Supernotes Scandal to Hit Bank of China; NK Gov’t in Talks with U.S. on Counterfeiting

Via the Chosun Ilbo:

The U.S. is preparing to seize more than US$2.67 million from three frozen bank accounts with Chiyu Banking, a subsidiary of Bank of China Hong Kong. The South China Morning Post reported the funds are believed to be the first known link between a Hong Kong bank and North Korea’s underground trade in “supernotes,” or high-quality fake US$100 bills. The accounts belong to an unemployed mainland Chinese woman named Kwok Hiu Ha.

The Bank of China is a parastatal. That doesn’t necessarily mean that the Beijing authorities know everything that BoC is up to, but it does mean that sanctions against China’s largest bank could hit China’s economy very, very hard. Speculation: China’s cooperative attitude may explain why Treasury is still only naming BoC subsidiaries.

North Korea is apparently feeling the pain, too. After some initial bluster and yet another declaration that it would walk out of the six-nation facade, the North Koreans are sending reps to hear a U.S. briefing on the latter’s anti-counterfeiting measures. Since appeasement has achieved nothing, we may soon see if a firmer policy will have more success. Declarations of success still seem premature, as U.S. Ambassador Alexander Vershbow reminds us:

“There have been some signals in the last few weeks indirectly indicating that North Korea is beginning to acknowledge that there is a problem and they need to take steps to address the issues,” Mr. Vershbow told the JoongAng Ilbo and JoongAng Daily on Wednesday. The U.S. envoy to Seoul has been a strong critic of the North in his four months on the job here, and in turn has joined more senior U.S. officials in Pyongyang’s rogues’ gallery. Pyongyang media outlets took special exception to the label of “criminal regime” that the ambassador used recently in referring to the government there.

Mr. Vershbow declined to use the words again. “Looking back at that episode, my main concern is that it may have diverted attention from the real issue that I wanted to address “• illicit activities by the North Korean regime,” he said. Conceding that the substance of the issue may have been obscured by his rhetoric, he added, “Since that time, I have left it to academics and journalists to describe North Korea. I think that it is better understood by North Korea that the issues will not go away.”

That language represents a climbdown by Vershow in rhetoric, though not in substance. An emotional letdown perhaps, but the firmness of the policy position appears to be undiminished

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Caught in the Act!

I wonder what Roh Moo-Hyun will say this time. Rogue diplomats?

North Korean diplomats were caught attempting to smuggle US$1 million and 200 million yen into Mongolia on Tuesday, the Mongolian press reported. Reports said the North Koreans told Mongolian authorities they were planning to put the money in a Mongolian bank account, according to Japan’s Yomiuri Shimbun.

The paper said that it was unclear whether the money was counterfeit or not, and what measures the Mongolian authorities will take. It said the incident revived concerns about North Korean involvement in money laundering.

North Korean diplomatic missions are widely believed to have been told to finance themselves by any means available.  That said, I’d be astonished if all of that cash turns out to be authentic.  The U.S. Embassy continues to assert that it showed the South Koreans fresh evidence of North Korea’s counterfeiting, despite South Korea’s claims that North Korea was not known to have engaged in counterfeiting since 2000:

It quoted an embassy spokesman as saying the U.S. government showed Korean officials “superior-quality counterfeit 2001 and 2003 series US$100 notes (supernotes) that our investigations have concluded were manufactured” in North Korea. The spokesman said U.S. investigators concluded that $140,000 uncovered by South Korean police last year were part of a batch made by Pyongyang in 2001.

The evidence was presented to South Korean officials by U.S. Treasury investigators who visited in January. An Embassy insider said there was nothing to add to the spokesman’s statement.

Opinions may vary, but facts are hard things to alter.

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Banco Delta Sanctions ‘Severe Blow’ to NK Economy

The Chosun Ilbo,  relaying an AWSJ story, reports that the Treasury Department’s action against the Macau-based bank “dealt a severe blow to the secretive country,” “dried up its financial system,” and “brought foreign trade virtually to an end.”

In December, I noted reports  that North Korean front companies and spies were fleeing Macau en masse. According to today’s story, Banco Delta has now announced that it’s ending its financial ties with North Korea in an effort to prevent a run on its assets and a devastating rash of actions by other banks to cut their ties with Delta.

Because of the high percentage of bad loans and undercapitalization in the Chinese banking system, Beijing is clearly concerned about controlling the damage to its financial system.

