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Fraud Prevention Blog

The North Korean Supernote Problem

Posted by Stephanie Cho on Wed, May 04, 2016 @ 07:33 AM

Ever since the signing of an armistice in 1953 that put a stop to the fighting in the Korean War, North Korea and its activities has more or less been a mystery to the world. What little is known about the country is inherently grim: the county is internationally considered to be one of the worst offenders when it comes to human rights and continually tops the list of the “World’s Most Isolated Countries.”

Even lesser known than human rights atrocities is exactly how North Korea funds its economy. Although North Korea participates in legal economic activities, such as selling natural resources, analysts agree that the level of these legal activities is nowhere near enough to sustain a country the size of North Korea. Indeed, there has been evidence that North Korea has been profiting from the illegal drug trade for several decades.

Eventually, in a search to find more sources of income, North Korea figured out something that counterfeiters around the world have already figured out: manufacturing counterfeit money is much more profitable and less risky than producing and selling drugs.

And thanks to the fact that North Korea has physically segregated itself from the rest of the world, they directed their efforts to counterfeit money production - without the rest of the world catching on – and got good, really good at making counterfeit money. So much so that when North Korean counterfeit bills slipped into foreign circulation, no one was the wiser; and when the world finally did catch on, they were dubbed as “supernotes” – because they were so good that they were virtually indistinguishable from real money to all but the most sophisticated of counterfeit detection equipment.

And that is a major problem.


The Need for Money, through Legal and Illegal Means

Being closed off from the world at the 38th parallel means that North Korea is essentially at the mercy of its natural resources to fuel its population and fund its economy – and in the era of globalization, being cut off from the rest of the world spells disaster for a country’s economic stability and prowess. Nonetheless, North Korea has remained isolated from the rest of the world by finding ways to financially support itself, ultimately through the participation in illicit activities.

“The original plan for the country’s economy had a name. It was called ‘juche’, or self-reliance. The idea was that all North Korean problems should be solved by North Koreans. Every North Korean knows the concept of juche inside and out. The country takes self-reliance very seriously. And if self-reliance requires drug-dealing and the smuggling of counterfeit goods, then so be it.”

Although North Korea is blocked off from the rest of the world, it does participate in minimal trade with neighboring countries, such as Russia and China, to support itself.

North Korea is known to fund its economy, at least partially, through legal channels. Coal and magnesium reserves exist in North Korea’s mountains – the country rents out this land to China so that they can harvest these minerals from the mountainsides. Profits from exporting fish provide a steady, small stream of income to the economy. Unsurprisingly, North Korea participates in a backwards, archaic program of ‘renting’ out its citizens to Russia and South Korea as cheap labor. And believe it or not, North Korea has a minor but profitable monument industry that constructs large-scale monuments for dictators all over the world.

In 2009, it was estimated that North Korea brought in a total of $2 billion through legal means.

In terms of illegal activities, North Korea is a very willing participant, especially when it comes to obtaining profits, even when doing so goes against established laws in the country. In the 1980s, North Korea was actually a major producer of the most popular drug at the time: opium. The North Korean government has since switched gears to methamphetamine production, the world’s current drug of choice.

North Korea is so dependent on illicit sources of income that it is incredibly protective of its income streams, such as the drug trade, even going to far as to prevent its own citizens from getting a piece of that income. Take North Korean defector, Ma Young Ae, for example. She used to work for North Korea’s internal police force and was tasked to take down drug smugglers; in her words:

“That sounds like pretty normal law enforcement, except for one difference. She was supposed to stop small-time Korean drug dealers in order to protect the biggest drug dealer in the country: the North Korean government.”

It is important to learn why and how heavily North Korea seems to rely on illicit sources of income, particularly counterfeit money production, to understand why the country put so much effort to produce counterfeit US bills that were so well-made they were nicknamed “supernotes”.


Why North Korea turned to Counterfeit Money Production

In 1976, North Korea defaulted on its foreign debt, “leaving the country badly in need of funds”, which makes it easy to see why the country began to mass-production of opium in during the 1980s. North Korean defectors claim that plans for counterfeit money production also began around this time:

“North Korean defectors say Kin Jong-Il personally issued an order in the late 1970s that all the country’s covert operations be conducted using counterfeit US cash . . . [because it] would have the dual benefit of funding North Korea’s operations and engaging in economic warfare against the United States.”

Although the latter benefit is speculation, “state-level counterfeiting is a kind of slow-motion violence committed against an enemy, and has been tried many times before”: The British printed fake colonial money to undermine colonial currency during the Revolutionary War and the Germans forced a group of expert artists and printers in a concentration camp to produce fake U.S. dollars and British pounds during World War II. It would not be surprising if currency manipulation was one of North Korea’s reasons for venturing into counterfeit money production.

