North korean counterfeiting of u.s. currency

North Korean Counterfeiting of U.S. Currency
March 22, 2006
Foreign Affairs, Defense, and Trade Division Foreign Affairs, Defense, and Trade Division Congressional Research Service ˜ The Library of Congress
North Korean Counterfeiting of U.S. Currency The United States has accused the Democratic People’s Republic of Korea (DPRK or North Korea) of counterfeiting U.S. $100 Federal Reserve notes(supernotes) and passing them off in various countries. This is one of several illicitactivities by North Korea apparently done to generate foreign exchange that is usedto purchase imports or finance government activities abroad. Although Pyongyang denies complicity in any counterfeiting operation, at least $45 million in such supernotes of North Korean origin have been detected incirculation, and estimates are that the country earns from $15 to $25 million per yearfrom counterfeiting. The illegal nature of any counterfeiting activity makes open-source information on the scope and scale of DPRK counterfeiting and distributionoperations incomplete. South Korean intelligence has corroborated information onNorth Korean production of forged currency prior to 1998, and certain individualshave been indicted in U.S. courts for distributing such forged currency. Mediareports in January 2006 state that Chinese investigators have independentlyconfirmed allegations of DPRK counterfeiting.
For the United States, North Korean counterfeiting represents a direct attack on a protected national asset; might undermine confidence in the U.S. dollar and depressits value; and, if done extensively enough, potentially damage the U.S. economy.
The earnings from counterfeiting also could be significant to Pyongyang, and maybe used to purchase weapons technology, fund travel abroad, meet “slush fund”purchases of luxury foreign goods, or even underwrite the DPRK’s nuclear program.
U.S. policy toward the alleged counterfeiting is split between law enforcement efforts and political and diplomatic pressures. On the law enforcement side,individuals have been indicted and the Banco Delta Asia bank in Macao (a territoryof China) has been named as a primary money laundering concern under the PatriotAct. This started a financial chain reaction under which banks, not only from theUnited States, but from other nations have declined to deal with even some legitimateNorth Korea traders. North Koreans appear to be moving their international bankaccounts to Chinese and other banks. Pyongyang has cited the Banco Delta Asiaaction in refusing to return to the six-party talks on its nuclear program.
The political/security track attempts to stop the alleged counterfeiting activity though diplomatic pressures, the Illicit Activities Initiative, the Proliferation SecurityInitiative, and back channel talks. Bush Administration policymakers reportedly aredivided between those favoring a negotiated settlement, (verifiable curtailment ofillicit activities and a return to the six-party talks) and those favoring an approach oftightening economic sanctions and other measures designed to undermine support forthe ruling regime and compel a change in policy. Currently the Administration’spolicy reportedly is to pressure North Korea, but keep the negotiations going. Thisreport will be updated as needed.
Contents
U.S. Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Limits on Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Need to Counterfeit Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Alleged Areas of DPRK Criminal Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Amount of Bogus U.S. Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Denial of Counterfeiting by North Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 State-Sponsored Counterfeiting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 A Summary of Main Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 The United States has accused the Democratic People’s Republic of Korea (DPRK or North Korea) of counterfeiting U.S. $100 Federal Reserve notes(supernotes) and passing them off in various countries. This is one of several illicitactivities by North Korea apparently done to generate foreign exchange that is usedto purchase imports or finance government activities abroad. The purpose of this report is to provide a summary of what is known from open sources on the DPRK’s alleged counterfeiting of U.S. currency, examine NorthKorean motives and methods, and discuss U.S. interests and policy options.
Although Pyongyang denies complicity in any counterfeiting operation, estimates are that at least $45 million in such supernotes of North Korean origin arein circulation and that the country earns from $15 to $25 million per year fromcounterfeiting.1 South Korean intelligence has corroborated information on pastproduction of forged currency — at least until 1998 — and several U.S. courtindictments indicate that certain individuals have been accused of distributing suchforged currency more recently. U.S. Interests
For the United States large-scale counterfeiting of U.S. currency, whether done by North Korea or not, has a direct bearing on U.S. interests. The counterfeiting,itself, could undermine confidence in the U.S. dollar and, if done extensively enough,potentially damage the U.S. economy. It also is a direct attack on a protected assetof the United States and a violation of U.S. and other laws. If being done by theDPRK government, it violates accepted international norms. It also could affect thewillingness of financial institutions in certain areas to accept legitimate U.S.
currency, or it might induce them to impose surcharges when exchanging certain U.S.
banknotes for their currency. In a broader sense, the counterfeiting, to the extent that North Korea is the nation involved, arguably affects U.S. national security. North Korea is a Stalinistregime with self-announced aspirations to become a nuclear power. It is led by acommunist dictator with a taste for luxury imports and need to subsidize his innercircle of supporters and broader ranks of party cadres. Yet the North Koreaneconomy scarcely produces enough to feed its population and incurs a billion-dollartrade deficit each year. Proceeds from counterfeiting could be used to maintain the 1 See section “Amount of Bogus U.S. Currency,” below.
regime’s power or contribute to instability in East Asia. In February 2006,Pyongyang claimed that it would not return to the six-party talks on ending itsnuclear weapons program because of financial measures taken by the United Statesto prevent the country from laundering proceeds from its alleged illicit activitiesthrough a Macao bank. This is the second such boycott of the talks. Pyongyangjustified its first boycott (August 2004 to July 2005) citing U.S. “hostile policies.” The United States is ratcheting up a two-pronged approach to stem the alleged North Korean counterfeiting of U.S. currency. The first is through law enforcementinitiatives. The second is through political and diplomatic efforts. The immediategoal is to bring a verifiable halt to both the production and distribution of bogus U.S.
currency by North Korea. In the broader perspective, curbing North Korea’s illicitactivities is one piece of an overall strategy to defuse tensions in Northeast Asia andinduce Pyongyang to adopt policies less inimical to its own people, the region, andthe world.
A redesign of the U.S. $100 bill is currently in progress to include enhanced technologies to deter counterfeiters. The Department of the Treasury expects tointroduce the redesigned note to the public in 2007.2 However, bills previouslyproduced, are expected to remain in circulation for the foreseeable future making itpossible for the DPRK to continue to circulate earlier production runs of itscounterfeit supernotes. Limits on Information
Because counterfeiting is a form of clandestine criminal activity, a goal of those engaged in it is that it remain clandestine and undetected to the maximum extentpossible. Thus, to the extent that the United States and other countries haveinformation on the scope and scale of DPRK counterfeiting and distributionoperations, such information is likely to be incomplete. As the DPRK is a relativelyclosed society, information on any production of counterfeit U.S. currency there —other than that received from defectors — is likely to be the product of intelligencesources and methods. Hence, it is unlikely that such information would be madepublic for fear of compromising ongoing intelligence gathering operations.
