The Town That Prints Money: Europe's Counterfeit Capital

In a small town near Naples, Europe’s largest forgery network continues to churn out fake euros under the watchful eye of the local mafia Cesura/LUZ/Redux

The stench of rotting garbage and diesel fumes hangs heavily over the main street of Giugliano in Campania, a sprawling town just north of Naples. In a dusty piazza, unemployed youths pass the time with noisy hands of cards, dragging on contraband Marlboros hawked openly on nearby street corners, while old men in flat caps doze on park benches. Just outside the town, prostitutes loiter by a slip road leading to the Naples motorway.

On the surface, there is not much to differentiate Giugliano from any of the other decaying communities in southern Italy, struggling to cope with the impact of a deep and prolonged economic recession. Yet behind the peeling, graffiti-spattered buildings, there is another Giugliano, inhabited by a tight-knit network of talented forgers. Following a tradition handed down across generations, these experts are producing counterfeit euro notes of such high quality, that the European Central Bank (ECB) worries the integrity of the single currency—now second only to the US dollar in terms of international acceptability—could eventually come under threat.

According to the ECB, since the euro was introduced in January 2002, more than half of the six-million-plus fakes withdrawn from circulation (well over 300 million euros worth) can be traced back to the clandestine print shops located in and around Giugliano. "There's an august and enduring tradition of counterfeiting in Italy and Giugliano is its capital, with the best professionals in the business," says Alessandro Gentili, who until 2013 commanded the Carabinieri unit responsible for combating the forgers, and has since been appointed as Commander of the Gendarmerie in San Marino. A dashing figure with a spray of medal ribbons on his black uniform, Gentili keeps a silver cavalry sabre beside the desk at his office in Rome.

As Gentili explains, Giugliano's present-day forgers are inheritors of a tradition established by the counterfeiting rings operating around Naples, which formerly specialised in producing phoney US dollars and French and Swiss francs. He admits to a grudging respect for the criminals he pursues, acknowledging that today's counterfeiters are experts in the graphic arts, printing and computer science. Among Gentili's extensive collection of fakes, there is a 20 euro note that only the closest forensic examination would reveal as bogus. "As soon as the euros began circulating," he recalls, "these skilled forgers were already figuring out ways to make them."

While officials at the ECB accepted that counterfeiters would test the new money's protective measures before the public became familiar with it, an intensive advertising campaign ahead of the launch portrayed the euro as the most counterfeit-proof currency ever to roll off the presses. The unprecedented array of security features incorporated into notes of every denomination ranges from complex holograms and specially treated paper, to inks that shift colour under ultraviolet light and a "touch test" feature using a device like a tiny scratch card. Nevertheless, an American underworld expert had already predicted that the arrival of the euro would provide "the biggest shot in the arm for organised crime since the US prohibited alcohol sales."

There was no immediate explosion of fakes after the new notes hit the streets in 2002.

Lisi Niesner/Reuters

"Much of the early stuff was rubbish, often run off on a standard desktop printer," says Allister McCullum, a former counterfeit expert at the ECB and senior executive at the bank's high-rise headquarters in Frankfurt. That began to change when more ambitious operators moved in, utilising offset lithograph machines capable of churning out large quantities of convincing fakes at speed and and helped by advanced desktop technology, featuring laser and inkjet printers. "But even now, most forgers aren't interested in producing near-perfect notes that will get past bank checking machines," McCullum says. "They just aim for something that's good enough to fool the general public."

He and his specialists spent their days peering at bogus notes for clues that might have helped them keep a step ahead of the forgers. The overwhelming majority of fakes they handled were produced within the European Union's member states. Although the ECB does not point the finger publicly, it is an open secret in McCullum's world that Italy heads the funny money field—though Bulgaria has a growing reputation for the quality of its two hundred euro notes. And in Italy, Giugliano sets the standard.

In 2007, there was a 12% increase in the number of bogus euros recovered by the ECB, and the following year another double-digit spike brought a new high of more than 650,000 identified fakes. Then, as now, the €20 and €50 notes, which tend to attract little attention when used in public transactions, provided by far the largest proportion of forgeries, followed by the €100 note.

