contains no controversial issues.

Please contact me if you have any questions or if I can provide any additional information. Thank you for your action on this.

Even though the House is not in session, members can still contact the Clerk of the House and ask that their name be added as a co-sponsor. The more names added, the better the chance that the bill will see action in the lame duck session.

Please take this opportunity and contact your representative today!

ADDED: If you do contact your representative, please leave a note here and let me know who you contacted. THANKS!

Image courtesy of NGC.

Help The Fight Against Fakes

Maybe you have seen them or have heard about them, but counterfeit coins primarily from China is a problem in the numismatic industry. But collectible coins are not the only problem. Great Britain has been having problems since the issue of new £1 coins entering circulation starting in 2010. Even though arrests have been made, there remains  an undetermined amount of counterfeit coins in circulation.

Recently, counterfeiters were arrested in Greece and Turkey for producing fake 2 Euro coins. These counterfeits look very similar to the standard 2 Euro coin with the standard Greece reverse. A real 2 Euro coin is a bi-metalic coin that does not separate. The counterfeits will separate and are lighter than the real version.

Canada recently made a move to prevent counterfeiting of their new $1 (Loonie) and $2 (Toonie) coins. New Loonies and Toonies produced by the Royal Canadian Mint will have micro-engraved images of a maple leaf and a virtual image using an angled design. The RCM hopes these fine details added to the Loonie and Toonie will prevent them from being counterfeited.

While the United States does not have a problem with counterfeit circulating coins yet, it is a problem for collectible coins. Why counterfeit a quarter when you can make more money counterfeiting a Morgan or Trade dollar by selling it online to unsuspecting online buyers?

The problem perpetuates itself when the buyer looks to cover the money spent turns around and tries to resell the coin. Some people will purposely buy better counterfeit coins that will begin to fool dealers and try to resell them in the United States using a U.S. address to try to give the coin an air of credibility.

Currently, the Hobby Protection Act (15 U.S.C. §§2101-2106 and 16 CFR 304) does not allow for enough protection for the buyer. Aside from requiring the word “COPY” to appear on a copy, it does not allow for buyers or the government to take action against resellers, only the manufactuers.

When the Hobby Protection Act was first enacted in 1973 and updated in 1988, the online world did not exist the way it does today. It was easier to trace the manufacturers and the overseas sellers than the distribution channels are today. By the time a counterfeit coin reaches the United States, it could have been bought and purchased several times before being noticed. Then there is no remedy for those who have been duped.

Another problem is that the counterfeiters are learning to counterfeit slabs. Both NGC and PCGS have seen their slabs counterfeited or altered holding counterfeit coins. Both NGC and PCGS have the same problems with trying to protect their brands against counterfeiters.

A significant step forward would be to update the Hobby Protection Act!

Last month, H.R. 5977, the Collectible Coin Protection Act was introduced in the House of Representatives by Representatives Lamar Smith (R-TX) and Fred Upton (R-MI). Since then, Representatives Pete Sessions (R-TX), Henry Waxman (D-CA), and Bill Cassidy (R-LA) has signed on as co-sponsors.

The introduction of the bill is the result of the work of the Industry Council for Tangible Assets (ICTA) and Gold and Silver Political Action Committee (GSPAC), and the numismatic community working with key representatives to craft an effective legislation. It is also written to ensure support from congress. Benefits of the new law are as follows:

  1. Include the distribution and sale of items not properly marked as being a COPY
  2. Expands the provisions to include “any person who provides substantial assistance or support to any manufacturer, importer, or seller” who knowingly engages in any act or practice that violates the Act;
  3. Expands the ability for those who were sold counterfeit items to include the counterfeiter, their agent in the United States, or anyone who knowing “transacts business” in violation of this Act;
  4. Extend trademark violations and remedies to help third-party certification services protect against counterfeit holders.

These new provisions will allow collectors, dealers, and grading services to bring legal actions that are much more effective, with much stronger remedies than previously existed. It will allow those harmed to work with the Justice Department to bring criminal actions, where apporpriate.

WE NEED YOUR HELP

The only way to ensure that H.R. 5977 becomes law, especially since we are approaching the end of this session in an election year, is to contact your member of congress will let them know that the numismatic community supports this Act and that their support is important.