“[Supernotes] can be viewed as an act of economic warfare, but Pyongyang’s motive is probably more mundane: the regime is broke.”

North Korea’s strategy when it comes to counterfeit money production is this: they produce counterfeit money, sell it for a fraction of the value on the face of the bill in exchange for real money, and use the real money to fund its economy. They wouldn’t actually use the counterfeit money themselves – they would find buyers of counterfeit money instead.

To see how their counterfeit money scheme works, consider Ma, the defector mentioned above. While she was tracking down non-sanctioned drug dealers in China, she was given counterfeit $100 bills as a stipend. Of course, the problem was that she couldn’t freely spend these counterfeit $100 bills – after all who would “just accept a brand-new $100 dollar bill from a North Korean”? But the purpose wasn’t to spend these counterfeit bills herself, they were to be exchanged for real dollars:

“The Chinese would give the North Koreas sixty real U.S. dollars for every fake $100 bill.”

And herein lays the reason North Korea began and continues to produce counterfeit money: they’ve figured out how to produce high-quality counterfeit American $100 and $50 bills that are so convincing that they could move through the global financial system largely undetected – exactly the type of bills that are in high-demand by rogue nations, criminal syndicates, and the like, who were willing to pay large sums of real money for this counterfeit money.

It is estimated that North Korea has been profiting $500 million-$1 billion per year since they’ve been counterfeiting money; conservative estimates place this figure in the $15 billion-$25 billion range.

The question remains: Exactly how is a broke country producing such high-quality counterfeit U.S. bills?

“North Korea isn’t good at much, but it has very effectively industrialized the printing of the U.S. hundred dollar bill. The rogue state’s work alone has caused Congress to consider suspending printing of the Benjamin.”

The Most Notorious Counterfeit Money in the World: The Supernote

It may be hard to believe that a country that has defaulted on its loans has the means to “print millions upon millions of neatly undetectable fake U.S. $100 bills and get away with it”. But once you realize that it’s a country’s government that’s behind the counterfeits, it becomes clearer why North Korea has the ability to produce supernotes.

The supernote, also referred to as the “superdollar” and the “superbill”, is defined as a counterfeit U.S. currency that is so well-made that “it is difficult to distinguish from the real thing”. It is technically used to describe any high-caliber counterfeit bill, but it is most closely associated to the description of North Korea’s counterfeit bills.

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The word “super” in supernotes actually refers to the sophistication of the equipment the North Koreans use to produce counterfeit money – as opposed to a description of the skill-level of North Korean counterfeiters. (In terms of skill, Peruvians are currently the world’s best counterfeiters.)

“These ultra-counterfeits are light-years beyond the weak facsimiles produced by most forgers, who use desktop printers. As an anti-counterfeiting investigator with Europol once put it, ‘Superdollars are just U.S. dollars not made by the U.S. government.’”

As a country, North Korea has considerably more clout and accessibility when it comes to purchasing equipment and machinery not available to private citizens: “The regime apparently possess the same kind of intaglio printing press (or presses) used by the US Bureau of Engraving and Printing.” And just how did North Korea manage to get their hands on such a press? The leading theory is that just before the Berlin Wall collapsed in 1989, an East German factory that was known for producing fake passports and other official documents smuggled its machines into North Korea.

Additionally, North Korea has access to the additional materials it needs to print counterfeit U.S. bills: “The high-tech paper is just about the same as what’s used to make authentic dollars, and the North Koreans buy their ink from the same Swiss firm that supplies the U.S. government with ink for greenbacks.”

Experts say that real money is incredibly hard to produce for two reasons – intaglio printing and specialized linen paper – both of which are unattainable by regular citizens. There are, of course, a number of security features in real money, “but the difficulty involved in copying the paper and the printing technique is generally enough to deter most counterfeiters”.

North Korea has both.

In essence, North Korean counterfeits are “super” because they:

  • Are printed using the same intaglio printing presses the US Bureau of Engraving and Printing uses
  • Use the same ink that is used on real U.S. currency
  • Use the same type of linen paper used for real U.S. currency
  • Incorporates the same security features found on U.S. currency, such as security fibers, security threads, and watermarks

Because supernotes from North Korea are created using the same machinery and materials that are used by the U.S government to create real currency, they are virtually indistinguishable from real bills using just the naked eye:

“With few exceptions, only Federal Reserve banks equipped with the fanciest detection gear can identify these fakes.”

Supernote Consequences

Most counterfeit non-supernote bills, which is what most counterfeit money are, is easily detectable, even with the naked eye.

