U.S. counterfeiting charges against N. Korea based on shaky evidence

McClatchy NewspapersJanuary 10, 2008 

WASHINGTON — Two years ago, as he was ratcheting up a campaign to isolate and cripple North Korea's dictatorship financially, President Bush accused the communist regime there of printing phony U.S. currency.

"When someone is counterfeiting our money, we want them to stop doing that. We are aggressively saying to the North Koreans just that — don't counterfeit our money," Bush said on Jan. 26, 2006.

However, a 10-month McClatchy investigation on three continents has found that the evidence to support Bush's charges against North Korea is uncertain at best and that the claims of the North Korean defectors cited in news accounts are dubious and perhaps bogus. One key law enforcement agency, the Swiss federal criminal police, has publicly questioned whether North Korea is even capable of producing "supernotes," counterfeit $100 bills that are nearly perfect except for some practically invisible additions.

Many of the administration's public allegations about North Korean counterfeiting trace to North Korea "experts" in South Korea who arranged interviews with North Korean defectors for U.S. and foreign newspapers. The resulting news reports were quoted by members of Congress, researchers and Bush administration officials who were seeking to pressure North Korea.

The defectors' accounts, for example, were cited prominently in a lengthy July 23, 2006, New York Times magazine story that charged North Korea with producing the sophisticated supernotes.

The McClatchy investigation, however, found reason to question those sources. One major source for several stories, a self-described chemist named Kim Dong-shik, has gone into hiding, and a former roommate, Moon Kook-han, said Kim is a liar out for cash who knew so little about American currency that he didn't know whose image is printed on the $100 bill. (It's Benjamin Franklin.)

The Secret Service, the Federal Reserve Board and the Treasury Department all declined repeated requests for interviews for this story.

The first international test of the U.S. charge occurred in July 2006, when at the request of the Bush administration, the international police agency Interpol assembled central bankers, police agencies and banknote industry officials to make the U.S. case against North Korea.

The conference in Lyon, France, followed Interpol's issuance in March 2005 of an orange alert — at America's request — calling on member nations to prohibit the sale of banknote equipment, paper or ink to North Korea.

But after calling together more than 60 experts, the Secret Service — the lead U.S. agency in combating counterfeiting — never provided any details of the evidence it said it had, instead citing "intelligence" and asking those assembled to accept the administration's claims on faith alone.

"I can't remember if I was laughing or asleep," said one person who was in the room and discussed the meeting with McClatchy on the condition of anonymity because of active contact with the Secret Service.

Interpol's secretary general is an American, Ronald K. Noble, a veteran of the Secret Service from 1993 to 1996. He declined to discuss the supernotes in detail because he's sworn to secrecy about classified reports he received in his old job. Noble said the Secret Service made clear it was "not at liberty to share all of the information" to which it had access.

The most definitive reaction came in May 2007 from the Swiss Bundeskriminalpolizei, which is on the lookout for counterfeit currency and has worked closely with U.S. financial authorities in the past. Calling on Washington to present more evidence, the Swiss said they doubted that North Korea was behind the supernotes.

The Swiss police agency's doubts are based in part on the small quantity of supernotes that have been seized since a sharp-eyed banker in the Philippines first discovered them in 1989 — about $50 million worth, less than it would cost to buy the machinery to make the unique paper and print the notes.

The Swiss agency also doubted that North Korea has the technical expertise to produce the notes.

"Using its printing presses dating back to the 1970s, North Korea is today printing its own currency in such poor quality that one automatically wonders whether this country would even be in a position to manufacture the high-quality 'supernotes,' " the Swiss agency reported.

It also noted that whoever is printing the supernotes has produced at least 19 different versions, each corresponding to a tiny change in U.S. engraving plates.

"It's by far the most sophisticated counterfeiting operation in the world," said James Kolbe, a recently retired Republican congressman from Arizona who oversaw funding for the Secret Service. "We are not certain as to how this is being done or how it's happening. We are not certain as to how (the North Koreans) could gain access to the sophisticated (technology) to do it. It is extremely sophisticated."