To contact your representatives, visit house.gov and enter your Zip Code at the top right of the page. When you contact your representative, you should mention that H.R. 5977 is revenue neutral and will not require additional appropriations. The bill will go a long way in combating counterfeit rare coins in the marketplace, saving collectors and investors millions of dollars in fraudulent transactions.

DISCLAIMER; I am working as Political Coordinator for the Gold and Silver PAC.

Images courtesy of the Gold and Silver PAC.

Rallying Congress to Fight Overseas Counterfeiting Problems

I attended the event sponsored by the Gold and Silver Political Action Committee (GSPAC) on June 27, 2012 to lobby them for passage of the Collectible Coin Protection Act (H.R. 5977) introduced last month by Rep. Fred Upton (R-MI), Chairman of the U.S. House Energy and Commerce Committee, and Lamar Smith (R-TX), Chairman of the U.S. House Judiciary Committee. This is a bill that everyone in the numismatic committee should support and ask their member of congress to support.

For now, I will let the folks at PCGS tell you their experiences at the event (their press release follows). I will follow up at some point with my own thoughts and commentary on the topic. Also, while the press release has one picture, there are three more that I posted to Pinterest that I think are more interesting, including a Morgan Dollar that was cut in half to marry a specific date with a mintmark that was placed in an altered PCGS holder and sent to PCGS for verification. It is fascinating what some people will do and what they get away with.

PCGS Gives Congressmen A Close Look At Counterfeiting Problems

(Washington, DC) – During June 27, 2012 meetings with numismatic leaders in Washington, DC, influential U.S. Congressmen and congressional staff members learned about rare coin authentication and were shown examples of counterfeit coins from the Professional Coin Grading Service (www.PCGS.com) reference collection and examples of counterfeit PCGS encapsulation holders. PCGS has detected over 5,500 counterfeit coins submitted in the last 12 months, a higher number by far than in any previous 12-month period.

PCGS representatives showed Congressmen counterfeit U.S. coins in counterfeit PCGS holders during their recent meetings in Washington, DC. (Photo courtesy of PCGS.)

“The Congressmen and staff members were impressed with what they heard and saw as we explained the frightening detail counterfeiters have been able to achieve and the need to bring anti-counterfeiting laws up to date to combat the problems,” said PCGS attorney Armen Vartian who made a presentation with other PCGS delegates at the meetings.

Vartian met with Rep. Fred Upton (R-Michigan), Chairman of the U.S. House Energy and Commerce Committee, Lloyd Doggett (D-Texas), a member of the House Ways and Means Committee and staff members for other Congressmen including Howard Berman (D-California), the second ranking Democrat on the House Judiciary Committee.

“It was a very successful series of meetings. The Congressmen and staff members focused on the items we brought; actual counterfeit coins and counterfeit holders, and heard about the on-going efforts by PCGS to combat dealers who sell fake coins and holders. We also talked about educating collectors and dealers. But now the numismatic community must come together and urge other members of Congress to support and approve changes to the law.”

Those proposed changes are in HR5977, the Collectible Coin Protection Act of 2012, a bill that would amend and significantly strengthen the Hobby Protection Act of 1973. The Washington meetings were aimed at educating members of Congress about the counterfeiting problems and the need for stronger laws.

“Every collector, every dealer, should personally contact their Congressional representatives now and specifically request they support HR5977,” Vartian emphasized.

“There are several very positive elements in the bill (HR5977) for PCGS and for all collectors and dealers who buy and sell PCGS-certified coins. One provision provides for triple damages for counterfeiting third-party holders such as the patented, sonically-sealed PCGS tamper-evident holders,” said Don Willis, PCGS President.

HR5977 was introduced on June 20 by Congressman Lamar Smith (R-Texas), Chairman of the U.S. House Judiciary Committee, and co-sponsored by Congressman Upton.
The Washington meetings were organized by the Gold & Silver Political Action Committee. In addition to PCGS, representatives of the Industry Council for Tangible Assets (ICTA), the Professional Numismatists Guild (PNG) and Numismatic Guaranty Corporation (NGC) also attended along with former Louisiana Congressman Jimmy Hayes, a long-time collector.

The Hobby Protection Act, first enacted in 1973 and amended in 1988, requires manufacturers and importers of imitation numismatic items to mark them plainly and permanently with the word, “COPY.” The Collectible Coin Protection Act would expand and strengthen the consumer protections to provide remedies against sellers of such items and others who substantially assist them. It also would increase penalties for fake coins fraudulently sold inside counterfeit grading service holders.

