Counterfeiting Cases Point to North Korea

WASHINGTON — The counterfeiting operation began a quarter of a century ago, he recalled, at a government mint built into a mountain in the North Korean capital.

Using equipment from Japan, paper from Hong Kong and ink from France, a team of experts was ordered to make fake U.S. $100 bills, said a former North Korean chemist who said his job was to draw the design.

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"The main motive was to make money, but the secondary motive was inspired by anti-Americanism," said the chemist, now 56 and living in South Korea.

Before long, sheets with 30 bills each were rolling off the printing presses. By 1989, millions of dollars' worth of high-quality fakes were showing up around the world. U.S. investigators dubbed them "supernotes" because they were virtually indistinguishable from American currency. The flow of forged bills has continued ever since, U.S. officials say, despite a redesign intended to make the cash harder to replicate.

For 15 years, U.S. officials suspected that the North Korean leadership was behind the counterfeiting, but they revealed almost nothing about their investigations into the bogus bills or their efforts to stop them. Now, however, federal authorities are pursuing at least four criminal cases and one civil enforcement action involving supernotes.

U.S. authorities have unsealed hundreds of pages of documents in support of the cases in recent months, including an indictment that directly accuses North Korea of making the counterfeit bills, the first time the U.S. has made such an allegation in a criminal case.

The documents paint a portrait of an extensive criminal network involving North Korean diplomats and officials, Chinese gangsters and other organized crime syndicates, prominent Asian banks, Irish guerrillas and an alleged ex-KGB agent.

The criminal cases and U.S. Treasury enforcement action are part of a concerted campaign to deprive North Korea of as much as $500 million a year from counterfeiting currency and other criminal activities, senior U.S. law enforcement and intelligence officials say.

The officials say criminal syndicates in South America, Eastern Europe and elsewhere have also churned out large sums of fake U.S. cash. But North Korea's is the only government believed to do so, despite international pressure and laws that characterize such activity as an economic casus belli, or act of war, they say.

"It is simply unacceptable for a member of the international community to engage in this type of irresponsible conduct as a matter of state policy, and [North Korea] needs to cease its criminal financial activities," Daniel Glaser, deputy assistant Treasury secretary for terrorist financing and financial crimes, said in an interview. "Until then, the United States will take the necessary actions to protect the U.S. and international financial systems from this type of misconduct."

In the fall, the U.S. unsealed an indictment against the head of an Irish Republican Army splinter group alleging that "quantities of the supernote were manufactured in, and under auspices of the government of, the Democratic People's Republic of Korea," as North Korea is formally known. North Korea's government in Pyongyang strenuously denied wrongdoing.

A report by North Korea's official news service called the charges "a clumsy and base political farce" by a Bush administration intent on toppling the communist government.

David L. Asher, an administration point man on North Korean issues until this summer, said there was overwhelming evidence that Pyongyang had become a brazen "criminal state" reliant on illicit activity, in part to finance its nuclear weapons program.

"This is state-sponsored counterfeiting. I don't know of any other case like this except the Nazis, and they were doing it in a state of war," said Asher, who headed the administration's North Korea Working Group and was the State Department's senior advisor for East Asian and Pacific affairs.

The administration, he said, has made a strategic decision to press the issue, even if doing so affects delicate six-nation talks aimed at getting North Korea to give up its nuclear arms.

"The administration made a determination early on that irrespective of what happened in diplomacy, this should not be tolerated," Asher said.

U.S. authorities say the increasingly high-profile campaign against the counterfeiting is proceeding amid information that North Korea is minting more American currency than ever before and smuggling it and other contraband, such as weapons and knockoff pharmaceuticals, directly into the United States. A number of U.S. officials who are knowledgeable about the campaign spoke on condition of anonymity because of the issue's political sensitivity.

U.S. authorities fear that the communist state has been able to step up its illicit activities by forging more alliances with transnational organized crime syndicates.