On the other hand, involvement of DPRK citizens and officials in the distribution of so called “supernotes” is more readily demonstrated once criminalinvestigations have been completed, arrests have been made, indictments issued, andconvictions/and or confessions obtained. Indeed, a number of such indictments havebeen issued, and presumably a number of ongoing investigations remain in thepipeline. U.S. officials appear to be increasingly sensitive to a need to support publicallegations with the weight of de facto legal evidence — fueling speculation that 2 See Department of the Treasury — Budget in Brief FY 2007, p. 87 of the hard copy of thepublication.
“Noreiga-type” criminal indictments3 against the North Korean leadership may be apolicy option under active consideration.
Also at issue is the credibility of information provided U.S. authorities by the South Korean government and its National Intelligence Services in matters involvingPyongyang’s criminal activities. Whereas in past years Seoul’s reporting on suchmatters was considered highly reliable, some now suggest downplaying the scope ofany such activity better dovetails with the goals and objectives of Seoul’s more recentconciliatory unification policy vis-a-vis the North.
The Need to Counterfeit Currency
North Korea needs to raise approximately $1 billion per year to fund its merchandise trade deficit.4 The DPRK imports more than it exports and mustgenerate enough foreign exchange to cover the difference through some means —either legal or illegal. Legal means include borrowing, foreign investments, foreignaid, remittances from overseas Koreans, selling military equipment not reflected intrade data, and by selling services abroad. Illegal methods include the counterfeitingof hard currency, illegal sales of military equipment or technology, sales of illegaldrugs, or by shipping illegal cargo between third countries. The country also can dipinto its meager foreign exchange reserves. North Korea considers the United Statesto be a hostile nation and often takes actions commensurate with that policy.
Alleged Areas of DPRK Criminal Activities
Allegations of North Korean drug production, trafficking, and crime- for- profit activity have become the focus of rising attention in Congress, the Administration,and the press, as well as in the diplomatic community.5 Areas of DPRK criminalactivity commonly cited include production and trafficking in: (1) heroin andmethamphetamines; (2) counterfeit cigarettes; (3) counterfeit pharmaceuticals (forexample “USA” manufactured Viagra); and (4) counterfeit currency (e.g., U.S. $100bill “supernotes”).6 3 Pichirallo, Joe. “Indictments Depict Noriega As Drug-Trafficking Kingpin; U.S. HadLong Backed Panamanian Leader.” The Washington Post, February 6, 1988. pg. a.01.
4 Note that such estimates of scale of the DPRK’s foreign exchange deficit may beexaggerated as the amount may be offset by undetermined amounts of aid from the PeoplesRepublic of China. 5 See generally CRS Report RL32167, Drug Trafficking and North Korea: Issues for U.S.
Policy, by Raphael Perl. 6 In July 2004, for example, the U.S. Secret Service reportedly uncovered a network sellingcounterfeit North Korean made cigarettes, pharmaceuticals, and $100 bills. See FrederikBalfour et. al., “Fakes,” Business Week, February 7, 2005. Criminal indictmentssubsequently ensued. See generally: BBC News, “What is a superdollar?”, June 20, 2004.
DPRK production and trafficking of “supernotes” have been addressed in 2006 by both National Intelligence Director John Negroponte and President George W.
Bush. In a January 26, 2006, White House Press Conference, President Bush — incommenting on the issue of income generated by North Korean criminal activity —remarked: When somebody is counterfeiting our money, we want to stop them from doingthat. And so we are aggressively saying to the North Koreans, just — don’tcounterfeit our money. And we are working with others to prevent their illicitactivities.7 Shortly thereafter, National Intelligence Director John Negroponte, in testimony before Congress, stated that North Korea “produces and smuggles abroad counterfeitU.S. currency as well as narcotics and other contraband.”8 In a Senate Committee on Government Affairs hearing in 2003, William Bach, the Director of the Office of African, Asian and European Affairs in the Bureau forInternational Narcotics and Law Enforcement Affairs of the U.S. Department ofState, stated: The U.S. Secret Service Counterfeit Division is aware of numerous cases ofcounterfeiting with North Korean connections. Typical of such cases was onereported in Macao in 1994, when North Korean trading company executives,who carried diplomatic passports, were arrested for depositing $250,000 incounterfeit notes in a Macao bank. There are numerous other counterfeitingincidents with links to Macao banks, North Korea, and North Korean diplomats.9 The State Department’s 2006 International Narcotics Control Strategy Report released by the Bureau for International Narcotics and Law Enforcement Affairsstates that, for decades, citizens of the DPRK “have been apprehended trafficking innarcotics and engaged in other forms of criminal behavior, including passingcounterfeit U.S. currency.” These have been carried out in league with criminalorganizations around the world.10 7 Press conference of the President, January 26, 2006, p.9. [http://www.whitehouse.gov/news/releases/2006/01/20060126.html] 8 See testimony of John Negroponte before the Senate Intelligence Committee on the issueof Worldwide Threats to the United States, February 2, 2005. Note that Negroponte’sremarks came at a time when the six-party talks on North Korea’s nuclear ambitionsremained stalled over North Korea’s insistence that the United States remove proposedTreasury Department sanctions against Banco Delta Asia for its alleged role in launderingproceeds of DRPK criminal activity and distributing of DPRK produced counterfeit U.S.
currency. See “North Korean Counterfeiting Complicates Nuclear Crisis,” by MartinFackler, New York Times, January 29, 2006, p. 3.
9 Bach, William. Hearing Testimony. Drugs, Counterfeiting, and Weapons Proliferation:The North Korean Connection. Hearing Before the Financial Management, the Budget, andInternational Security Subcommittee of the Committee on Governmental Affairs, UnitedStates Senate 108th Congress, First Session, S.Hrg. 108-157, May 20, 2003. p. 6.