The hardest evidence to surface so far is the 2004 indictment of Sean Garland, a leader of an Irish Republican Army splinter group, who in the late 1990s allegedly ferried more than $1 million in supernotes to Europe, mostly from the North Korean Embassy in Moscow. Garland is now in the Republic of Ireland, but the Irish Embassy said the U.S. hasn't sought his extradition.

Former U.S. officials who helped promote the allegations about North Korea offered different views about how the administration reached its conclusions.

David Asher, who was the coordinator of a working group at the State Department that collected details on North Korean criminal activities, said his group turned up evidence of the counterfeiting and didn't rely on "intelligence" to make its case.

Asher, now a researcher at the Heritage Foundation, a conservative Washington policy organization, declined to provide any details.

But Bush, asked for proof that North Korea was counterfeiting supernotes, told McClatchy on Aug. 8, "I'm not at liberty to speak about intelligence matters."

John Bolton, the former Bush administration official most identified with a hard line on North Korea, told McClatchy that he never saw hard evidence that the North Korean government was making the supernotes. But he said the evidence that the North Koreans distributed them is sufficient proof of bad behavior.

One former top U.S. intelligence official said that he never saw enough information to reach a conclusion.

"I never really saw the intelligence myself to make an independent judgment," said Carl Ford, who quit as head of the State Department's intelligence bureau in 2003 because he challenged the administration's phony claim, based largely on defectors, that Iraq had weapons of mass destruction. The administration's reluctance to disclose details on North Korea "doesn't pass the smell test," he said.

Another key piece of evidence, the alleged role that a tiny bank in the Chinese enclave of Macau played in helping North Korea launder counterfeit notes, also appears dubious. The U.S. Treasury blacklisted the Banco Delta Asia and issued a ruling in March 2007 that effectively shut the bank down.

But an audit by the international accounting firm Ernst & Young on behalf of the Macanese government and obtained by McClatchy found only a single case of counterfeit notes found at Banco Delta Asia. It occurred in 1994, and the fakes didn't originate in North Korea. The bank found these notes itself and alerted authorities.

Macau has lifted its sanctions against the bank, but the Treasury Department, citing "intelligence," maintains its blacklisting, although it did allow the bank to transfer $25 million back to North Korea.

Although banks around the world are still seizing supernotes, the Bush administration is no longer publicly accusing North Korea of producing them and has dropped the subject from talks on halting North Korea's nuclear weapons program, according to State Department officials.

The question that remains is whether the administration is again retreating from a charge it can't support or whether it's soft-pedaling hard evidence to avoid derailing the effort to halt North Korea's nuclear weapons program.

The mystery of the true origin of the supernotes also remains. Industry experts such as the former director of the Bureau of Engraving and Printing, Thomas Ferguson, said the supernotes are so good that they appear to have been made by someone with access to some government's printing equipment.

Some experts think that Iran probably made the notes, and others speak of criminal gangs in Russia or China.

Klaus Bender, the author of a book on the subject, "Moneymakers: The Secret World of Banknote Printing," said that the phony $100 bill is "not a fake anymore. It's an illegal parallel print of a genuine note."

"It goes way beyond what normal counterfeiters are able to do," said Bender, whose book first spotlighted the improbability of North Korean supernotes. "And it is so elaborate (and expensive) it doesn't pay for the counterfeiting anymore."

Bender claims that the supernotes are of such high quality and are updated so frequently that they could be produced only by a U.S. government agency such as the CIA.

As unsubstantiated as the allegation is, there is a precedent. In his new book on the history of the CIA, journalist Tim Weiner detailed how the agency tried to undermine the Soviet Union's economy by counterfeiting its currency.

Making limited quantities of sophisticated counterfeit notes also could help intelligence and law enforcement agencies follow payments or illicit activities or track the movement of funds among unsavory regimes, terrorist groups and others.

"As a matter of course, we don't comment on such claims, regardless of how ridiculous they might be," said CIA spokesman Mark Mansfield.

(Tim Johnson in Beijing contributed.)

McClatchy Newspapers 2008

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