Publication Date: January 2007
Publisher: Library of Congress. Congressional Research Service
Research Area: Banking and finance
Coverage: Korea (North)
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 illicit activities by North Korea apparently done to generate foreign exchange that is used to 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 in circulation, and estimates are that the country has earned from $15 to $25 million per year from counterfeiting. The illegal nature of any counterfeiting activity makes open-source information on the scope and scale of DPRK counterfeiting and distribution operations incomplete. South Korean intelligence has corroborated information on North Korean production of forged currency prior to 1998, and certain individuals have been indicted in U.S. courts for distributing such forged currency. Media reports in January 2006 state that Chinese investigators have independently confirmed 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 depress its value; and, if done extensively enough, potentially damage the U.S. economy. The earnings from counterfeiting also could be significant to Pyongyang and may be used to purchase weapons technology, fund travel abroad, meet "slush fund" purchases of luxury foreign goods, or even help fund 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 territory of China) has been named as a primary money laundering concern under the Patriot Act. This started a financial chain reaction under which banks, not only from the United States but from other nations, have declined to deal with even some legitimate North Korea traders. North Koreans appear to be moving their international bank accounts to Chinese and other banks. In December 2006, North Korea agreed to return to the six-party talks on its nuclear weapons program, but during the talks Pyongyang refused to discuss denuclearization officially until the Banco Delta financial sanctions were lifted. It is not known whether North Korea currently is engaged in supernote production, but such notes suspected to be from earlier production runs reportedly are readily available in a Chinese town just north of the DPRK border.
The political/security track attempts to stop the alleged counterfeiting activity though diplomatic pressures, the Illicit Activities Initiative, and direct talks with North Korea through a working group on U.S. financial sanctions that in December 2006 first met alongside the six-party talks. In these talks, the U.S. side stated that U.S. sanctions on Banco Delta could be resolved if North Korea punishes the counterfeiters and destroys their equipment. This report will be updated as circumstances warrant.