It has all the makings of a James Bond movie -- an isolated authoritarian regime running a secret counterfeiting network with tentacles reaching into foreign banks, the Irish Republican Army (IRA) and Chinese gangs dealing in narcotics and anti-aircraft missiles.
This is the picture of North Korea that former US officials and analysts say Washington has pieced together in recent years as it has investigated the appearance around the world of bogus US$100 bills so perfect that they have been called "supernotes."
The North Korean government has vehemently denied any hand in counterfeiting and has vowed to resist pressure from the US over the matter.
"Any concession in the acute standoff with the US imperialists invites a ruin," the government said in a commentary carried on the official KCNA news agency, Reuters reported on Friday. "A concession will result in a hundred concessions and finally invite death and national ruin."
POLITICAL FOOTBALL
Using government printing presses to run off another country's currency, possibly in an effort to destabilize that currency, would appear to be the sort of criminal act that demands tough international penalties. But Washington's effort to press its case has become mired in the tricky politics of an even larger and more serious problem: nuclear proliferation.
Seoul apparently fears pushing the counterfeiting issue could derail efforts to persuade the North to give up its nuclear ambitions.
"The counterfeiting issue has become just a card in the bigger game of getting North Korea to disarm," said Kim Sung-han, a researcher at South Korea's Institute of Foreign Affairs and National Security, a government policy research group.
COLD SHOULDER
That is why when a delegation from the US Treasury Department arrived in Seoul last week to ask for South Korea's cooperation to stop the counterfeiting, the Americans got a chilly -- and slightly puzzling -- response.
South Korea went to lengths to distance itself from the US accusations, even to the point of denying that the US had sought its support.
On Tuesday, the US Embassy issued a bland statement saying that treasury officials had "urged" South Korea to take unspecified steps against counterfeiting. On Wednesday, a spokesman for the South Korean Foreign Ministry, Choo Kyu-ho, said the embassy had "exaggerated" the content of the discussions.
The issue escalated further when President Roh Moo-hyun warned the US in a nationally televised news conference that taking too tough a stance against the North could cause "friction and disagreement between South Korea and the United States."
But on Thursday in Washington, US President George W. Bush vowed to press Pyongyang to stop counterfeiting.
"If someone is cheating on us, we need to stop them," Bush said.
The US says it has found US$45 million in supernotes, which it says the North has used to prop up its decrepit economy and keep its leaders in luxury.
In part, the rift between the allies reflects a widening gap in their strategies for dealing with North Korea, although US officials have tried to separate counterfeiting from nuclear talks.
Last November, North Korea's envoy walked out of the negotiations after the US imposed penalties on Banco Delta Asia, a bank in Macau that it says the North's diplomats used to launder briefcases full of bogus bills.
China, which independently confirmed the counterfeiting allegations, has emphasized to Pyongyang that the issue should not be seized upon as a pretext for avoiding the talks, which Beijing would like to see resume by the middle of next month.
Some countries, including South Korea, wonder why the US has chosen to raise the counterfeiting issue now, after remaining virtually silent for more than a decade. US officials first suspected North Korea in the late 1980s, when supernotes started appearing in East Asia and the Middle East. But Washington did not take action until the penalties against Banco Delta Asia in September.
TIMING QUESTIONED
Critics point out that the penalties were imposed suspiciously close to an apparent breakthrough in the six-party nuclear talks on Sept. 19.
"The timing could have been poor coordination" between law enforcement officials and negotiators, said Peter Beck, director of Northeast Asia at the International Crisis Group, a nongovernment organization that researches security issues. "Or it could have been sabotage by those who still want regime change."
David Asher, a former State Department official who oversaw the investigation into North Korean counterfeiting, offered a different explanation. He said the Bush administration ordered the inquiry soon after taking power in 2001, and it took 150 federal officials four years of sleuthing to assemble the evidence, much of which has not been made public.
"The timing is just a coincidence," said Asher, who was coordinator of the department's North Korea working group until last year. "The administration wanted us to prove this. They didn't want this to end up like Iraqi WMDs," referring to the so-called weapons of mass destruction that the Bush administration never found in Iraq.
In particular, Asher said, the administration waited until September to give the FBI and other law enforcement agencies time to finish two elaborate undercover operations focusing on members of China's notorious triads. The operations, which ended in August, netted US$4 million worth of supernotes with narcotics and counterfeit cigarettes.
INTERNATIONAL LINKS
The operations, called Royal Charm and Smoking Dragon, culminated in the arrest of 59 people suspected of being gang members, including some lured into the US when federal agents posing as organized-crime figures invited them to a staged wedding.
Other details of North Korea's counterfeiting operation trickled out in October after the arrest in Northern Ireland of Sean Garland, a leading member of a faction of the IRA, on charges he circulated more than US$1 million worth of fake US$100 notes in Britain and Eastern Europe.
"North Korea has been using all the immunities and technical abilities that only governments have" to counterfeit US currency, Asher said. "The whole world has tolerated North Korea's illegal sources of income too long."
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