Canadian spy coins never existed

WASHINGTON — Reversing itself, the Defense Department says an espionage report it produced that warned about Canadian coins with tiny radio-frequency transmitters was not true.

The Defense Security Service said it never could substantiate its own published claims about the mysterious coins. It has begun an internal review to determine how the false information was included in a 29-page report about espionage concerns.

The service had contended since late June that such coins were found planted on U.S. contractors with classified security clearances on at least three separate occasions between October 2005 and January 2006 as the contractors traveled through Canada.

"The allegations, however, were found later to be unsubstantiated following an investigation into the matter," the agency said in a statement published on its Web site last week.

Intelligence and technology experts were flabbergasted over the initial report, which suggested such transmitters could be used to surreptitiously track the movements of people carrying the coins.

Experts said such tiny transmitters almost certainly would have limited range to communicate with sensors no more than a few feet away, such as ones hidden inside a doorway. The metal coins also would interfere with any signals emitted, they said.

Experts also warned that hiding tracking technology inside coins would be fraught with risks because the spy's target might inadvertently give away the coin or spend it.

Robert Moroz, who organizes an annual technology conference in Canada, said one vendor in 2005 attached coin-sized transmitters to casino chips as part of a proof-of-concept demonstration. Moroz also cited previous industry proposals — later abandoned — to build such transmitters into the euro.

But he was skeptical about the Defense Department's claims even before the Pentagon said its own report was false. "To make it work with current, commercially available technology — I don't see how it could work," Moroz said.

The now-disavowed report never suggested who might be tracking American defense contractors or why. It never described how the Pentagon discovered the purported ruse, how the transmitters worked or even which Canadian currency allegedly contained them.

The service initially maintained that its report on the spy coins was accurate but said further details about the spy coins were classified.