Fantastic Fakes: Busting a $70 Million Counterfeiting Ring

The downfall of a legendary team of forgers, whose bogus bills were so good they’re still in circulation.
Source: U.S. Secret Service

When banks and businesses around the nation’s capital find counterfeit currency, they send it to the Washington field office of the U.S. Secret Service. One morning in May 2012, agent Adam Gaab entered its inventory room, a space filled with money counters, microscopes, ultraviolet lights, and other tools, and saw that a fresh batch of bills had just arrived.

With jet-black hair and a baby face, Gaab, at 28, was one of the younger agents in the Secret Service. He’d dreamed of a career in law enforcement since high school and was working as a Supreme Court police officer when the agency hired him in 2010. Gaab found the job fascinating and diverse—one day he was chasing fraud artists and the next he was guarding the president. By 2012 he’d participated in dozens of counterfeiting investigations, and as he pulled about 30 of the new $100 bills from a cabinet, he recognized them immediately.

They were crisp and lushly green, with the right kinds of serial numbers and even a perfectly simulated watermark. The bills were from a family of counterfeits that had bedeviled agents more than any other, with at least $50 million worth recovered around the world since 1999. Agents called them the Russian-Israeli notes. This particular variation, with “77” stamped in the lower right corner and a set of subtle errors—smudged chevrons, an extra line under one “THE”—was catalogued as Secret Service Circular 23332. It was so common and so good, agents referred to it as the No. 1 note. Gaab selected a specimen and thumbed it, feeling how two sheets of paper had been glued together to mimic the cottony thickness of a genuine bill.

counterfeit bills
A stack of fake bills confiscated in Cherry Hill, N.J.
Source: U.S. Secret Service

Taking the bills and their paperwork to his desk, Gaab began the routine of phoning the businesses in the area that had turned them over. None of the dozens of such calls he’d made over the previous months had turned up any leads. Today, though, an unusually thoughtful manager at a LoanMax in Northern Virginia identified a 44-year-old man who’d used four fake $100s to pay off the loan on his Dodge Durango. The man—the Secret Service asked Bloomberg Businessweek to withhold his name—had listed his job as the driver of a hospital laundry truck. A few days later, Gaab drove by the man’s house. With two Mercedes and a BMW in the driveway, it was a pretty tony place for a truck driver.

Over the next nine months, Gaab tracked other notes to local retailers and watched endless loops of security footage. One video showed the laundry driver’s wife handing a bad $100 note to a cashier. Another showed them both passing bills to a clerk at a Walmart. In February 2013, Gaab and local police raided the couple’s house. Gaab sat down with the man in his living room and used the video as leverage: Talk, or your wife goes to jail, too.

The heyday of American counterfeiting came in the decades before and after the Civil War, when each bank issued its own currency. Amid the confusion, an estimated 1 in 3 bills in circulation was fake. To stop the epidemic, Abraham Lincoln established the Secret Service on April 14, 1865, the day he was assassinated. (The agency wouldn’t officially be tasked with guarding the president until after William McKinley’s killing in 1901.) Then in 1877, the federal government began printing all currency. The counterfeiting trade never recovered, and today the Secret Service estimates just one bill in 10,000 is phony. But with $1.4 trillion in U.S. currency in circulation, that’s still a lot of money. During the last fiscal year, the agency seized about $146 million in fake bills.

Most were created on home printers—crude inkjet jobs easily detected by any attentive clerk or bank teller. The real counterfeiting talent is overseas, where enforcement is more lax and tradesmen more plentiful. The most prolific tend to use offset presses—the same hulking, rattling towers of steel that roll off newspapers, books, and magazines. The method is more costly and more efficient, and it results in a more sophisticated note. These are not guys printing a $20 at home for a night on the town. Their goal is to produce reams of fakes they can smuggle into the U.S. And few counterfeits have ever approached the quality or quantity of the Russian-Israelis.

The fakes first appeared in New York in the late 1990s. In addition to the U.S., counterfeit bills generally show up near the printing plant abroad. These notes surfaced in not one but two foreign countries, Russia and Israel; the Secret Service gave them a hybrid nickname on the theory that they were being made in one or the other.