Earlier this year, the ECB revealed that a record 670,000 forged notes were withdrawn from circulation in 2013, representing an annual increase of more than 26%. Virtually all of these fakes turned up in eurozone countries, suggesting that in established centres of counterfeiting like Giugliano, a fresh assault on the currency was underway.

Mafia Money

For as long as the 100,000 or so residents of Giugliano can remember, the town has been in the iron grip of the Camorra, the violent organised crime syndicate, whose tentacles extend throughout the Campania region and beyond. A police report report in 2011 described how Giugliano's dominant Mallardo clan effectively controlled the local economy: "Their front companies run entire sectors, from the production and distribution of milk and coffee, to betting shops, bars and pharmaceutical products."

The Mallardos also cornered a rewarding piece of the action in the hugely lucrative "eco-mafia" racket that has seen millions of tons of highly toxic industrial waste trucked in from factories in northern Italy and illegally dumped on farmlands around Naples. One of Italy's most fertile agricultural regions, whose beauty and serenity had entranced Goethe, was heavily contaminated by a devil's cocktail of dioxins, asbestos, and lead and caustic solvents.

The true extent of the waste scandal only became apparent to an outraged Italian public after a top Camorra boss, Carmine Schiavone, turned pentiti (repentant) and blew the whistle on the alleged involvement of senior Italian politicians in the scam.

Giugliano was already at the centre of what the Italian media dubbed "Il triangolo della morte"—the triangle of death. Rates of cancer, infant mortality and autism are now running far above the national average. One site outside the town has leaked enough toxins into the earth to poison the local water supply for the next decade; US military personnel on a Nato base nearby are under strict orders to drink only mineral water.

"The only reason that the Camorra hasn't muscled in directly on Giugliano's counterfeit business is because there was far more money to be made from la monnezza (Neapolitan slang for garbage) and drug trafficking," says a local journalist who asked to be identified only as Marco (a pseudonym). "Of course, they take their cut from the forgers, who have to pay up like anyone else to stay in business and the Camorra sometimes commandeers large consignments of fakes to pass on to foreign gangs like the drug cartels in Colombia."

Outside Giugliano, roads littered with plastic bags, bottles and piles of discarded clothing lead to a remote area where derelict farmhouses and abandoned workshops have been put to use by the counterfeiters. It was on this sparsely populated plain that the first offset lithograph press was discovered by police in 2004. Three more were seized over the next few years.

"The local police have a good idea of what's going on," says Marco. "But sometimes they turn a blind eye because they have to live here alongside the Camorra. There's also significant corruption at local council level." Outside the mayor's office in Giugliano, a poster shows two hands clasping under the slogan "Il Cancro della Corruzione"—the Cancer of Corruption.

But it was not until 2009 that a four-year investigation by the Italian authorities hit the jackpot in the course of a major clampdown on counterfeiting in the greater Naples region. Code-named "Operation Giotto," after the great Florentine artist who could draw a perfect circle by hand, it involved swarms of Carabinieri raiding numerous locations, Giugliano among them. More than 100 people were arrested during the Giotto sweeps, including a number of Camorristi. But the real coup was the recovery of a cache of documents that revealed in fine detail how the "Naples Group"—as it is described by the EU's law enforcement agency, Europol—conducts its business. The typical counterfeiting operation in Giugliano involves just a handful of people who must raise the start-up funds to buy the press—usually second hand, since a new four-colour litho machine can cost up to €500,000—establish a distribution network and find a printer with the skills to replicate the security features of the notes being forged.

"Someone like this is precious to the underworld and once they find their man, they don't let him go," says Fabio Tonacci, an investigative journalist with the Italian newspaper La Repubblica who has reported extensively on the counterfeit business. "They will even keep tabs on him while he's in jail." According to Tonacci, two men from the Naples area, identified only as Giuseppe S and Mario T, were particularly sought after for their ability to recreate the complex holograms used in euro banknotes.

The Counterfeiters

Underlining how crucial such skills are to large-scale counterfeit operations, a case that came before a British court in 2007 revealed the existence of a veteran forger known as "Hologram Tam." His tiny print shop in Glasgow was reproducing the complex three-dimensional images for virtually flawless €50 notes as well as excellent fake £20 notes. Tam was sentenced to six years in jail and eventually died of lung cancer caused by inhaling printing fumes.