Those alliances have made Pyongyang's suspected nuclear arsenal and other weapons more vulnerable to theft by rogue elements of the North Korean government and sale to nuclear traffickers or terrorists, the U.S. officials said. They worry that the same pipelines used to smuggle fake currency into the United States could be used to traffic in weapons of mass destruction.

An unclassified version of a March report to U.S. lawmakers by the independent research arm of Congress warned that North Korea's increasing reliance on criminal networks meant it may not be able to curtail its illegal activities even if it wanted to.

"Korean crime-for-profit activity," analyst Raphael Perl of the Congressional Research Service wrote, "may become a 'runaway train,' gaining momentum, but out of control."

Extending the Network

One of the first places authorities picked up the supernotes' trail was Ireland, more than 5,000 miles away from North Korea. By the early 1990s, so many supernotes were circulating there that Irish banks stopped exchanging American $100 bills.

The Secret Service soon homed in on Sean Garland, whose exploits with the Irish Republican Army years earlier had made him a local hero.

Garland was chief of staff of the Official Irish Republican Army, or Old IRA, after it split with other IRA factions in 1969 and became the most left-leaning. He also heads its political wing, the Irish Workers' Party, in Northern Ireland. In that capacity, Garland traveled extensively to see Socialist and Communist party leaders in the Soviet bloc and, authorities contend, North Korea.

According to Garland's indictment in federal court in Washington this year, which was unsealed this fall, his discussions with North Korean operatives eventually turned from a shared rejection of capitalism to a scheme for him to buy bogus $100 bills, perhaps to destabilize the U.S. dollar by flooding the market with fakes.

The former North Korean chemist, who spoke anonymously for fear of reprisal, said that over the years, people from China, Hong Kong, Japan and other countries helped distribute the bills. "There was a lot of cooperation with Ireland," he said.

In the indictment and in interviews, U.S. authorities said Garland ultimately teamed up with Old IRA members, street crooks and an alleged former member of the KGB, the Soviet intelligence service. They said the men traveled widely to circulate the bills and sell them to customers who would buy suitcases full at wholesale prices.

The indictment accuses Garland and six other men of buying, selling and circulating fake U.S. $100 bills during the 1990s. Authorities say they passed up to $28 million worth of bogus currency.

From 1997 to 2000, the group bought, sold and circulated the counterfeit notes in Russia, Belarus, Poland, Denmark, the Czech Republic and Germany, the indictment says. It alleges, in detail, that couriers made frequent ferry trips to Ireland loaded down with real cash to pay Garland for the counterfeits.

Authorities said Garland did much of his business with North Korean suppliers at Pyongyang's embassies in Moscow and, later, Minsk, Belarus, using his status as a Workers' Party official as cover.

Things began to unravel in 1999, when Garland's group allegedly went ahead with a deal to sell $1 million in supernotes to a pair of undercover agents posing as wholesalers.

Authorities in Britain described the counterfeit ring as the largest of its kind in their country's history. But Garland wasn't arrested or charged until British authorities, acting on a U.S. warrant, took the 71-year-old into custody Oct. 7 in a hotel in Belfast, Northern Ireland.

U.S. Takes Action

The U.S. quickly moved to extradite Garland. But when he was released for medical treatment, he fled to Ireland, which has no extradition treaty with the U.S.

In a recent statement, Garland insisted that the U.S. charges were baseless and politically motivated. He vowed in an Internet posting to surrender for trial if it were by a jury in Ireland.

No North Korean citizens or front organizations are charged or even identified in the Garland indictment. U.S. authorities would not say whether any of the 10 unnamed and unindicted co-conspirators listed in the document were from North Korea.

Channing Phillips, a spokesman for the U.S. attorney's office in Washington, would not comment on why authorities waited until this year to obtain a grand jury indictment, which alleges criminal acts only through mid-2000. He also would not say whether other suspects from North Korea or elsewhere had been identified or charged under seal.