The evidence of North Korean counterfeiting now appears to be beyond serious dispute.  The supernote issue emerged with an undercover bust and seizure in the U.S.  Shortly thereafter, the  Justice Department indicted an ex-IRA terrorist for circulating North Korean supernotes.  In January, this article (ht Richardson; pic, too!) reported that North Korean supernotes were found at Las Vegas casinos.  Last month, a Chinese government investigation confirmed North Korea’s counterfeiting and money-laundering activities.

Recently, a Korean newspaper reported a huge seizure of North Korean supernotes in Seoul’s famous Namdaemun market, and that South Korean police even sought U.S. assistance in confirming the notes’ North Korean origin.  The disclosure was an embarassment to South Korea and its president, which had expressed  doubts about the existence of evidence of recent North Korean counterfeiting, despite presumably knowing otherwise.

Although North Korea may be  hinting that it’s willing to discuss the counterfeiting issue, the U.S. Ambassador says his government will not be satisfied until the North Koreans hand over the plates and ink.

Update:   The BBC also covers the story, with this dramatic fact (as dramatic as banking gets, anyway):

The scandal weakened Banco Delta’s financial position, with customers withdrawing 10% of its total deposits after the allegations surfaced.

Wow.  No wonder Macanese authorities had to step in to save the bank from insolvency.

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Vershbow: I’ll Believe It When I See the Plates

The U.S. Ambassador to Korea, Alexander Vershbow, is taking the fight back to “enemy” territory, as predicted.  In an interview with OhMyNews, Vershow responded to North Korean comments that some have interpreted as North Korean flexibility on counterfeiting.  Vershbow is obviously familiar with North Korea’s track record, because he wants more tangible proof that North Korea is capable of sincerity and good faith:

The U.S. ambassador to Korea, Alexander Vershbow, said yesterday that Pyongyang must show some “convincing evidence” that it had stopped counterfeiting U.S. currency notes to satisfy U.S. concerns.

Specifically, he said, the North must “provide evidence that the equipment and plates for the so-called supernotes had been destroyed so that concerns about further ability [to print more notes] will be reduced.” Mr. Vershbow was speaking to OhmyNews, an Internet news site, on Tuesday; the interview was published yesterday.

As for the South Korean position, that “rogue” North Korean businessmen may be behind the counterfeiting, Vershbow treats it with all the seriousness it merits:

He also repeated Washington’s contention that the counterfeiting program is state-sponsored, a contention that suggested a U.S. disinclination to give Pyongyang a face-saving way of stopping the printing presses and settling the issue by claiming that individuals or rogue elements of the government were responsible.

Having spent the last decade-plus pretending that North Korea was just as capable of ordinary diplomacy as the Netherlands, our government finally has an ambassador with an unencumbered grasp of reality. 

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NK ‘Spokesman’: We Have ICBMs!

Today’s WTF headline is this piece of work by Kim Myong Chol, North Korea’s unofficial and unmedicated spokesman in Japan.  The real torment of this piece is the difficulty of deciding which of the choicest cuts to serve you:

Three factors make North Korea unique. The first is possession of a fleet of intercontinental ballistic missiles (ICBMs) capable of unleashing retaliatory nuclear strikes on the US mainland. Second, the North Koreans still torment the Americans as a result of their victory over them in the Korean War. . . .

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$140,000 in N. Korean ‘Supernotes’ Found in Namdaemun

So South Korea really isn’t sure North Korea is counterfeiting our currency? Have a look at this:

The South Korean government concealed the fact that U.S. investigators told it US$140,000 in counterfeit dollars found in Seoul’s Namdaemun market last April was made in North Korea, it emerged Sunday. Police at the time arrested three people who tried to exchange 1,400 so-called supernotes at a local money changer. They allegedly bought the supernotes from a broker in Shenyang, China.

How do we know the notes were made in the North? The South Koreans asked the Secret Service who made them, and the Americans then did a forensic comparison between them and known North Korean exemplars. As to the charge of concealing, however, I’m missing something. They presumably weren’t hiding much if the South Korean police made inquiries with U.S. law enforcement authorities.

U.S. Ambassador to Seoul Alexander Vershbow recently alluded to an incident “where a large amount of counterfeit dollars was confiscated in Korea,” and police here commented they asked for investigative cooperation from Chinese authorities to discover the source of the fakes but had yet to receive an answer.

Of course, one presumes that at some point, the South Korean government knew about the find and chose to ignore the evidence anyway. It’s no cause for encouragement about South Korea’s reliability as a participant in diplomacy with the North.

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