10 U.S. Department of State, Bureau for International Narcotics and Law Enforcement Counterfeiting of foreign currency is apparently a phenomenon that is not new to the government of North Korea. Seoul’s War Memorial Museum reportedlycontains DPRK-manufactured South Korean currency from the 1950’s, theproduction of which reportedly continued into the 1960’s.11 South Korean mediareports cite a 1998 South Korean National Intelligence Service (NIS) Report to theeffect that North Korea forges and circulates U.S. $100 banknotes worth $15 milliona year. Subsequent reports to the South Korean National Assembly in the same yearand in 1999 are cited in the media as stating that North Korea operates three banknoteforging agencies and that more than $4.6 million in bogus dollar bills had beenuncovered on thirteen occasions since 1994.12 Subsequent press reports (of February 2, 2006) cite a Uri Party Member of Parliament’s account of a closed briefing by South Korea’s National IntelligenceService to members of Korea’s National Assembly to the effect that North Koreanswere arrested abroad for counterfeiting offenses in the 1990’s but that the Service hadno evidence of the North making bogus currency after 1998.13 Informed SouthKorean sources have confirmed the above stated content of the briefing, but insistthat the NIS lack of hard evidence of DPRK supernote production after 1998 shouldnot necessarily be construed to mean that such activity has ceased. Post -1998 SouthKorean media reports note that South Korean authorities have continued to seizebogus U.S. currency — including 1,400 counterfeit U.S. $100 bills in April 2005, butthat they have not traced the source.14 Subsequent press reports state that the United 10 (.continued)Affairs. International Narcotics Control Strategy Report — 2006. March 2006. Part II.
11 See “The ‘Soprano State?’ North Korean Involvement in Criminal Activity andImplications for International Security,” by Sheena E. Chestnut (hereinafter cited asChestnut), Stanford University Honors Thesis, May 20, 2005, p.81 citing Cumings, Bruce,Korea’s Place in the Sun: A Modern History (Norton, New York) 1997, and Michishita,Narushigwe, “Calculated Adventurism: North Korea’s Military-Diplomatic Campaigns,”Korean Journal of Defense Analysis, Vol. XVI, No.2, Fall 2004. Note that the term“Soprano State”was originally coined by U.S. News and World Report investigativejournalist David Kaplan in 2003; see “The Far East Sopranos,” by David E. Kaplan, U.S.
News and World Report, January 27, 2003.
12 See “Seoul’s U-Turn on N. Korean Counterfeiting Could be Fatal,” Chosun Ilbo (EnglishEdition), December 25, 2005. The title of the 1988 report is cited as “A New Threat in the21st Century: Realities and Responses to International Crimes.” 13 See “Korea Exchange Bank cuts ties with Macau bank accused of laundering money forNorth Korea,” Associated Press Report (Seoul) Feb. 3, 2006. See also “No sign of NorthKorea making fake bills since 1998: spy agency,” Yonhap, Feb. 3, 2006. Note that mediareports contain at least a handful of reports by defectors that lend credence to the notion thatthe DPRK produced counterfeit greenbacks under government direction prior to 1996. Fora consolidated overview of such reports see Sheena Chestnut, Soprano State, pp. 86-89.
14 See “Seeking international cooperation to stop manufacturing of North Korea’s money,”Chosun Ilbo (Internet Version), December 27, 2005. Media report suggestions that theDPRK may have ceased production of counterfeit greenbacks prior to the end of 1998,however, may be contradicted by at least one defector who fled the North in 2000.
According to one press report, the defector, a chemist connected to the Sean Garland case, States has provided South Korea with examples of DPRK source counterfeit 2001& 2003 series $100 notes. Moreover, the U.S. has reportedly determined that at least$140,000 worth of counterfeit notes seized by South Korean police in April 2005 wasmanufactured in the DPRK as part of a batch produced in 2001, and distributed byPyongyang.15 On June 13, 2003, South Korea, the United States and Japan held a North Korea policy coordination group meeting and announced an agreement that reportedlystated, “The three countries’ delegations express concern about the illegal activitiesof organizations in North Korea, including drug smuggling and moneycounterfeiting.”16 Moreover, media reports as recent as January 20, 2006 stated thatChinese investigators have independently confirmed allegations of DPRKcounterfeiting.17 Arrests and indictments point to DPRK trafficking in bogus U.S. currency as recently as 2005. In August 2005, federal law enforcement authorities completed twoundercover operations in New Jersey and in California which focused on theactivities of members of China’s Triad criminal syndicates. The operations, namedRoyal Charm and Smoking Dragon, reportedly netted some $4 million in supernotesbelieved to be of North Korean origin. Illicit narcotics, and counterfeit brandcigarettes and pharmaceuticals were seized as well. U.S. government authoritiesindicate there is the potential that ensuing trials and/or the plea bargaining processwill reveal direct links between some of the smugglers and North Korean officials orgovernment entities.18 One of the indictments issued in the above cited cases identifies Chao Tung Wu, a Taiwanese in custody for dealing in counterfeit bills, and alleges that he told 14 (.continued)was reportedly part of a team of North Korean experts ordered to produce fake U.S. $100bills. However, what is publically known about him, his activities, and their connection tothe DPRK regime appears at this point to be anecdotal and sketchy at best. See“Counterfeiting cases point to North Korea,” by Josh Meyer and Barbara Demick, L. A.
Times, Dec. 12, 2005. Note that often statements by individuals termed “North Koreandefectors,” have been considered unreliable when it comes to intimate knowledge of highlysecretive, closed, DPRK programs. 15 See “U.S. says S. Korea fake notes made in North,” by Jon Herskovitz and Jack Kim,Reuters, Feb. 27, 2006. Accounts in subsidiaries of the Bank of China, Hong Kong havebeen frozen as a result of reported links to the DPRK’s trade in supernotes, and othercriminal activities. See “HK link to Pyongyang ‘supernotes’ N Koreans have cut counterfeitdeals in the city, with payments made via Bank of China subsidiary,” by Greg Torode, SouthChina Morning Post, February 26, 2006.
16 See “Seeking international cooperation to stop manufacturing of North Korea’s money,”Chosun Ilbo (Internet Version), December 27, 2005. 17 See “North Korean Counterfeiting Complicates Nuclear Crisis,” by Martin Fackler, NewYork Times, January 29, 2006, p. 3.