Although the U.S. government had been aware that North Korea was involved in the counterfeit money production trade, it wasn’t until 1996 that the US Congress started to express their alarm at “the existence of a high-quality counterfeit $100 bill that is so good that it escapes detection by all but the most sophisticated detection equipment.”

“What alarmed officials wasn’t the amount of new counterfeit bills showing up, but their exceptional quality.”

This expression of alarm almost a decade later after discovery could be due to the fact that “early versions of the superbills lacked the magnetic ink used in genuine bills, but later versions of the counterfeits corrected this.”

In response, the U.S. Treasury set a plan in motion to update U.S. currency with more sophisticated security features; this new design was released into circulation in 1998. However, as the U.S. soon found out, this was not enough to deter counterfeiters: “new versions of these counterfeits continue to emerge.”

On top of expertly copying the newly redesigned bills, North Korea even figured out a way to get more of their counterfeits into circulation: “The Treasury Department said that ‘sources show that senior officials in Banco Delta Asia are working with [North Korean] officials to accept large deposits of cash, including counterfeit US currency, and agreeing to place that currency into circulation’.”

The US Treasury once again updated US currency security features and released redesigned bills once again in 2003.

By 2006, authorities counted 19 variations of the superbill, with each version being an improvement of the previous version; many more variations are hypothesized to exist today.


The Future of North Korean Counterfeiting

North Korea is known neither for quality craftsmanship nor the ability to bring projects to completion; the tallest structure in North Korea – a hotel – has been under construction since 1987. However, when it comes to counterfeit money production, North Korea has figured out a way to surpass any competition and make the profits from counterfeit currency production a staple in their economy.

North Korea has gotten so good at counterfeiting money that there have been reports that they have begun to produce counterfeit yuan, the currency of China.

Last November, the city of Shaoxing reported that fake new 100-yuan bills that originated in North Korea were found to be circulating. On March 28 of this year, the city of Dalian confirmed that counterfeit yuan found there was manufactured in North Korea.

Although some officials consider North Korea to be “the first country to counterfeit another state’s currency since Hitler’s Germany, an act that can be described as no less than economic warfare”, as a whole, the U.S. government probably does not have any plan in place to tackle the North Korea supernote problem anytime soon. It is the general understanding that “although costly for small-business owners who unknowingly accept a bunch of forgeries, counterfeits probably won’t bring a crisis of faith in our paper money anytime soon.”

While it is a relief to hear that counterfeit currency will likely not affect the overall strength of U.S. currency, it is quite unnerving to hear that the government considers the cost of counterfeit money to small businesses as a nonstarter.

“On the consumer level, these isn’t much to be done about supernotes . . . most consumers don’t catch supernotes when they receive them, and they may unwittingly pass them on into circulation. Businesses likewise have little defense against the supernote, and since $100 U.S. bills are legal tender, a business cannot refuse to accept them to avoid counterfeit bills.”

For businesses, particularly retail businesses, cash is just a fact of life, even in the digital age. There have been arguments for getting rid of cash altogether, due to criminals’ reliance on this form of payment, but as it stands right now, getting rid of cash is simply not an option:

“Cash is, and always has been, such an uncontested part of everyday life that we rarely stop to consider its toll on society as the currency of crime . . . That’s not to suggest we could get rid of paper money tomorrow; we still don’t have a substitute that’s equally convenient, universally accepted and adequately secure.”

In the past, businesses were readily able to detect counterfeit money, despite the lack of sophisticated security features on old bills, due to the fact that the only people counterfeiting money were ordinary citizens – and they did not have access to the equipment and materials to recreate viable counterfeits. However, in this day and age, with entire countries behind counterfeiting operations, detecting counterfeits has become much, much more difficult.

“Supernotes are extremely frustrating for businesses which handle American currency, especially since these bills cannot be detected using most basic anit-counterfeiting methods, such as specialized pens or the old retail trick of rubbing a nail along the portrait to check for the distinctive raised print of a real American bank note.”

On a positive note, however, there have been reports of decreasing counterfeiting activity by the North Koreans, but this positivity should be taken with a grain of salt. As Professor Lee of Tufts University puts it, “My conclusion is that they’ve probably tempered it, scaled it down a bit, and gotten better at hiding it. It was, for many decades, a major source of income for them…I’m not convinced they’re out of the game.”

The discovery of North Korean-made counterfeit yuan the past year – a currency that North Korea was not previously known to be producing – should be taken as an indication that North Korea has no plans on stopping counterfeit currency production anytime soon.

 

Topics: counterfeit money, counterfeit bills, supernotes

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