"I can only say that the case is continuing," Phillips said.

The chemist, though, said the counterfeit bills were routinely used by North Korean officials.

"Any North Korean official who goes abroad has to change a big note and bring back small, real currency," he said. "If you come back with real money, you get medals."

When he decided to flee North Korea in 2000, he crossed into China with thousands of dollars in counterfeit notes, he said. When Chinese police caught him without official papers, they kept $4,000 of the fake cash and let him go.

"Thanks to that money," he said, "my translator and I were released."

Besides the Garland case, U.S. officials say three criminal cases the Justice Department is pursuing offer evidence that North Korea is intensifying its efforts to churn out fake U.S. money and conspire with organized crime to smuggle the bills and counterfeit drugs and other products into the United States.

None of those cases explicitly mentions North Korea, but they refer to a foreign country that several U.S. sources say is North Korea.

One case involves supernotes, drug trafficking and three suspected members of a Chinese crime syndicate who were arrested in the Mariana Islands last year.

According to federal court documents and interviews, the Justice Department's central money-laundering section continues to present evidence in the case to a federal grand jury.

In the two other cases, dubbed Operation Smoking Dragon and Operation Royal Charm, at least 87 people have been arrested or indicted in New Jersey and California on charges of smuggling or conspiring to smuggle at least $6 million in counterfeit cash, knockoff Viagra, brand-name cigarettes and weapons into the United States from "Country A" and "Country B."

Several U.S. officials said those countries were North Korea and China and that the money was printed by the North Korean government.

One of the alleged ringleaders, Co Khanh Tang, told undercover agents in April that he was expecting an especially lucrative product from suppliers in China: "new and better samples" of counterfeit U.S. currency, the indictment against him says.

Stuart Levey, a top Treasury Department official, said North Korea recently began churning out improved copies of U.S. bills.

In October, Levey headed a Treasury delegation to Beijing, Macao and Hong Kong, where he pressed government officials and banking executives for more help in cracking down on North Korean counterfeiters and banks that helped them.

Just before the trip, the Treasury Department designated an Asian financial institution, Macao-based Banco Delta Asia SARL, as a "primary money-laundering concern" under the Patriot Act.

U.S. authorities allege that the bank was a longtime pawn of North Korean front companies, which used it to conduct "illegal activities, including distributing counterfeit currency and smuggling counterfeit tobacco products" and aid North Korean drug-trafficking efforts.

The bank denied any intentional wrongdoing and later cut off several dozen clients — including 40 North Korean people and businesses — replaced several managers and allowed a panel named by Macao's government to administer its operations.

The U.S. sanctions on the bank, as well as those against several North Korean companies accused of helping proliferate weapons of mass destruction, have infuriated North Korea.

The nation is threatening to boycott disarmament talks unless the United States reverses course.

The Smoking Dragon case has raised concerns beyond counterfeiting.

In court documents, prosecutors allege that Tang and another suspect offered undercover FBI agents a catalog of weapons available for purchase from the arsenals of at least two foreign countries, believed to be North Korea and China.

The agents ordered dozens of AK-47 assault rifles and in July 2004 began negotiating a deal for surface-to-air missiles "manufactured by communist countries," an indictment said.

The indictment added that the agents were told the weapons' high prices were "necessitated by the need to bribe officials" of at least one of the foreign governments.

Asher, the former State Department official, asserted in a November speech at the Woodrow Wilson Center in Washington that absent a worldwide crackdown on North Korean counterfeiting and the government's other illicit activities, the country would continue to rely on criminal profits to maintain its political isolation and its nuclear program and to withstand pressure to reform.

"Given that periodic exposure of illegal dealings by North Korean officials overseas in the past has not resulted in serious or lasting consequences," Asher said, "Pyongyang may believe that an open door for global criminality exists."

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Meyer reported from Washington and Demick from Seoul.