Both Giuseppe and Mario had previously been convicted twice on counterfeiting charges, but as Gentili knows only too well, crooked printers tend to slip back into their old ways. "They aren't violent types but they sometimes receive threats from the criminals who want to utilise their expertise." To the exasperation of the Italian authorities, even forgers caught red-handed may escape a lengthy spell behind bars, due in large part to the sluggish legal system and an appeals process that often sees original sentences reduced. One investigating magistrate compares the judicial process dealing with counterfeiters to a "porta girevole" or revolving door.

A slick distribution system is essential for successful counterfeiters; the economics of the business dictate that the profit chain only begins once the fakes are put into circulation. Karel Schell, a Dutch banknote consultant, has calculated that a bogus €50 note costs a tiny fraction of its face value to make, hence the incentive to shift as much product as possible. The Giotto documentation, seen by Tonacci, provides an intriguing inside glimpse into how the process works with the Naples Group.

When word reaches the underworld that someone has counterfeit euros to unload, other criminals take on the distribution, employing a private code to prevent police eavesdropping. The €50 and €20 notes are known as "football shirts", while dollars are referred to as "jeans" or "green bottles". Typically, a bulk-sale from distributor to wholesaler will involve a payment of 10% of the face value price: half a million's worth of fakes changes hands for 50,000 genuine euros.

The next stage involves recruiting mules, commonly nationals of Balkan and Baltic states, to smuggle the bogus notes both into countries within the eurozone and into the steadily growing number of non-eurozone states, where the currency also circulates widely. Each level of the distribution chain usually sees another 10% mark-up on the value of the consignment. "Europe without frontiers is a godsend for the Italian forgery gangs," says a German counterfeit expert, who did not want to be named. "They can stuff a backpack with high-denomination fakes and the courier just hops on a train to make the delivery." Big international events like Munich's annual Oktoberfest or Champions League football matches provide the perfect environment for passing off fake euros. "It's impossible at such times to check every note carefully," the expert says.

The default response from the ECB, when asked ask about the volume of bogus euros swilling around the world's monetary systems, has always been to point out that they represent only a tiny proportion of the total of genuine notes in existence, now standing at approximately 15 billion. According to its own research, the odds against any of us being landed with a dodgy euro are stratospheric, happening just once in every four hundred years. However, the official statistics cover only fakes that have been seized, usually in police raids, or withdrawn after being discovered when they are in the process of being laundered through banks, foreign exchange bureaux, shops and restaurants.

No account is taken of what some currency specialists call the "iceberg factor," arguing that a significantly greater amount of fakes are floating beneath the surface of the world's monetary systems. In an interview in 2008, McCullum of ECB mounted a stout defence of the integrity of the euro, but conceded that, when it comes to the true number of forgeries, "we don't know what is out there." Europol's private estimates reportedly put the figure at between three and five times the amount reported by the ECB. Small wonder, then, that Giugliano's resourceful counterfeiters are a high-priority target for the Carabinieri.

Back in Giugliano, meanwhile, people are coming to terms with the menacing presence of 61-year-old Francesco Mallardo, released from jail in March after serving more than ten years in a high-security prison for a string of crimes including involvement in counterfeiting. The word on the street is that he has every intention of resuming his previous role as Il Padrino—the Godfather.

Big Bucks: why bad guys like the €500 note

The €500 note, known as the "Bin Laden"—we know it exists but few of us will ever see it—is favoured by criminal gangs because a cool million-worth of them can fit into a briefcase. It's handy for laundering dirty money and financing drug deals, and was pulled from general distribution in the UK three years ago. According to Britain's Serious Organised Crime Agency, more than 90% of €500 notes in the UK were in the hands of criminals.

An internal study for the Bank of Italy has warned that the €500 notes are also the mafia's currency of choice. It's hardly surprising that in many parts of Europe proffering a Bin Laden for an everyday purchase can result in a polite refusal.

While official figures show that €500 notes make up almost 40% of the total value of all euros in circulation—around €950 billion, it appears that only a third of them are being used for transaction purposes. One possible explanation is that they are hoarded as "mattress money"; another is that Latin American drug cartels are sitting on vast quantities of the notes.

Despite the note's criminal appeal, the head of the ECB, Mario Draghi, has said there are no plans to get rid of it. While cancelling the note could wipe billions from the cash reserves of international gangs, it could also cause chaos in financial markets.

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