18 See generally, remarks of Acting Assistant Attorney General, John C. Richter of Aug.22,2005. [http://www.usdoj .gov/crimi nal/press_room/speeche s / 2 0 0 5 _ 4 1 9 3_rmrksOprSmokngDrgnNroylChrm082405O.pdf] undercover agents that the government of a nation — identified in the indictment as“country 2” — was producing counterfeit notes.19 Country two has been widely citedin the media as being North Korea. Another law enforcement operation led to thearrest in Northern Ireland of Sean Garland, a leading member of an Irish RepublicanArmy faction on charges of circulating more than $1 million of supernotes (believedto be DPRK government produced) in Britain and Eastern Europe.20 A request forhis extradition to the United States ensued in mid-October 2005. In September 2005, U.S.A. Patriot Act Section 311 designations were imposed against Banco Delta Asia (BDA) in Macau. A subsequent finding was issued thatBDA is a Financial Institution of Primary Money Laundering Concern21 resulting ina proposed order imposing special measures against Banco Delta Asia.22 Followingthe U.S. actions, the Macau government took control of BDA in Macau and shutdown all North Korea-related accounts including, according to press reports,accounts belonging to 20 DPRK banks, 11 DPRK trading companies, and 9individuals from North Korea.23 A Stanford University Honors Thesis Researcher, Sheena Chestnut, lists thirteen reported incidents since 1994 of North Korean involvement insmuggling/distributing counterfeit U.S. currency. All of these incidents allegedlyoccurred in either Asia or Europe. In them, the use of DPRK diplomatic passports 19 See “Arrest ties Pyongyang to counterfeit $100 bills,” by Bill Gertz, Washington Times,Sept. 20, 2005, p. A1.
20 See “North Korean Counterfeiting Complicates Nuclear Crisis” by Martin Fackler, NewYork Times, January 29, 2006, p. 3. See “Garland stands accused by US over counterfeitmade in North Korea,” Irish Times, October 17, 2005. Garland was arrested October 7,2005, as a result of pending U.S. proceedings against him. See also Department of JusticePress Release of October 8, 2005, on Arrest of Leader of Irish Workers Party. 21 See Federal Register, Vol. 70 No. 181, Sept. 20, 2005(Notices), p. 55214. The findingasserts that at least one regular North-Korean-front client of BDA was widely reported tobe conducting “numerous illegal activities, including distributing counterfeit currency andsmuggling counterfeit tobacco products” for over a decade. See also Department ofTreasury Press Release of September 15, 2005, (JS-2720) on Treasury Designation of BancoDelta Asia as a Primary Money Laundering Concern and Treasury Dept. FINCEN Advisoryof December 13, 2005, on Guidelines to Financial Institutions on the Provision of BankingServices to North Korean Government Agencies and Associated Front Companies Engagedin Illicit Activities which encourages financial institutions worldwide to take precautionsthat they are not used as a conduit for the laundering of proceeds of DPRK illicit activities.
22 See Federal Register, Vol. 70 No. 181, Sept. 20, 2005(Proposed Rules), p. 55217. Notethat the practical effect of such special measures, if and when put into effect, would be toprohibit BDA and BDA affiliated financial institutions from doing business in the UnitedStates.
23 See Wall Street Journal Asia, “North Korea’s economy feels fallout of U.S. move-Lenderssever ties after sanction threat against Macau bank,” by Gordon Fairclough, Feb. 14, 2006.
Note that as generally private North Korean individuals do not hold accounts outside thecountry, widespread speculation exists that the nine individual accounts seized belong to theupper echelons of the DPRK elite. The U.S. has accused Banco Delta Asia of accepting andcirculating DPRK origin supernotes. and the involvement of DPRK diplomats, embassy personnel, and DPRK governmenttrading company officials connect most of these incidents to the government of NorthKorea in varying degrees. Taken collectively, the link is seen as being even stronger.
Of these 13 incidents, 6 have occurred since 1999, the time after which the NISreportedly is unable to conclude that the DPRK continued producing counterfeitnotes.24 As recently as March 2006, counterfeit supernotes were reportedly seized bypolice in Hong Kong from a Chinese-American man in transit from Macau.25 Amount of Bogus U.S. Currency
The amount of alleged DPRK-produced counterfeit currency in circulation is unknown. U.S. officials have been quoted citing a figure of $45 million since 1989.26Presumably this is the amount detected by the Federal Reserve. Officials familiarwith the bogus currency in question, however, note its exceptional quality — so goodthat many cashier-level bank employees would likely not be able to detect theforgeries. This raises speculation that North Korea — if it is indeed producing thefakes — might need somehow to mark the currency to be able to identify its ownbogus notes after production.
The amount of money that the bogus supernotes allegedly bring to the coffers of the North Korean government is unknown as well. Hence, estimates of the profitsuch transactions bring to the Pyongyang regime — to the extent they are based onopen source material — are speculative at best. Amounts commonly cited, whichtake into account many factors, range from $15 million to $25 million in profit peryear.27 It has been reported that in the North Korean counterfeit currency market, a 24 See Chestnut, pp. 144-145. The South Korean media reports that authorities there haddiscovered 1,400 supernotes (presumed to be of DPRK origin) in April 2005, but little moreis known about such reports. See “DPRK’s manufacturing of counterfeit money wascommon sense within the National Intelligence Service,” Chosun Ilbo (Internet Version)December 27, 2005. 25 Torode, Greg. “Fake US Supernotes Find Their Way to HK. Pyongyang’s CounterfeitBills Are Seized from American in Transit.” South China Morning Post, March 5, 2006,p. 3. Supernotes have reportedly shown up on 2005-2006 in Peru, Paraguay, Mongolia,Hong Kong, and Ethiopia.
26 See Sanger, David E., “U.S. Is Shaping Plan to Pressure North Korea,” New York Times,February 14, 2005,p. A-1. Note that this amount is more likely to be $48 million, althoughapparently not publically cited. 27 See discussion in CRS Report RL32167, Drug Trafficking and North Korea: Issues forU.S. Policy, by Raphael Perl. See also CRS Report RL32493, The North Korean Economy:Background and Policy Analysis, by Dick Nanto and Emma Chanlett-Avery. For the $15million figure on counterfeiting, see Korea Herald, Nov.16, 1998. See also, “Is YourMoney Real?”, Newsweek, June 10, 1996, p. 10. According to some sources, income fromcounterfeiting is considerably higher, i.e. $100 million. (See May 20, 2003 congressionaltestimony of Larry Wortzel of the Heritage Foundation.) It is said that the U.S. detectssomewhere around $3-4 million per year in DPRK origin supernotes. Rough calculations ofthe total amount of DPRK bogus supernotes in circulation in recent years are achieved by printed counterfeit $100 bill trades at 30% of its face value while electronicallycopied currency made with color copy machines trades at 10% of its face value.28 Denial of Counterfeiting by North Korea
The DPRK has consistently denied allegations of state involvement in criminal activity, specifically in any counterfeiting activity, and it has vowed to resist U.S.