At the agency’s headquarters in Washington, hundreds of the Russian-Israelis began to arrive from across the globe. Examiners set to work reverse-engineering the notes. Agents saw that the craftsman was using a machine that etched foil stamps to replicate the real $100 bill’s security thread and watermark. Genuine currency is printed under such high pressure, the presses leave behind ridges of ink detectable by the finger; with the Russian-Israelis, just one ply was embossed with the words “United States of America,” an effect that approximated the feel of the real thing.

Counterfeit money court documents

Agents speculated that the counterfeiter was scanning multiple bills in high definition to make a composite and then using software to create at least four detailed printing plates: the front of the bill; the back; the serial numbers; and the seal of the Department of the Treasury. After zapping those images onto metal plates, the counterfeiter attached them to an offset press, ran the paper through, allowed the ink to dry, and glued the sheets together. The notes were also treated with a substance that defeated the “starch pens” sometimes used by cashiers to inspect possible fakes.

At the end of the process, which probably took several days, the counterfeiter would have a stack of notes realistic enough to pass muster with a retailer, though probably not with a bank employee. The Russian-Israelis weren’t “supernotes,” the nearly flawless counterfeits the North Korean government has made. They struck a balance between craftsmanship and cost. Any better, and they might not have been profitable.

By the time Gaab began his investigation in 2012, the Secret Service had linked at least 10 different versions to the same family of fake $50s and $100s. The margins were impressive. The agency estimated that the counterfeiter sold his initial run to his U.S. distributors for 10 percent of their face value. The distributors then dealt their haul to middlemen for 25¢ to 35¢ on the dollar. By the time they reached the person passing the bills at Walmart or Target, a bogus $100 note was being sold for as much as $65.

“I was a little nervous just now. The feds were following us the whole time”

When Gaab got his LoanMax break and traced the bills to the laundry-truck driver and his wife, his leverage worked. The man told Gaab that he’d purchased at least $30,000 in fake $100s for 45¢ on the dollar over the previous 18 months. His suppliers, he said, were an old friend and the friend’s cousin.

The friend, Tarell Johnson, was then a 25-year-old from Freeport, N.Y., with no criminal history. The cousin was a different matter. A heavyset man with a shaggy beard flecked with gray, Johnny Lee, then 43, had pleaded guilty in 2005 to dealing counterfeit bills and was sentenced to two years in prison. Gaab had his laundry-driver informant call Johnson to line up a purchase. Johnson complained he had nothing to sell, but by May 2013, a year after Gaab had started his investigation, the men were in the dealer’s Infiniti outside a ratty Freeport laundromat. With Gaab monitoring from a nearby car, the laundry driver and Johnson haggled and finally settled on a price: $4,500 in cash for $10,000 in counterfeit $100s.

“This is 10?” the informant asked, thumbing the stack of bills.

“Yeah, that’s 10,” Johnson said.

“What’s happening out here?” the informant asked.

“We [are] in the longest drought ever,” Johnson replied.

After the deal, agents watched Johnson drive to meet Lee on the side of a nearby street, where both men got out of their cars and talked for almost an hour. Agents began almost round-the-clock surveillance on Lee and Johnson and tapped their phones. As the weeks wore on, Gaab developed a sense for how the pair operated. They spoke in code, discussing how to line up counterfeit bills and complaining when they couldn’t get their hands on them.

“Listen, I’m thinking about paper, n----,” Lee told Johnson one day in June. “I don’t know what you thinking about. That’s what I’m thinking about. What you thinking about? You thinking about stuff, and I’m thinking about paper.”

Gaab had suspected that Johnson and Lee were part of a much larger operation; when he learned they were going to purchase counterfeits from their suppliers, he got excited. “I enjoy the challenge of having the unknown at the beginning of a case,” says Gaab, who speaks in the deliberate cadence of a Joe Friday, “and following it through and developing them more and gathering leads and figuring out what the criminal scheme is. It’s the challenge of not knowing much information in the beginning and figuring it all out at the end.”

On the night of Sept. 2, 2013, agents trailed Johnson and Lee to a residential neighborhood in Forest Hills, N.Y., but couldn’t get close enough to watch the deal unfold. When the pair drove off, Johnson noticed the agents’ government-issued Ford SUV following them and sped away, weaving through traffic at up to 100 miles per hour.

