Legislation to criminalize the manufacture and use of bogus financial instruments is urgently needed to close a loophole in anti counterfeiting laws, Senate Banking Committee Chairman Alfonse D'Amato said Wednesday.

The New York Republican said he hoped his bill, which is expected to be enacted by year's end, will stop con artists from defrauding investors and financial institutions of millions of dollars annually.

"I intend to move the legislation to the floor by amending a bill that does come through," the New York Republican said at a committee hearing on his bill.

Rep. Jim Leach, chairman of the Banking Committee, has sponsored similar legislation in the House.

Federal anticounterfeiting laws do not prohibit the production or passing of a fake check, bond, or security unless it is a copy of an actual financial instrument. Prosecutors can nab these scam artists only if the cheats use the wire or mail to send the fictitious instrument, or if they deposit the fake document in the bank.

The Office of the Comptroller of the Currency reports that in the first six months of the year con artists have tried to pass more than $3 billion in fictitious notes in the United States.

Banks are learning about these scams firsthand. Richard Furr - executive vice president at Central Carolina Bank and Trust Co. in Durham, N.C. - told the committee that a customer had passed two bogus notes, issued by Freemen leader LeRoy Schweitzer, totaling $628,000.

This type of fraud can "adversely impact" smaller institutions that have smaller capital cushions, Mr. Furr warned.

Law enforcement officials were blunt about their inability to fight these scams. Michael C. Stenger, the U.S. Secret Service special agent in charge of the financial crimes division, said the best his forces can do is seize the fake instruments.

Herbert A. Biern, the deputy associate director for supervision and regulation at the Federal Reserve Board, said legislation that helps prosecutors to attack scam artist passing fake financial instrument may prove useful. Mr. Coplan writes for the Medill News Service.

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