pressure over the matter. A January 24, 2006 commentary carried by the state-runKorean Central News Agency reported that Pyongyang “does not allow such thingsas bad treatment of the people, counterfeiting, and drug trafficking.”29 In what maybe an indication of DPRK willingness to curb any illicit counterfeiting activity, theDPRK Foreign Ministry announced on February 9, 2006, that “there is no evidenceproving (North Korea’s) issue of counterfeit notes or money laundering” but that thecountry “will as ever actively join the international actions against moneylaundering. It is the consistent policy of the (North Korean) government to opposeall sorts of illegal acts in the financial field.” The Foreign Ministry spokesman wenton to say that the DPRK has “perfect legal and institutional mechanisms to combatsuch illegal acts as counterfeiting notes and money laundering, and any illegal actsare liable to severe punishment.”30 27 (.continued)multiplying this figure by a factor of 3 or 4 for an estimate of 9-$16 million being placed incirculation per year. However, the exact amount remains elusive given the fact that muchof the currency is passed in remote places and arguably banks have no financial incentiveto report such forgeries if they can pass them on. Data on amounts of U.S. dollarscounterfeited are not widely publicized so as not to undermine confidence in the U.S. dollar.
North Korean counterfeit U.S. $100 notes have been detected in at least 14 countriesincluding the United States since the 1970’s according to media reports. On June 20, 2004,the BBC aired a “Superdollar” special which traced counterfeit $100 bills from North Koreato an official IRA source in the U.K. Reportedly millions of fake $100 bills were launderedthrough a bureaux de change in Britain. In July, 1996, a former member of the Japanese RedArmy, traveling on a DPRK diplomatic passport was arrested in Thailand while trying topass counterfeit U.S. $100 bills. See “Japanese Fake Bill Suspect Had N. Korean Passport,”Kyodo News, July 5, 1996. For data on other forms of DPRK criminal/smuggling activity,see Avoiding the Apocalypse: The Future of the Two Koreas, by Marcus Noland, Institutefor International Economics, Washington, D.C., June 2000, p.119. U.S. military sourcesreportedly estimated DPRK income from counterfeiting of U.S. currency at $15-20 millionfor the year 2001. See “N.K. Exported $580 Million Worth of Missiles to Middle East,”Seoul Yonhap (English), May 13, 2003, citing Japanese Yomiuri Shimbum report of May 12,2003.
28 “Smuggler’s Tale: The Chinese Connection.” Dong’A Ilbo (Internet version) January 27,2006. Reported by Open Source Center.
29 This is but one of a string of DPRK denials. David L. Asher, former Coordinator of theState Department’s North Korea Working Group, in his February 1, 2006 remarks to theAmerican Enterprise Institute cited another DPRK denial: “We had neither counterfeitedcurrency nor gotten involved in any illegal trafficking.” 30 See KCNA (official North Korean News Agency) broadcast of 1006 GMT, February 9, State-Sponsored Counterfeiting?
Assuming that production of bogus U.S. currency is actually taking place in North Korea, some suggest that this does not necessarily mean that such activity isbeing done under government sponsorship, direction, or supervision. They argue thatcounterfeiting is a criminal phenomenon that is widespread throughout the world, andit is rarely, if ever, state-sponsored. Others say that there may be merit to sucharguments, but North Korea could be an exception to any such norms.
It can be said that it is widely acknowledged that the Pyongyang regime engages — or has engaged — in a broad range of other crime for profit activity. Hence,inhibitions against counterfeiting may not be strong. The sophisticated type ofequipment reportedly required for the production of supernotes is generally tightlycontrolled and generally restricted for sale to governments. Finally, North Korea isa closed authoritarian regime, and, as such, it is unlikely that any counterfeitingactivity — which requires centralized production — would not be governmentsponsored, or at some point, come under government control.
A Summary of Main Points
Information publically available suggests an expansion in both the scale and scope of North Korean cash-generating, criminal activity. This possibly indicates asituation in which criminal activity is playing an increasingly pivotal role insupporting North Korea’s fragile economy. 31 It is widely acknowledged that undetermined millions of dollars of so-called U.S. $100 supernotes are currently in circulation. Given the sophistication of thebills, many have concluded that they are government produced. The government ofNorth Korea has a demonstrated history of engaging in criminal activity to raise cash.
It arguably has the disposition, opportunity, and technical means to produce forgedsupernotes.
Past production by North Korea of forged U.S. currency — at least until 1998 — has been reported by South Korea’s National Intelligence Service. Indications ofPyongyang’s more recent production of forged U.S. currency have seemingly beenposited by defectors, and by Chinese investigators as well.
30 (.continued)2006. Reported in “North Korea vows to join international anti-money laundering drive,”MSN News, Feb. 9, 2006, and untitled AP report from Seoul of February 9, 2006.
Statements by a DPRK Foreign Ministry spokesperson are typically reserved for high levelcommunications with the outside world. Reuters and Agence France Presse (AFP) reportedon the broadcast as well. 31 See CRS Report RL32493, The North Korean Economy: Background and Policy Analysis,by Dick Nanto and Emma Chanlett-Avery, January 2005. For a discussion of U.S. responseoptions reportedly reviewed see “U.S. is Shaping Plan to Pressure North Korea,” by DavidE. Sanger, New York Times, Feb. 14, 2005, A-1. Many observers are convinced that the DPRK has been counterfeiting U.S.
currency as matter of state policy. However, it is not fully clear from public sourceswhether North Korean state enterprises have continued to produce bogus dollars after1998. At issue here is whether bills now being circulated are new or solely fromstashes of earlier production runs. There appears to be a reasonable case that NorthKorea has continued to counterfeit U.S. currency since 1998. Also, not clear orpublically announced, is the extent to which Pyongyang may have counterfeited —or may be counterfeiting — currencies other than the dollar.32 As North Korea is a secretive and closed society, activity taking place within the country, such as production of bogus foreign currencies — to the extent that suchactivities exist — may be difficult to demonstrate publically without compromisingfragile intelligence sources and methods. In contrast, distribution of counterfeit U.S.
currency is likely to take place in countries where the money can purchase items ofvalue, i.e., more open and economically successful societies.33 Numerous arrestsoutside the United States and recent indictments clearly involve individuals withlinks to the government of North Korea or its state-run enterprises.34 This being thecase, it is difficult to conclude that the government of North Korea has not beeninvolved — at least until very recently — in distributing bogus U.S. currency.
Policy Implications
For the United States the North Korean counterfeiting of U.S. currency combined with secondary effects has a direct bearing on U.S. interests.
