How Kim Jong Il Got Away With Counterfeiting Our Money

Having finally found time to read all of David Rose’s excellent Vanity Fair piece on North Korea’s supernote counterfeiting operation, I agree absolutely with Richardson and Curtis; it’s an excellent piece of journalism. For a fuller understanding, it should be read in the context of two others. Stephen Mihm’s New York Times report explained how North Korea assembled Intaglio printing presses and optically variable ink from the same Swiss manufacturer that supplies them to the U.S. Bureau of Engraving and Printing. Bill Gertz’s Washington Times report explained the kremlinology of the operation inside North Korea itself, attributing the operation’s direction to one General O Kuk Ryol. Rose’s story explains how North Korea uses Chinese criminals to smuggle supernotes into the United States and launder them at stores and casinos.

Both of the latter articles rely heavily on quotations from people involved in investigating the scheme, including an FBI agent and former State Department official David Asher. (I’m intrigued by Rose’s use of the term “palace economy,” one that I’ve often used and which I thought was my own creation.) These leaks suggest a degree of frustration with baseless conspiracy theories that had begun to circulate, most notably via hack journalist Kevin G. Hall and an otherwise obscure German trade journal writer named Klaus Bender, who makes the completely unsupported and thus risible allegation the CIA must have printed the supernotes. Rose picks up Bender like a chew toy and duly drops him. But the most interesting part of the story is something I’ve known for over a year, and previously wrote here. My source asked me not to reveal his identity. I now see that another, equally reliable source has gone on the record with the same information:

The Illicit Activities Initiative had a lot more planned. The final stage, which David Asher says President Bush had been fully briefed about, would have been the unsealing of criminal indictments. “We could have gone after the foreign personal bank accounts of the leadership because we could prove they were kingpins,” Asher says. “We were going to indict the ultimate perpetrators of a global criminal network. “The world wanted evidence that North Korea is a criminal state, not a lot of hoo-ha,” says Suzanne Hayden, a former senior prosecutor at the Department of Justice who ran its part of the Illicit Activities Initiative. “The criminal cases would have provided the evidence. It would have been in the indictments. As with any money-laundering investigation, we would have identified the players and traced them back, from Macao to those who were behind it in North Korea.

Asher says that the evidence in the indictment would have been detailed and compelling, including video and audio of North Korean generals caught in the act. But the indictment was stopped before it ever went to the grand jury.

Instead, the Bush administration suddenly decided not to proceed. What Asher describes as the “ultimate non-aggressive containment strategy” was unexpectedly curtailed. The reason: the administration believed that it risked provoking a permanent North Korean withdrawal from talks on its weapon and missile programs. Hayden says, “Suddenly, the rules had changed. The diplomatic piece of this came swooping in, and the imperative became “ËœLet’s get them to the table,’ and that meant everything had to be ratcheted down.

At the time, Christopher Hill assured the gathered members of the House Foreign Affairs Committee that the move did not suggest an American decision to drop the issue without verifying North Korea’s cessation of its counterfeiting. Observe this exchange between Hill and Rep. Ed Royce (R, Cal.):

Ambassador HILL. Mr. Congressman, I want to assure you that I have repeatedly raised with the North Korean side that it is completely unacceptable to be engaged in this type of activity, especially the counterfeiting of this $100 bill. Our vigilance on this matter does not end with our resolving the matter of this bank in Macau. We will continue to monitor this very closely, and as we see signs that the North Koreans are somehow persisting in this activity I can assure you we will react accordingly.

Mr. ROYCE. Well, here is what gives me pause.

Ambassador HILL. We have no intention of trading nuclear deals for counterfeiting our currency. []

But in what would become an established pattern with Ambassador Hill, what he testified would not happen, happened. Rose continues with the story:

In fact, the program was not just halted but effectively thrown into reverse. Kim Jong Il made his continued participation in international talks contingent on having sanctions lifted, and in March 2007 the administration unfettered Banco Delta Asia and unfroze North Korean assets. Banks around the world that had shunned North Korean companies were now free to do business again.

It gets even worse. Hill arranged to have money that he knew to be the proceeds of illegal activity returned to North Korean through the New York Federal Reserve Bank. The transaction, which may well have been a technical violation of U.S. money laundering laws, compromised the fed’s own integrity.

Is it really necessary to pursue this case? Does it really matter in the long run if North Korea prints a few million dollars’ worth of supernotes each year, a tiny fraction of the total supply of dollars? Consider the following:

Compared with the amount of American currency in circulation around the world–at least half of all U.S. banknotes are physically in the hands of people outside the United States–the total quantity of supernotes, believed to be made by North Korea, to date is small. However, their extraordinary quality can have disproportionate consequences. In 2004, Taiwan’s central bank issued a warning that supernotes had been turning up on the island. This caused a panic, and the Taiwanese banks were overwhelmed by customers seeking to return $100 bills totaling hundreds of millions of dollars, most of them perfectly genuine. “It was effectively a run on the dollar,” says Asher. “No one knew if their money was real or fake.

Finally, recall suspicions of a North Korean connection to a multi-billion-dollar bond counterfeiting scheme.

How much longer will America tolerate this act of war and threat to the integrity of its currency? About as long as the State Department can keep convincing American presidents that it’s worth overlooking in the name of the next Agreed Framework. That is how North Korea has learned to leverage some greater threat to our security into a license to print our money, deal drugs, and commit mass murder. Nowhere else on earth would those crimes be written off as tolerable misdemeanors.