updated 8/7/2006 10:14:50 PM ET 2006-08-08T02:14:50

For those who have handled them, North Korean “supernotes” are virtually indistinguishable from the $100 bills they mimic — near-perfect forgeries of the most widely circulated American bank note outside the United States.

But the fakes are more than just beautiful examples of criminal craftsmanship. They may also be the biggest hurdle to the resumption of six-nation talks meant to persuade the North to abandon its self-described nuclear weapons production program.

North Korea has refused to negotiate until the United States lifts financial restrictions imposed on a Macau-based bank and several North Korean companies for alleged counterfeiting, money laundering and other illicit activities.

With the talks deadlocked since November, some are questioning the tough U.S. stance. They argue that deepening isolation has allowed North Korea to push ahead with its weapons programs. Last month, the North ignored international warnings and test-fired seven missiles — seen by many as an attempt to put itself at the top of the world’s, and Washington’s, agenda.

U.S. officials respond that state-sponsored counterfeiting could undermine confidence in a key pillar of American strength abroad and erode the dollar’s importance as a global currency.

“A little bit of counterfeit currency of very high quality can go a very long way,” said Deputy Assistant Treasury Secretary Daniel Glaser. It can cause “people to lose their faith in the dollar, which is extremely important to the United States to maintain.”

James Bond-like activities?
In congressional testimony, court papers and interviews, current and former U.S. officials have described what they say is an unprecedented effort by a reclusive, communist-led government to support itself with criminal activity, including counterfeit $100 bills.

“There are some things that I thought only existed in James Bond movies and comic books before I got involved in working on North Korea’s illegal activities which I now know to be true,” said David Asher, a top State Department official on North Korea until last year.

“Holding North Korea to normal standards of behavior should not be seen as a heavy-handed pressure strategy.”

The supernotes’ trail begins in 1989, when the bills were detected in the Philippines, and stretches from Asia to Europe to both coasts of the United States.

Glaser said “numerous” North Korean diplomats have been arrested around the world carrying hundreds of thousands of dollars of counterfeit supernotes. The fakes, Asher said, “have been detected essentially on every continent in the world in the last 15 years.”

The North denies the counterfeiting charges.

But the Secret Service, which investigates counterfeiting of U.S. currency, has seized about $50 million worth of supernotes worldwide. Analysts say much more is likely in circulation.

Quality counterfeit bank notes
Still, the problem the supernotes pose for the United States, officials say, is not the quantity but the high quality of the bills, which mimic the real thing right down to similar “reverse-engineered paper” and security features, such as special red and blue fibers, threads and a watermark.

A quality product, North Korean defectors say, was a point of pride in Pyongyang.

Ahn Myong-jin, a former North Korean agent, said he was trained at a spy school by touching fake currency and real currency to see if he could detect a difference.

Recalling his days at the school, Ahn said in an interview that a sophisticated counterfeiting program was looked at as “a good weapon to bring down the capitalistic system.”

The Secret Service considers the supernote investigation a top priority. It has spilled over into more than 130 countries and has led to more than 170 arrests.

Counterfeiting could bruise dollar
As much as two-thirds of the United States’ $750 billion of currency is estimated to be in circulation outside America. Officials worry that the presence of high-quality supernotes bruises the perception of the dollar.

Michael Merritt, deputy assistant director of the Secret Service’s investigations office, said in recent congressional testimony that the discovery of a small amount of supernotes led to banks and merchants refusing to accept any $100 notes in Taiwan in 2004 and in Peru last year.

In the past year, the Secret Service has given more than 130 training sessions on detecting supernotes to about 7,800 bank and law enforcement officials in 23 countries.

The United States has also begun to fight back in court.

While Glaser and other government officials have refused to comment on ongoing investigations, two cases with ties to North Korea have recently come to light.

In October, U.S. prosecutors announced that Sean Garland, a leader of the Official Irish Republican Army, had been indicted in the United States on charges he conspired with North Korea to circulate millions of dollars in fake U.S. currency. Garland pleaded innocent.

Sufficiently dangerous?
Last August, U.S. authorities in New Jersey and California broke up an international smuggling ring, seizing $4.4 million in counterfeit money that officials said appeared to have come from North Korea.

Raphael Perl, an analyst with Congress’ independent research service, said of the investigations, “We’re not talking about a North Korean thread that runs through these cases; we’re talking about a six-lane highway.”

With no resumption of the disarmament talks in sight, some wonder if the United States is allowing a relatively small amount of counterfeit currency to ruin efforts to rid an unstable nation of its nuclear weapons technology.

“The question becomes: Are these activities of a scale that is sufficiently dangerous ... that you make this the driving element in policy?” said Jonathan Pollack of the U.S. Naval War College. “Nuclear weapons are qualitatively different than counterfeiting.”

The fundamental question
Repeatedly, U.S. officials have shot back that the financial restrictions are a law enforcement matter not connected to the stalled talks involving the Koreas, the United States, Russia, China and Japan.

Chris Hill, the chief U.S. envoy at the nuclear negotiations, said, “The notion that we should allow this to continue because we have a diplomatic process simply won’t stand up.”

U.S. law enforcement officials “are not going to make an exception” for North Korea just because of the nuclear talks, Hill said in a speech.

“They have to go after these issues, because this is a pretty fundamental question when our currency is being counterfeited.”

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