Counterfeiting of one nation’s currency by another generally is considered to be anact of economic warfare — a direct attack on the U.S. financial system.35 There isa large difference between criminal counterfeiting by private parties and that done orsanctioned by a nation. The counterfeiting, itself, might undermine confidence inthe U.S. dollar and, if done extensively enough, potentially damage the U.S.
economy. If the extent of counterfeiting were in the range of $15 million to $25million per year, however, this would represent a relatively small amount comparedwith the total U.S. supply of currency or the amount circulating abroad. As of 32 Note for example, that one operation against what is believed to be North Korean linkedcontraband smugglers reportedly netted not only some $4 million in supernotes, but also$700 in counterfeit U.S. postage stamps. See “Crime does pay for North Korea,” by PeterBrooks, Boston Herald (op-ed), January 17, 2006. 33 Note that press reports indicate that the U.S. Secret Service estimates $43.4 million incounterfeit currency was circulated in the United States in 2004 alone. It is estimated that$700 billion in genuine U.S. currency exists worldwide. Generally, disclosure that largeamounts of U.S. currency in use worldwide might be bogus would likely be seen not to servethe best interests of the nation. As a result, some suggest the United States may bedownplaying the scale of alleged DPRK counterfeiting activity — but neverthelessaccording it the high policy priority the actual level of such activity warrants.
35 Asher, David L. “The North Korean Criminal State, its Ties to Organized Crime, and thePossibility of WMD Proliferation.” The Nautilus Institute. Policy Forum Online 05-92A:November 15th, 2005.
February 2006, currency in circulation — that is, U.S. coins and paper currency in thehands of the public — totaled about $780 billion. Since 1994, the value of currencyin circulation has risen at the rate of 6.5% per year, mostly stemming from foreigndemand. The U.S. Federal Reserve estimates that between one-half and two-thirdsof the value of currency in circulation is held outside the United States.36 In theUnited States, most domestic transactions (by value) are done either electronicallyor by checks, not cash. As of December 2004, 72% of the value of currency incirculation consisted of $100 notes, the denomination allegedly counterfeited by theDPRK.37 Counterfeiting also can reduce the confidence by foreigners in the dollar. The dollar has become the predominant medium of exchange in international transactions.
Such degraded confidence in the dollar usually can be manifested either by asurcharge on certain denominations when converting dollars to foreign exchange orin certain denominations of the dollar not being accepted at all. Currently, thisaffects Americans and other holders of dollar currency who rely on cash fortransactions rather than credit cards, checks, or bank transfers. If the counterfeitingwere to become extensive enough, however, it might depress the overall exchangevalue of the dollar.
Even though the suspected amount of counterfeiting by the DPRK is relatively small when compared with all U.S. currency in circulation, its importance toPyongyang and the ruling communist party could be significant. It apparently helpsfund travel abroad, meet “slush fund” purchases of foreign goods, and subsidize thelifestyles of the privileged class in Pyongyang.
Even though the macroeconomic effect of a counterfeiting operation generating around $15 million to $25 million per year is minor, counterfeiting, itself, is aviolation of U.S. law. The Treasury, including the Secret Service, and the FederalReserve have primary responsibilities for addressing the counterfeiting of U.S.
currency. The Federal Reserve’s role is to distribute and ensure the physicalintegrity, including the authenticity, of U.S. currency. The Secretary of the Treasuryis responsible for issuing and protecting U.S. currency. The Bureau of Engraving andPrinting produces the currency. It has announced that one of its priorities for FY2006and FY2007 is to redesign the $100 note.38 The Secret Service conductsinvestigations of counterfeiting activities, provides counterfeit-detection training, andis responsible for anticounterfeiting efforts abroad.39 36 The Federal Reserve Board. Currency and Coin Services. On Internet at[http://www.federalreserve.gov/paymentssystems/coin/default.htm] 37 The Federal Reserve Board. Currency in Circulation: Value. On Internet at[http://www.federalreserve.gov/paymentsystems/coin/currcircvalue.htm].
38 The Department of the Treasury. Budget in Brief FY2007. P. 87.
39 U.S. General Accountability Office. Testimony. Counterfeit U.S. Currency Abroad:Observations on Counterfeiting and U.S. Deterrence Efforts. February 27, 1996(GAO/T-GGD-96-82). So far, the United States had taken a two-pronged (but overlapping) approach toward North Korea’s alleged counterfeiting activities: law enforcement andpolitical/security pressures. The law-enforcement prong involves prosecuting orsanctioning individuals and/or institutions involved in the distribution of the boguscurrency. The action taken against the Banco Delta Asia in Macau for suspectedmoney laundering was done under Section 311 of the Patriot Act. In the action,Treasury stated that the bank was a “primary money laundering concern” because,among other findings, sources indicated that “senior officials in Banco Delta Asia areworking with DPRK officials to accept large deposits of cash, including counterfeitU.S. currency, and agreeing to place that currency into circulation.”40 The Treasuryhas been careful to define this action as a law-enforcement measure, not a sanction.
U.S. prosecutors also have entered indictments in U.S. courts against persons chargedwith conspiracy to commit counterfeit acts outside the United States or to make, deal,and possess counterfeit U.S. currency with the intent to defraud.41 The U.S. action against Banco Delta Asia caused an avalanche of responses both in financial and political circles. It caused such a run on accounts at the bank that thegovernment of Macau had to take over operations and place a temporary halt onwithdrawals. The financial effects have been larger than expected. Not only has itdeprived major DPRK companies of an international financial base and cut into thesecret personal accounts of the Pyongyang leadership, but it appears to haveobstructed some legitimate North Korean trade. DPRK banks and traders reportedlyare having difficulty finding other lenders to conduct their overseas business. Banksfrom other nations (such as the United Overseas Bank of Singapore and the KoreaExchange Bank of South Korea) have moved to sever contacts with North Korea,fearing that they, too, could face U.S. legal action.42 The political/security prong attempts to stop the alleged counterfeiting activity by changing the cost-benefit calculus of decision makers in Pyongyang. The strategyis to increase costs and reduce benefits in order to induce decision makers to halt theactivity. The inducements used are aimed primarily at raising costs and include theIllicit Activities Initiative, the Proliferation Security Initiative, diplomatic pressures,as well as possible military threats and other policy related measures. The Illicit Activities Initiative, coordinated by the U.S. Department of State, is aimed precisely at North Korea’s alleged counterfeiting and other illicit activities.
It is being developed in cooperation with other nations.43 The Proliferation Security 40 The Department of the Treasury. Treasury Designates Banco Delta Asia as PrimaryMoney Laundering Concern under USA Patriot Act. Press Release JS-2720. September 15,2005.
