Drug traces on banknotes: problems with the statistics in the legal arguments?

A colleague at our Law School has alerted us to a range of possible problems associated with evidence about drug traces in a number of cases. Most people are unaware of the extent to which drug traces are found on banknotes in circulation. As long ago as 1999 there were reports that 99% of banknotes in circulation in London were tained with cocaine and that one in 20 of the notes show levels high enough to indicate they have been handled by dealers or used to snort the drug. Similar results have been reported for Euros in Germany. Nevertheless in England and Wales (although not apparently in Scotland) drug trace evidence on banknotes has been used to help convict suspects on drug-related offences. One company in the UK specialises in analysing drug traces on banknotes and they have provided evidence in many cases.  Even if we ignore the intriguing question of why high levels of drugs on a person's banknotes suggests that they are drug dealers, a quick look at some of the case materials and papers suggests that there may be some fundamental statistical flaws in the way this kind of evidence is presented. I have produced a very simplified version of the problem in these slides (which includes relevant references at the end).