While the fraudulent defacement of ANY legal currency (including foreign currency) is a crime, this criminal act requires Mens Rea towards fraud. They also require that you circulate the coins as currency rather than an armor prop.
Whoever fraudulently alters, defaces, mutilates, impairs, diminishes, falsifies, scales, or lightens any of the coins coined at the mints of the United States, or any foreign coins which are by law made current or are in actual use or circulation as money within the United States; or Whoever fraudulently possesses, passes, utters, publishes, or sells, or attempts to pass, utter, publish, or sell, or brings into the United States, any such coin, knowing the same to be altered, defaced, mutilated, impaired, diminished, falsified, scaled, or lightened - Shall be fined under this title or imprisoned not more than five years, or both. U.S. code Title 18, Chapter 17, Section 331
To put a finer point on it. This question was raised by the "penny pressing" novelty industry. They wrote to the US Mint to request clarification on their business model and were told that defacing pennies for the purpose of creating "extramonetary" pennies no fraudulent intent existed so they were not violating this law. Response from the government's Counsel to the Mint to follow:
"This is in reply to your letter of Jun 20, 1980, concerning United States statutes governing the destruction, melting, or other extramonetary uses of United States coins. You refer to and question the legality of a souvenir machine which compresses coins and returns a souvenir. You refer to Title 18, U. S. C. sections 331 and 475.
As you are already aware, a federal statute in the criminal code of the United States (18 U.S.C. 331), indeed makes it illegal if one "fraudulently alters, defaces, mutilates, impairs, diminishes, falsifies, scales or lightens" any U.S. coin. However, being a criminal statute, a fraudulent intent is required for violation. Thus, the mere act of compressing coins into souvenirs is not illegal, without other factors being present.
Section 475, which you refer to in your letter, regarding the attachment of notice or advertisement to legal tender, does not apply to your souvenirs in this case. Your are not impressing or attaching a business or professional card, notice or advertisement to a coin, your are simply making an impression on the coin.
We hope this information answers your question. If we can be of any further assistance, please contact us.
Sincerely,
Kenneth B. Gubin
Counsel to the Mint.