41 See, for example Case 1:05-cr-00185, Filed May 19, 2005, in the U.S. District Court forthe District of Columbia. United States of America v. Sean Garland, et al.
42 Fairclough, Gordon. “Politics & Economics: Banks Cut Ties to North Korea — U.S.
Threat Toward One Lender Has Surprisingly Big Ripple Effect.” The Wall Street Journal,February 14, 2006. P. A6.
43 James A. Kelly. An Overview of U.S.-East Asia Policy, Testimony before the House Initiative (PSI) is part of the larger counter proliferation effort worldwide and aimedat more countries and groups than just North Korea — but the DPRK does receivea particular focus. The PSI activity has received support from more than 60 countriesand more formal participation from 11 countries, particularly Japan, Australia, theUnited Kingdom, France, Germany, Italy, and Spain. Under the PSI, participatingcountries cooperate to prevent transfers of weapons of mass destruction-related itemsto or from nation states and non state actors of proliferation concern. It does thisthrough intelligence sharing, diplomatic efforts, law enforcement, and interdiction.44 Policymakers reportedly are divided on the ultimate goal of squeezing North Korea on its alleged illicit activities. A group of policymakers (sometimes referredto as the “hawks”) favoring regime change seeks ultimately to induce a crisis withinthe DPRK that would lead to the downfall of Kim Jong-il. One way to achieve thisis to cut off the money the DPRK generates from counterfeiting, selling illicit drugs,and exporting missiles. A second group of policymakers more in favor ofengagement, seeks to resolve the North Korean problem mainly by negotiations. Itsgoal is to change the “bad behavior” of the DPRK by bringing the country into thecircle of peaceful nations and inducing it to act in accord with internationalstandards.45 Each group backs initiatives to curb Pyongyang’s alleged counterfeiting,but each sees the measures in a different light.
Some observers surmise that the financial action against Banco Delta Asia announced on September 15, 2005, fell too close to the September 19 joint agreementby the DPRK, the United States, and other participants in the six-party talks to be acoincidence. At the end of this fourth round of talks, the DPRK signed an agreementthat set out a “visionary view of the end point of the process of the denuclearizationof the Korean Peninsula.”46 These observers opine that the action was backed by so-called “hawks” in the Bush Administration to scuttle progress being made on thediplomatic front. The United States had known about the counterfeiting and moneylaundering activities for years. Why wait, they say, until the middle of a round of thesix-party talks to take action?47 Pyongyang appears to be using the Banco Delta Asiaaction as a pretext to stay away from further talks.48 Other observers state, however,that law enforcement efforts have a timetable of their own and that the Banco Delta 43 (.continued)International Relations Committee, Washington, DC. June 2, 2004.
44 U.S. Department of State. Bureau of Nonproliferation. The Proliferation SecurityInitiative (PSI) (Fact Sheet). May 26, 2005. Congressional Research Service reportRS21881, Proliferation Security Initiative (PSI), by Sharon Squassoni.
45 Sanger, David. Questions Without Answers: the Korean Conundrum [Review]. The NewYork Times, January 19, 2006. Pg. E.9.
46 U.S. Department of State. North Korea-U.S. Statement. Press Statement 2005/T13-29,September 19, 2005.
47 See, for example: Choe, Sang-Hun. Roh Warns U.S. Over N. Korea. Blunt SpeechShows Rift Between Allies. International Herald Tribune, January 26, 2006, pg. 1.
48 For details, see CRS Issue Brief IB98045, Korea: U.S.-Korean Relations — Issues forCongress, by Larry A. Niksch.
Asia action occurred after a three-year investigation when the evidence gathering andother preparations were complete. The position of the United States is that counterfeiting is an illegal activity that cannot be allowed to continue. This is a separate issue from the six-party talks. TheSouth Korean government also has taken a firm position on this. It has clearlycommunicated to North Korea that such illicit activities are not acceptable and thatPyongyang should unequivocally turn away from such illicit behavior once and forall. South Korea also thinks the Banco Delta Asia issue and the nuclear negotiationsshould not be linked and that North Korea should return to the six-party talks.49Seoul reportedly has tried in vain to reach a compromise with the United States toconsider Pyongyang’s counterfeiting activities illegal conduct by individual NorthKorean firms and not by the government of the DPRK.50 One observer stated that thebigger question being asked by China and South Korea is why is the United Stateschasing after North Korea’s “loose change” when the country is making plutonium,the real currency of state power?51 Although South Korea has reluctantly supported the U.S. position on the counterfeiting issue, the country has different interests. While Washington is usingboth law enforcement and political means to place financial pressure on Pyongyang,Seoul is looking for some compromise. The basic interests of the BushAdministration lie in stopping the proliferation of weapons of mass destruction,fighting terrorism, and protecting U.S. currency. South Korea, under President RohMoo-hyun, has placed priority on attaining regional peace, regional prosperity,engagement, and eventual long-term unification with the DPRK.52 On March 7, 2006, North Korea’s Li Gun (head of the North America division of North Korea’s Foreign Ministry) met with Assistant U.S. Treasury SecretaryDaniel Glaser at the United Nations in New York as part of a back channel forcommunicating with each other.53 The U.S. side spent about 20 minutes explainingits actions against Banco Delta Asia and what it expected from the DPRK. TheDPRK reportedly suggested several actions to resolve the issue and for it to returnto the six-party talks (including the lifting of the financial sanctions on Banco Delta 49 Ambassador Lee Tae-sik’s Speech Given at the St. Regis Hotel (Washington, DC). TheKorea-US Alliance - A Partnership for the Future, February 7, 2006. Korea EconomicInstitute. [http://www.keia.com/2-Publications/2-6-Other/LeeTSspeech.pdf] 50 ROK Editorial Says ROK-US ‘Discord’ Over DPRK Counterfeiting ‘Worrisome.” Dong-A Ilbo, in Korean, January 25, 2006, p. 31. Translation by the U.S. Embassy in Seoul.
Provided by Open Source Center.
51 Hayes Says Counterfeiting Issue Sidetracks Nuclear Negotiations. Nautilus Weekly,February 27 - March 3, 2006 . Quote by Nautilus Institute Executive Director Peter Hayesspeaking on Chicago Public Radio’s Worldview Program.
52 Reuters. Crackdown on North Korea Strains US-South Ties. January 28, 2006.
53 U.S. Department of the Treasury. Treasury Officials Brief North Koreans on Actions toStem DPRK Illicit Financial Activity. Press Release JS-4099, March 7, 2006. “N. KoreaAgrees to Discuss Counterfeit Issue with U.S.” The Chosun Ilbo. (Digital edition) February24, 2006.