Barry Stuppler, Chairman of the Gold & Silver PAC, said if approved by Congress and signed into law by the President the new law would:

  1. Include not only the distribution but also the sale in commerce of prohibited items;
  2. Add a provision expanding the Hobby Protection Act to include “any person who provides substantial assistance or support to any manufacturer, importer, or seller” knowingly engaging in any act or practice that violates the Act;
  3. Expand the venue for legal action to include not just having an agent present, to include “transacts business” — or wherever venue is proper under section 1391 of Title 28, United States Code;” — and
  4. Add a section on Trademark violations specifically written to include the certification services and adds remedies to the Hobby Protection Act that currently exist under the Trademark Act of 1946 (U.S.C. Title 15, Sections 1116-1118) for violations of the Hobby Protection Act.

In a statement prior to the meetings, Willis stated: “Chinese counterfeiting is the most serious challenge faced not only by the collectibles markets and brand name products, but also by the United States Treasury. Entire industries have sprung up in China to manufacture virtually anything made in America including U.S. Government issued coins. These factories and industries operate in the open and with the full support of the Chinese government. By its lack of action to stop the activities, the Chinese government endorses the counterfeiting of U.S. coins.”

“Even worse, Customs and the U.S. Government do little to stop counterfeits from entering the U.S. Once in the US little effort is made to arrest and prosecute individuals selling counterfeit material. Consequently the U.S. has been flooded with counterfeit products, including coins, resulting in the loss of billions of dollars in revenue each year,&rdquo Willis explained.

PCGS Slabs Hong Kong

Last month, PCGS announced they will open an office in Hong Kong to help Asian dealers authenticate and grade coins for their market. With the flood of counterfeits from that area of the world, providing access to a third-party grading service could help in reducing the proliferation of fake coins.

Recently, PCGS announced that their new Hong Kong company will be grading coins prior to and during the Hong Kong International Coin Convention and Antique Watch Fair beginning on March 24 and continuing through April 6, 2012. If you are interested in submitting coins to PCGS Hong Kong, read the story at coinnews.net.

More interesting are the sample of the holders PCGS published with the press release. PCGS will continue to use slabs similar to those used in the United States without the edge-revealing prongs. The medium sized slab in the image (right) appears similar to those used to encase the 5 ounce America The Beautiful Silver Bullion Coins. What appears to be new is the large-size slab for those large silver coins issued for the new lunar year, for example.

To identify coins graded by the PCGS Hong Kong subsidiary, the label used on the slab apparently will have a circular logo colored in red.

This is reported with mixed feelings. While I prefer raw (ungraded) coins, I understand the the necessity to authenticate coins especially from that area of the world. If you do not know about the extent of the problem with Chinese counterfeit coins, this article by Susan Headly includes detailed images of a Chinese counterfeiting operation and should be a scary reminder.

How to Detect Counterfeit Coins Basics

With the proliferation of fake Chinese coins a problem in numismatics industry, it is a good idea to understand how to tell these fakes from the real coin. The following video from silveragecoins.com shows some of the basics that anyone can use to examine coins to determine if they are real or not:

I like the computer-generated voiceover!

If you are uncomfortable trying to detect whether a coin is counterfeit or not, you might consider the following:

  1. Buy from a reputable dealer who has return and/or buy back policies.
  2. If you buy raw coins and have questions, ask that the coin be examined by a third-party grading service (e.g., NGC or PCGS). You may be asked to pay the grading fees. Some dealers may charge a service fee for submitting coins on your behalf.
  3. If you own coins that you may have questions about, either bring it to a dealer for an opinion or submit the coin to the third-party grading service yourself. NGC and PCGS have membership services to allow you to directly submit coins for authentication and grading. Members of the American Numismatic Association can register to directly submit coins to NGC.
  4. If you are buying through an online auction and you have any question about the coin, you are better off not trying to purchase it than trying to deal with returns. While there are quite a few reputable dealers who sell on these sites, it may take more than a month for the process from purchase to refund to occur. During that time, you will not have access to this money.

Remember, caveat emptor (let the buyer beware): without a warranty, the buyer takes all of the risk.

For sellers, caveat venditor (let the seller beware): unless you expressly disclaim any responsibility, you will be held liable if the item is not true to its specification.

Now let’s go and have fun collecting!

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