LIMA, Peru – The police colonel was stunned by the skill of the 13-year-old arrested during a raid on counterfeiters in the gritty outskirts of this capital city, how he deftly slid the shiny plastic security strip through a bogus $100 bank note emblazoned with Benjamin Franklin’s portrait.

The boy demonstrated his technique for police after they arrested him on the street with a sack of $700,000 in false U.S. dollars and euros that he had received from a co-conspirator, and he led them to a squat house where he and others did detail work.

With its meticulous criminal craftsmen, cheap labor and, by some accounts, less effective law enforcement, Peru has in the last two years overtaken Colombia as the No. 1 source of counterfeit U.S. dollars, according to the U.S. Secret Service, protector of the world’s most widely traded currency.

In response, the service opened a permanent office in Lima last year, only its fourth in Latin America, and has since helped Peru’s police arrest 50 people on counterfeiting charges.

Over the last decade, $103 million in fake U.S. dollars “made in Peru” have been seized – nearly half since 2010, Peruvian and U.S. officials say. Unlike most other counterfeiters, who rely on sophisticated late-model inkjet printers, the Peruvians generally go a step further – finishing each bill by hand.

“It’s a very good note,” said a Secret Service officer at the U.S. Embassy. “They use offset, huge machines that are used for regular printing of newspapers, or fliers.”

“Once a note is printed, they will throw five people [on it] and do little things, little touches that add to the quality,” the officer said, speaking on condition of anonymity for security reasons.

The phony money heads mostly to the United States but is also smuggled to nearby countries such as Argentina, Venezuela and Ecuador, said Col. Segundo Portocarrero, chief of the Peruvian police Fraud Division.

Peru became more attractive to counterfeiters as Washington’s decadelong Plan Colombia program tightened the screws not just on drug traffickers in that neighboring Andean nation, but other criminals, as well, he speculated.

Counterfeiting in Peru, meanwhile, got better.

“It’s much more profitable than cocaine,” said a top investigator on Portocarrero’s team, noting another of Peru’s illegal exports.

Counterfeiters earn up to $20,000 in real currency for every $100,000 in false bills they produce after expenses, said an investigator who spoke on condition of anonymity.

He described the process:

First, design: Software such as Corel Draw or Microsoft Office is used. Then comes photolithography, the etching of metal plates, offset printing and finishing.

Finishing is next: A sheet of bills is lightly coated with varnish. Individual bills, typically 12, are then cut from the sheet.

Security strips are inserted with needles and affixed with glue applied with medical syringes. (Hold a $20 bill up to the light and you can see a strip with “USA TWENTY” printed repeatedly across it).

The bills now pass through what counterfeiters call an “enmalladora,” or netting machine: Two rollers covered with coarse fabric to give them a rough texture.

The last step: Sand down the bills with fine sandpaper.

“It takes four or five days to make $300,000” in counterfeit notes, the investigator said.