Asia, forming a joint U.S.-North Korean task force to examine the counterfeitingconcerns, giving North Korea access to the U.S. banking system, and providing NorthKorea with technical help on identifying counterfeit bills).54 The United Statesreportedly has rejected these North Korean suggestions.55 Separately, the U.S.
ambassador in Seoul indicated that Washington wants Pyongyang to prove that toolsused to counterfeit U.S. currency had been destroyed as evidence that North Koreahad abandoned such illegal activities.56 Since Portugal has returned Macao to China, Beijing now has supervisory responsibility over Banco Delta Asia. China has been attempting to modernize itsbanking system, and for one of its banks to be accused of money laundering clearlydoes Beijing no good. This places pressure on China to ensure that Banco Delta Asiaand other banks are clean. Immediately after the Banco Delta action, major Chinesebanks dealing with foreign exchange reportedly refrained from transactions withNorth Korean-related firms.57 China conducted a three-month investigation of theaccusations against Banco Delta Asia that, according to South Korean diplomaticsources, confirmed the suspicions. Based on the findings, China reportedly is tryingto convince North Korea that it needs to take steps in the matter.58 North Koreans also are reportedly attempting to circumvent the financial measures, but they have declined to disclose how they are doing it.59 Traditionally,North Koreans have used Chinese banks for many of their international transactions,and some surmise that Kim Jong-il’s trip to southern China in January 2006 mayhave included an attempt to move some North Korean accounts to a financialinstitution there. The U.S. Treasury has said that some reports suggest that NorthKorean agencies have been transferring assets to banks in China.60 Others note thatAustrian banks have not refrained from making transactions with North Korea.
54 Kessler, Glenn. N. Korea Sets Terms for Return to Nuclear Talks . The Washington Post,March 9, 2006. P. A16. DPRK Reportedly Proposed ‘Method’ to Resolve FinancialDispute, Waits for US Response. Open Source Center report of Yonhap news article: N.
Korea Vows Not To Join Nuclear Talks Unless U.S. Sanctions Are Lifted, March 8, 2006.
Center-Left ROK Daily Carries Exclusive Interview With DPRK Delegate to New YorkMeeting. Open Source Center report of article in Seoul Hankyoreh (Internet version) inKorean. March 8, 2006.
55 U.S. Rejected N. Korean Financial Proposal-Kyodo. Reuters News. March 15, 2006.
56 Herskovitz, Jon and Jack Kim. U.S. Says S. Korea Fake Notes Made in North. ReutersNews, February 22, 2006.
57 Chinese Banks Cut Transactions with North Korea-related Firms (From Kyodo NewsService). BBC Monitoring Asia Pacific. March 13, 2006.
58 ROK Daily Cites Diplomatic Source: PRC Confirms DPRK Money-Laundering in MacauOpen Source Center report of article by Chosun Ilbo (WWW-Text in English), January 11,2006. [Chosun Ilbo headline: “China Finds N.Korea Guilty of Money Laundering”] 59 Fifield, Anna. “North Korea Is ‘Looking to Beat’ US Financial Sanctions.” FinancialTimes, March 13, 2006. P. 1.
60 Treasury Issues Advisory on North Korean Banking. Bulletin News Network, the WhiteHouse Bulletin, March 16, 2006.
Financial transactions with North Korea apparently still can be done through Austriaand Switzerland.61 Japan also seeks to defuse tensions with the DPRK, but Japan has cooperated with the United States in both the Proliferation Security and Illicit ActivitiesInitiatives. In talks in February 2006 on normalization of relations with Pyongyang,Japan announced that it intended to take up North Korea’s illicit activities, includingcounterfeiting, in order to strengthen policy coordination with the United States andthe European Union.62 Congress will likely continue its interest in this topic including oversight of Bush Administration actions, holding hearings to clarify U.S. policy, or using thecongressional pulpit to send messages to North Korea.63 Congress may explorepossible criminal charges against Kim Jong-il in a manner similar to those againstManuel Noriega, the former leader of Panama, for drug trafficking. Other policylevers using human rights or other issues also could be employed. The United Stateshas suggested to the DPRK that it join the Asia-Pacific Group on Money Laundering(APG), a 30 member group (including the United States, Japan, and South Korea)launched in 1997 as a sub-organization of the Organization of Economic Cooperationand Development. It is aimed at preventing illegal financial activities in theAsia-Pacific region and would subsequently require the disclosure of all of theDPRK’s illicit financial activities.64 North Korea experts believe, however, that itwill not be easy for the North to join the 30 member group.
The current strategy of the Bush Administration reportedly is to pressure North Korea but continue the diplomatic process. The fundamental issue is whether theUnited States should place its policy bet on the success of the six-party talks withvarious economic and security inducements to achieve the ultimate goals ofdismantling the DPRK’s nuclear weapon program or whether it should continue toadminister economic and other pressures to induce Pyongyang to give up its nuclearambitions and use the six-party talks as the vehicle to accept a possible North Koreacapitulation.65 Since, the effect of the Banco Delta Asia action has Pyongyang scrambling, a question is whether the United States could ease its financial pressure on NorthKorea enough for the six-party talks to go forward or whether it should tighten thefinancial squeeze more — even at the risk of raising the ire of China and South 61 Major Chinese Banks Refrain From Dealing with N. Korean Firms. Kyodo News. March13, 2006.
62 Japan to raise North Korea’s alleged laundering, drug trafficking in talks (From KyodoNews Service), BBC Monitoring Asia Pacific, February 1, 2006. P. 1. 63 For legislation, see; CRS Issue Brief IB98045, Korea: U.S.-Korean Relations — Issuesfor Congress, by Larry A. Niksch.
64 U.S. asks NK to Join Int’l Group on Money Laundering. Yonhap English News. March12, 2006.
65 Brinkley, Joel. U.S. Squeezes North Korea’s Money Flow. The New York Times, March10, 2006. P. 12.
Korea. Neither of these countries thinks an economic collapse or regime change inNorth Korea is likely to result from economic sanctions, and neither desires to dealwith the economic and political effects that would follow should such a collapseoccur. Yet to be determined, is the extent to which such broader strategicconsiderations should perhaps govern the ultimate, detailed response to the problemof North Korean counterfeiting of U.S. currency and other crime-for-profit-activity.

Source: http://einfo.usembassy.or.kr/NKCounterfeiting.pdf