http://www.azcentral.com/arizonarepublic/news/articles/0129counterfeiting0129.html

Fake bills, nuclear arms fuse in N. Korea U.S. struggling to split issues

Martin Fackler New York Times Jan. 29, 2006 12:00 AM

SEOUL, South Korea - 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.

This is the picture of North Korea that former U.S. officials and analysts say Washington has pieced together in recent years as it has investigated the appearance around the world of bogus $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 United States over the matter.

Using government printing presses to run off another country's 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.

At least one important U.S. ally in the region, South Korea, apparently fears pushing the counterfeiting issue could derail efforts to persuade North Korea 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 the Institute of Foreign Affairs and National Security, a government policy research group.

That is why when a delegation from the Treasury Department arrived last week to ask for South Korea's cooperation to stop the counterfeiting, the Americans got a chilly and slightly puzzling response.

Partners divided

South Korea, a longtime partner of Washington against North Korea, went to lengths to distance itself from the U.S. accusations, even to the point of denying that the United States had sought its support.

On Thursday, President Bush vowed to press North Korea to stop counterfeiting.

"If someone is cheating on us, we need to stop them," Bush said. The United States says it has found $45 million in supernotes, which it says North Korea 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. While Washington favors a harder line, Seoul hopes a gentler approach may one day lead to a reunification of the two Koreas, specialists say.

South Korea also seems to share concerns that the counterfeiting issue is threatening six-nation talks aimed at peacefully ending North Korea's nuclear weapons program. In November, North Korea's envoy walked out of the negotiations after the United States imposed penalties on Banco Delta Asia, a bank in the former Portuguese colony of Macau that it says North Korean diplomats used to launder briefcases full of bogus bills.

Why now?

Many wonder why the United States has chosen to raise the counterfeiting issue now, after remaining virtually silent for more than a decade. U.S. 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.

David Asher, a former State Department official who oversaw the investigation into North Korean counterfeiting, offered another explanation. He said the Bush administration ordered the inquiry soon after taking power in 2001.

"The timing is just a coincidence," Asher said. "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.