A few hours later, just after 1 a.m., Gaab was at his desk with recordings of calls made just after the chase. If the pair went underground or warned their suppliers, the investigation would be ruined. Gaab pulled his headset over his ears and hit play. “I was a little nervous just now,” he heard Johnson say, telling his girlfriend about the getaway. “The feds were following us the whole time. We were on a high-speed chase.”

But remarkably, little changed. Gaab, wanting to deny the men time to think, ordered his informant to arrange another deal. On Sept. 5 the men were back outside the laundromat, handing over $10,000 in fake $100s. As the weeks wore on, Gaab continued listening to calls and poring over surveillance logs. Eventually, he figured out who was supplying Lee and Johnson: a pair of Russian-speaking brothers named Bangiyev.

Russian-Israeli team mugshots Russian-Israeli team mugshots
Source: U.S. Secret Service

Eduard and Arkadiy Bangiyev lived only a few blocks apart in Forest Hills, a well-off and relatively bucolic section of Queens. Although only 38, Eduard had graying hair and a soft face that made him look 50. Younger by two years, Arkadiy had condorlike features made slightly ominous by dark bags under his eyes.

Both had emigrated from Uzbekistan in 1993 and become naturalized U.S. citizens. They’d owned and operated jewelry stores, most recently AK 47th Street Buyers, a wholesaler in Manhattan’s famed Diamond District. The brothers drove expensive cars—Range Rovers, Lexuses, even a 2006 Bentley—and owned at least a half-dozen residential properties, some valued at more than $1 million. As with the laundry-truck driver, Gaab was skeptical that their day jobs could support such lavishness.

He suspected the Bangiyevs had been involved in the counterfeit trade since at least the early 2000s. Arkadiy had been caught in 2007 selling 2,000 counterfeit $50s of the Russian-Israeli family to an undercover informant. He’d been convicted after an eight-day trial, but the judge sentenced him to five years’ probation rather than prison.

Gaab tapped the Bangiyevs’ cell phones and the phones at their offices. One of their frequent callers was an Israeli who made regular trips between New York, Eastern Europe, and Tel Aviv. His name was Itzhak Loz.

“That’s going to be difficult, man. The temperature got to be a little lower, because it’s already fried”

In mid-January 2014, Loz arrived in the U.S. From recorded calls, Gaab surmised that he was in New York to collect on debts owed to him by the Bangiyevs and that he was likely another middleman in the gang. By early February, Gaab and other agents had tracked Loz and an accomplice—Ronen Fakiro, a 45-year-old Israeli—to a cheap motel in the Philadelphia suburb of Mount Laurel, N.J. On Feb. 14 the agents trailed Loz and Fakiro in a light snow to nearby Cherry Hill, N.J., where the Israelis pulled into an industrial park and entered a squat, red-brick warehouse. Later that evening agents snuck up to the building and peered through its windows, spotting a film processor, paper cutters, a printer, and other supplies that suggested the construction of a counterfeiting mill. Loz, they realized, was no middleman—he was the master craftsman.

Bulky and bespectacled, the then-46-year-old Loz grew up in a lower-middle-class family in the bustling seaport of Ashkelon, Israel. His parents had fled Nazi Germany, and he’d attended military school before joining the Israeli Defense Forces. In the late 1990s he was arrested for counterfeiting Israeli currency and sentenced to 18 months in prison.

While behind bars, Loz was approached by a friend, also a skilled counterfeiter, who had been producing U.S. currency and selling it in America. He persuaded Loz to help him. This original counterfeiter introduced Loz to the Bangiyevs. Loz shipped his first batch of fake $100s to the brothers in 2003, via Canada, and soon forced out the original counterfeiter. Loz and the Bangiyevs began smuggling increasingly large shipments into the U.S., shrink-wrapping the notes and stashing up to $3 million inside printing equipment. Over the next decade, the meticulous Israeli honed his counterfeiting technique into an elaborate 26-step process that took two blank sheets of low-grade paper and turned them into U.S. dollars.

By 2007, Loz and the Bangiyevs had relocated the printing operation to New York. This reduced transport costs as well as the chances of being detected by U.S. Customs and Border Protection. They set up shop in a small warehouse adjacent to an auto mechanic’s garage in a battered industrial park in Westbury, a town in central Long Island. In two years they churned out almost $10 million in fakes. But when Arkadiy Bangiyev got nabbed in 2007, Loz packed up his equipment and shipped it back to Israel. In February 2014, when Secret Service agents observed Loz at the warehouse in Cherry Hill, it appeared he was once again returning his base of operations to the U.S.

