GovernanceFiduciary industry put to the test by central banks

Fiduciary industry put to the test by central banks

Keeping currency secure is high on the list of central banks missions, and doing so is no easy task. Safeguards are implemented to reduce the risk of counterfeiting, or any other form of corruption which could taint the lifeblood of economies. While self-certification for currency producers seemed to be good enough for central banks until now, clues are appearing that a new era is dawning, in which producers will need external auditing to pass muster.

The business of printing banknotes is such a specialist matter that it was deemed, until now, that only the specialists themselves could monitor themselves. This process, known as self-certification, is the preferred method for industries across the globe because, hey, who wants someone looking over their shoulder while they work? In the banknote industry, known as secure printing, risks are such that printers must hand over a lot of information at the time of the bid, to the central bank placing the order. This information ranges from the production location, to the transport method and additional information of where raw material is acquired. The goal for the central bank is not so much to guarantee the quality (that’s done by the printer itself), but to ensure that the supply chain has remained airtight throughout the manufacturing process. Any “leak” in the production line could give counterfeiters an edge on the technology implemented, or reduce assurance that no foul play will occur. Until now, banknote printers (along with a few other industries) were mostly self-certified – which satisfied the customers, the central banks. However, this method has proven less-than-optimal over the years, and is starting to show its limits. As fiduciary expert Mark Goldenberg writes: “With non-binding obligations and simple declarations of intent to act well and transparently within the industry, the question remains as to whether this type of governance will be relevant. When an industry regulates itself, is it truly regulated?”

A flawed system

Because banknote printers are few and far between, only a handful of producers are in charge of supplying the world’s central banks with their paper currency. In contrast, while producers keep themselves in check, they have little or no control over supply chains in some of the areas where they operate. This blur can lead to corruption, with supplies of cash “disappearing” into nature, or outdated banknotes being recuperated instead of destroyed. In 2018, BBC Christopher Giles reported: “Last week, the Liberian government announced it had lost $104m (£79m). This wasn’t through any bad investment decision or some accounting fraud, the money – in cash – had literally gone missing. The banknotes had been ordered by Liberia’s central bank from printers overseas and had disappeared after passing through the country’s main port and airport. The government is now investigating.” In a different matter, the BBC reported that “Kenya is withdrawing the note to crack down on embezzlement and tackle a wave of counterfeit 1,000 shilling notes. The governor of Kenya’s central bank, Patrick Njoroge, also expressed “grave concern” over larger banknotes being used for “illicit financial flows in Kenya and also other countries in the region”. The 1,000 shilling note is the highest value note in Kenya and according to Mr Njoroge, the Kenyan shilling is the equivalent to the US dollar in east Africa, in terms of its recognition.” And, in the most extreme case, the producer can choose to relocate its production in a “cheaper” country behind the client’s back, after the contract has been signed. All such mishaps occurring expose the central bank, whose signature is on the currency, to liability and economic uncertainty. Therefore, a few banknote producers have chosen to resort the external certification to secure their production and provide central banks with guarantees.

ISO certification is the new standard

Of the four main global producers, only two have chosen to self-impose certification, instead of self-certify: German Giesecke & Devrient, and French Oberthur Fiduciaire. US-based Crane and British De La Rue are not, at this point in time. Certification standards which the German and French have decided to achieve include ISO 37001, the tough anti-bribery certification award. In March of 2020, Malaysia resorted to this certification in a thorough attempt to stamp out corruption, as reported by Star anchor, Ang Siak Keng: “The Malaysian Anti-Corruption Commission has applied to the Department of Standards Malaysia to adopt and recognise the global standard, ISO 37001 Anti Bribery Management System, in Malaysia. The Guidelines are a legal requirement whilst the ISO 37001 is a voluntary standard but the requirements and recommendations in both greatly overlap.” Indeed, cash tampering almost always includes some form of bribe, for confidential information, or loosening of control systems. By choosing to abide by this stringent set of rules, G&D and Oberthur have established, unsurprisingly, the best anti-corruption record in the industry, which places them in pole position to compete for future public tenders. Oberthur holds eight different titles of certification, including the almighty anti-bribery 37001 label, and states: “Our manufacturing facilities and production sites comply with the highest quality certifications and international high security standards. In 2015, our ISO 9001 and ISO 14001 were renewed as well as the ISO 45001.”

As globalisation spread, the need for traceability grew along with it. With production centres scattered across the planet, the system where customers “knew” their producers and how they operated became gradually obsolete, and temptation to deal behind the client’s back mounted. External certification came in to replace the old system, getting clients back to where they wanted to be: confident that they had control over their supply chains and that their interests were secure.

 

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