Though infamous for its thriving narcotics industry, Colombia is also the world's leading producer of counterfeit US currency.

Evidence shows that the two industries are converging, with drug producers increasingly relying on counterfeit cash to fund their operations. Most troubling for US drug-intervention efforts, counterfeit currency is also being used to fund leftist guerillas, who in turn provide a shield for drug production.

The link between drugs and counterfeiting was forged during the mid-1980s, in the heyday of the big drug cartels, when members of the legendary Cali cartel began using counterfeit dollars to buy coca base from unwitting farmers. Since then, counterfeiting has flourished as a cottage industry in Colombia, supporting a variety of illegal activities. Today, hidden money factories are scattered throughout the country, pumping out cash to supply global distribution chains in the United States, Latin America, and Europe.

In part, the low cost of making counterfeit money has enabled the rise of large-scale counterfeiting. Convincing forgeries can be produced using relatively inexpensive technology. For example, Colombian counterfeits are almost exclusively made on old-fashioned offset printing presses but are nonetheless some of the highest-quality forgeries in the world. Colombian counterfeiters are skilled craftsmen who have spent years honing their trade. Photos of authentic notes are touched up before being etched on steel plates and printed onto bleached, real one-dollar bills. The phony notes are then mass produced and sold on the black market for a fraction of their face value. Of course, the copies are never exact, since offset printing cannot achieve the unique surface texture produced by the high-end presses and state-of-the-art intaglio method used by the US Bureau of Engraving and Printing. Nevertheless, the copies are generally good enough to fool most people.

The demand for counterfeit dollars is high. The US dollar is the most commonly used currency in the world, and its popularity abroad (60 percent of all US dollars circulate outside the United States) makes it the top choice among counterfeiters. Colombia now produces roughly 80 percent of all foreign-made counterfeit US dollars and is responsible for one-third of the estimated US$400 million in counterfeit bills circulating throughout the United States. Dollarization has increased this demand and left more countries vulnerable to counterfeiting. For example, Colombian counterfeiters began targeting Ecuador, already a common route for drugs and weapons, after Ecuador's shift to the US dollar. Because people were unfamiliar with the new currency, they were easily fooled by the counterfeit bills.

Counterfeiting operations are often difficult to track down since they usually operate out of hideouts and require few employees. After an exhaustive two-year investigation, law-enforcement officials uncovered one such outfit in November 2000: a small, subterranean dugout that housed one of the largest known counterfeiting operations in the world. Ensconced deep in the Andean banana groves of western Colombia, the cinderblock bunker had churned out an estimated US$3 million in phony US bills every week for the previous 10 years.

Estimating the extent of counterfeiting has proven difficult.The November crackdown came only three months after Colombian authorities claimed they had dismantled the largest counterfeiting ring in the world: a comparatively small outfit that printed a mere US$60 million over its lifetime. No one knows how many similar operations exist, or even how one might find out.

Colombian counterfeiters are most pernicious because they nearly always operate in tandem with other criminal enterprises, and these enterprises are linked to the country's numerous militia groups. Last year, law-enforcement officials cracked a US$100 million arms-smuggling organization that was financed by drug profits and Colombian-made counterfeit US dollars. According to police, the weapons may have been for Colombia's armed groups: FARC (Revolutionary Armed Forces of Colombia), ELN (National Liberation Army), and AUC (United Self-Defense Forces of Colombia).

All three groups derive hefty profits from drug-related activities that are in turn propped up by counterfeit dollars. Carlos Castanio, leader of the right-wing AUC, candidly acknowledges that his group obtains 70 percent of its income from the drug trade. Colombia's largest guerilla group, the leftist FARC, controls areas producing 90 percent of the country's cocaine output. Militiamen now guard the coca fields formerly protected by cartel gunmen.

Moreover, the regions controlled by the FARC and the ELN are home to many of the criminal organizations that control the smuggling networks.These networks are increasingly being used to transport both illegal drugs and counterfeit cash. As law-enforcement agencies uncover more evidence, the picture that emerges is one of a multifaceted, highly interconnected criminal subculture, more dispersed than in the days of the big cartels, yet highly successful, in which numerous groups-drug smugglers, arms dealers, counterfeiters, and militias--collude. Counterfeit cash is an important element allowing these groups to carve out a sovereign position independent of the Colombian government.

Technological innovation will continue to be part of the fight against counterfeiting. As counterfeiters strive to outsmart the US Treasury, US bills will have to integrate more sophisticated anti-counterfeiting features. New tracking techniques, such as chemical "fingerprinting" that can detect trace elements in bills unique to the place where they were produced, are one example. Things are improving on the Colombian front as well. In an attempt to discourage counterfeiting from within, the Colombian government is increasing the maximum prison sentence for convicted counterfeiters from six years to 10 years.This development is significant because any sentence of six years or less can be swapped for a fine.

But while the demand for counterfeit money persists and counterfeiting operations remain wedded to drug syndicates, tougher penalties will likely have little effect.As long as militias that profit from the drug trade control large parts of Colombian territory, counterfeiting will continue to thrive as a parasitic industry. To be successful, anti-counterfeiting efforts must recognize the intricate connections between counterfeiting, drug trafficking, and arms smuggling.