Truck of confiscated counterfeit money printing machines
Truck full of counterfeiting equipment seized in Cherry Hill, N.J.
Source: U.S. Secret Service

As it became clear who Loz was, Secret Service agents debated whether to warn the public about the flood of fake bills. In just the previous two years, the agency had recovered at least $20 million in Russian-Israelis, and higher-ups were eager to issue a flyer to businesses, drawing attention to the “77” printed on the right rear corner of the notes. Such a warning had its risks—Loz could fold up shop and flee the country. But Gaab figured the Israeli had invested too much to stop and hoped the flyer might spark damning discussions on the recorded lines.

A few days after the Secret Service issued the notice, Eduard Bangiyev and Lee were indeed discussing the flyer and their now problematic bill. “The baby is going to be born the same year,” Bangiyev told Lee—code that Gaab took to mean they were going to keep printing the $100s with the “77.”

“That’s going to be difficult, man. The temperature got to be a little lower, because it’s already fried,” Lee said, angling for a lower price.

The next day, Feb. 16, Gaab listened as Arkadiy Bangiyev called Loz and said, “There is a big problem. I told you about the two sevens.”

“I don’t have many left,” Loz said.

“Did you get your product? New machine?”

“Yes. Yes. Now need to release from customs.”

Heidelberg Speedmaster offset printing press
Heidelberg Speedmaster offset printing press in Cherry Hill, N.J., warehouse.
Source: U.S. Secret Service

The identity of the “new machine” was revealed on Feb. 25, when Gaab received a call from an agent keeping watch on the warehouse. “You wouldn’t believe what just arrived here,” the agent said. A truck had delivered a shipping container weighing 55,000 pounds. Agents had watched as several large items were unloaded and hauled inside—including a shrink-wrapped Heidelberg Speedmaster offset printing press.

Digging through Loz’s trash, agents learned the counterfeiter wasn’t just seeking to replace his blown $100 with a standard C-note. He was trying to fake the brand-new $100 bill the U.S. Treasury had issued the previous October. The bill was supposed to be almost counterfeit-proof, with images that appear to change colors and a 3D security ribbon. It was also loaded with a difficult-to-reproduce color range: blue, gold, green, and black. This change, perhaps more than the security features, would drive counterfeiters to distraction—no longer did they just require plates for two types of colors. They’d have to run their bills multiple times through the presses to get all the tones right. Simply aligning the notes to prevent smudging and flaws would be a massive challenge.

Examining the trash hauls, agents learned that Loz had been making progress in replicating the security ribbon. In May, Secret Service agents got a tip from a clerk at Loz’s motel in Jamaica, N.Y.: The Israeli was checking out. A phone call to U.S. Customs revealed he had booked a flight to Tel Aviv from JFK International Airport in just three days.

On May 28, the day before Loz was scheduled to leave, agents raided his warehouse. They found a carefully laid-out factory smelling of ink and alcohol-based solvents and littered with discarded stamps, papers, and printing plates. In one room was the offset press, in another were etching machines and an embosser. In a third they found heat presses to glue the two sheets of paper together and drying racks. They discovered more than 3,000 images of U.S. currency on Loz’s computer. A storage unit held $2.5 million in counterfeit bills. Loz was arrested at his motel.

In August 2014 federal prosecutors indicted 13 people on racketeering charges, including Loz, the Bangiyev brothers, Johnson, and Lee. Loz, Fakiro, and the Bangiyevs admitted to playing key roles in a conspiracy, and all of the conspirators received at least some prison time. On Sept. 18, 2015, Loz was sentenced to 15 years in federal prison; on Sept. 21, Eduard Bangiyev got eight years and Arkadiy got nine. Fakiro was sentenced to seven. Johnson and Lee both pleaded guilty to racketeering conspiracy and were sentenced to three years in prison. The Secret Service estimates that over the past decade, Loz and his gang produced about $70 million in fake bills.

Gaab has since moved on to other cases. But every few weeks, inventorying counterfeit bills, he’ll come across a Russian-Israeli. He expects to continue finding Loz’s handiwork for years to come. The ring was that big. “It’s going to take years,” he says, “for all of it to bleed out of the system.”