U.S. News

Italy Intercepts Billions in Fake Treasurys

Elisabetta Povoledo, The New York Times

Ever since two middle-aged men with Japanese passports were caught in Italy this month trying to smuggle a purported $134.5 billion in United States government bearer bonds into Switzerland, the Internet has been abuzz with theories.

Was the Japanese government, or some other creditor nation, secretly trying to dump Treasury bonds to drive down the value of the dollar? Had the Italian mafia stolen the equivalent of 1 percent of the American gross domestic product, using the paper, which supposedly was instantly convertible into cash, to run a giant scam?

Adding spice was the whole Bond — James Bond — aspect of the tale. A crowded customs checkpoint near the Alps; two men traveling on a local train, professing that they had nothing to declare; and a false-bottom suitcase containing United States government bonds made out in stratospheric denominations.

In all, the Italian financial police and customs guards confiscated 249 paper bonds, each supposedly worth $500 million, and 10 bonds with a face value of $1 billion each.

Too bad the bonds were fake.

“The whole thing is a total fraud,” Stephen Meyerhardt, a spokesman for the Treasury Department, said Thursday. “They don’t look anything like real securities, which in any case were never issued in any of those denominations.”

The highest denomination ever issued by the Treasury Department was $10,000, he said. The Italian financial police claimed some of the paper was “Kennedy bonds” from the 1930s, but no such bonds ever existed. And the total of Treasury bearer bonds still outstanding is a mere $105 million; the Treasury has been issuing bonds in electronic form since 1986.

But none of this has stopped the rumor mill from grinding away. After reports of the seizure began to trickle out of Italy, the blogosphere sprang into action, the ponderings fueled by suspicions that the mainstream media was willfully ignoring the tale.

The story took on greater life after Italian authorities — who have refused to talk about the scandal — declined to declare the bonds fakes until they were examined by Washington. After all, although the Guardia di Finanza suspected the bonds were false, if they were not, the Italian treasury stood to profit from a law that permits the government to pocket up to 40 percent of the total value of cash or securities smuggled into the country over the legal export limit, which is 10,000 euros.

Repeated telephone calls to the prosecutors’ office in Como, Italy, that is handling the investigation were not returned.

Darrin Blackford, a spokesman for the United States Secret Service, which was contacted by the Italian financial police and the prosecutor’s office to determine the “legitimacy of the seized financial instruments,” said that his agency had verified the bonds were “fictitious instruments and were never issued by the United States government.”

Col. Rodolfo Mecarelli, the provincial commander of the financial police in Como, said the investigations were focused on “understanding who these men were and where they were from.”

Or where they might have been going. “Switzerland may not have been their final destination,” he said in a recent interview. “They could have taken a plane anywhere.”

Also unknown are the whereabouts of the two men, who were released after being stopped in early June. Italian law does not call for the criminal arrest of persons found to be taking funds without permission to another country. It might have been another matter if the police had determined immediately that the bonds were false.

“The men were questioned, but not arrested,” said Naoki Oyakawa, an official at the Japanese consulate in Milan, which contacted judicial officials in Como after reading about the seizure in the Italian papers.

He said the two men had valid Japanese passports, but he would not elaborate further on their identities. “We don’t know where they are now,” he said. “We have had no contact with the two men. They have not asked us for our help.”

What the bonds were for remains unclear. “It’s not the sort of thing that you can just go into a bank and convert,” said Colonel Mecarelli. “But they may have been useful to guarantee business deals among people who don’t use cash.”

Agencies that deal with financial crimes, including Europol, declined to comment while the Italian investigation was still under way.

The Treasury Department says it is stumped, too.

“I can’t speak to the motives of the person or persons who tried to do this,” Mr. Meyerhardt said. “I would guess that they were trying to find someone foolish enough to buy the securities for real money.”