Money's Paper Chase

By Kathleen Kingsbury

Three years ago, Appleton Paper Co. decided to make money. An excellent pursuit for a company, you would think. But as with all businesses, not so easy as it sounds. The money in question is U.S. currency, more specifically the very high-tech paper used to print it. The Appleton, Wis., papermaker planned an expensive makeover to compete for the $400 million contract to supply the government with currency paper when the contract went up for bid this spring. Appleton, an employee-owned company, figured to spend more than $70 million upgrading one of its three paper mills, enabling it to produce watermarks, machine-readable micropatterns and embedded threads and metal fibers--the gold standard in anticounterfeiting technology. "We see it as a way to serve our country at the same time we expand our business," says spokesman Bill Van Den Brandt.

But history is not on Appleton's side. Since 1879, one company, the family-run papermaker Crane & Co., has produced virtually all U.S. currency paper, an intricate blend of cotton, linen and ever evolving security features, at two facilities in Dalton, Mass. "Ours is an intimate, long working relationship with the Treasury Department," says Lansing Crane, CEO and great-great-great-grandson of the company's founder. That relationship appears as secure as ever, despite challenges from competitors and lawmakers that have been mounting since 2001. Having one firm control the currency supply isn't just anticompetitive, it's a security risk, they argue. That may not be enough to break one of the last monopolies in American business.

The Bureau of Engraving and Printing, an arm of the U.S. Treasury, produces 35 million notes a day with a face value of approximately $635 million at its two printing facilities--in Washington and Fort Worth, Texas--and all those greenbacks are printed on paper supplied by Crane and shipped by truck from Massachusetts. Any interruption in that production could be "devastating to the U.S. economy," Van Den Brandt says.

The Government Accountability Office (GAO), the auditing arm of Congress, agrees. "A second supplier could be greater assurance of a steady supply of goods, even if one site were disrupted by a strike, natural disaster, bankruptcy or terrorist attack," GAO investigators wrote in 2005.

Crane replies that its 127-year knowledge of the currency supply enhances security. Although the company is best known among consumers for its fine stationery and other paper products, about 60% of the company's 1,200 employees are involved in the day-to-day production of currency paper. "The majority of our employees' time and effort goes toward making a single product that we can sell to a single customer," Lansing Crane says. "We're going to do everything we can to keep doing that for as long as possible."

That includes protecting the company's turf. In 1987 Silvio Conte, a Congressman who represented the Massachusetts district where Crane is based, introduced the Conte Amendment, which was passed by Congress and bars foreign suppliers unless no domestic source exists. A Crane competitor, the British paper manufacturer De La Rue, has threatened to complain to the World Trade Organization about the unfair advantage the Conte Amendment gives Crane. Congress also threw up a hurdle for Crane's American competitors. By setting the contract's length at four years, the law makes it difficult for companies without extremely deep pockets to justify investing in the security technology needed for making currency paper.

Crane's currency challengers have found a champion in Arizona Republican Representative Jim Kolbe. A free trader who calls the Crane monopoly "un-American," Kolbe has introduced legislation every year for a decade to overturn the laws that he says favor Crane. "First, there's the provision that only companies that are [at least] 90% American-owned can bid," he says. "We don't allow that for anything else, not even defense." The Secret Service insists that money must be produced and printed within the U.S. to maintain security, but the GAO found no reason to bar foreign companies from making currency if they do so on U.S. soil. "Then, there's the four-year contract," Kolbe continues. "What company, with the capitalization costs it takes to get into this business, can take on such a financial burden?"

Kolbe is convinced that the government could get a better price with more competition. Another GAO report, written in 1998, bolsters Kolbe's stance. It found that in at least 13 negotiations with Crane, agency practices have caused "the government to pay more for currency paper than it should have."

Lansing Crane calls the contract a square deal, given the exacting specifications. "Any additional costs come from our need for the highest, most modern security technology," he says. And he has his own powerful allies in Congress, notably Massachusetts Senators John Kerry and Ted Kennedy, who have parried both Kolbe and the GAO.

There's no doubting Crane & Co.'s experience or its patriotic heritage. In 1775 Stephen Crane sold paper to engraver Paul Revere to print the colonies' first paper money. (A national currency did not exist until 1862.) In 1806 Stephen Crane's son Zenas began producing notes for a local bank. It's an art that the company has perfected; its "tree-free" paper lasts longer than any other paper currency in the world.

And so might its contract. Officials have tried to relax some rules to open the bidding process to more competitors. For example, companies can now provide representative samples of their products instead of actual currency paper. But absent legislative action, the Treasury is limited in what it can do.

Potential bidders had pinned their hopes for this year's contract on a new provision that would give them, for the first time, a two-year mobilization period to invest in new technology, effectively lengthening the contract to six years. But Crane protested, and the old rules were restored. Treasury officials would not disclose whether any companies besides Crane bothered to bid, but observers say it's unlikely there were others. They may have reached the same conclusion as Appleton, which bowed out of the race in January. "We couldn't find any way to make money," Van Den Brandt says. The winning bid will be announced in September.