Logistics: North Korea Faces A New Challenge

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October 24, 2013: For over a decade now the United States has been trying to halt the blatant North Korean counterfeiting of American currency. Unfortunately North Korea long ago figured out that counterfeiting U.S. hundred dollar bills is a viable way to get a lot of cash. Not an unlimited amount, because of problems getting the bills into circulation. Now there is a new complication.

The U.S. recently changed the design of their hundred dollar bills again, to make it more difficult to counterfeit. The last few revisions of U.S. currency made it much harder for counterfeiters and now there are fewer players capable of rolling their own hundreds. The latest version of the hundred dollar bill is the most high-tech and difficult to counterfeit ever. The new bill is not impossible to counterfeit, just a lot more expensive. Even a government counterfeiting effort, as is the case in North Korea, has to incur high costs to figure out how to duplicate the new anti-counterfeiting features of the new hundred dollar bills. Even if those obstacles are overcome, if the production cost becomes too expensive the counterfeits are not worth producing. Depending on how convincing the fakes are, you can sell each of these bills for ten to fifty dollars each. So there is not an unlimited budget available to figure out how to do it and then go into production.

At present, less than one hundredth of one percent (one in ten-thousand) of the hundred dollar bills out there are fake. Most of them are in Asia and South America. Currently, the two major sources of this fake currency are North Korea and South America (for a long time Colombia but now Peru). In the case of North Korea, the operation is run by the government. This has been going on since 1990, and in that time, over half a million North Korean "super notes" (they are very good) have been spotted and taken out of circulation. Many more were not caught and are still in play.

But the North Koreans are not the biggest supplier of this phony cash. That distinction goes to Peru (and to a lesser extent Colombia), where several criminal gangs have long produced ten to fifteen percent of the fake U.S. currency in circulation. The gangs are protected by drug lords and leftist rebel organizations. Because the counterfeiting operations were so small, they were difficult for the government to take down in Colombia. That was largely because the drug gangs and rebels were a larger threat, and thus a more important target. In the last few years the Colombian drug gangs and leftist rebel groups have been much weakened, and that made the counterfeiting gangs more of a target. In response to the increased pressure, the counterfeiters did what the rebels and drug lords have been doing and moved to a neighboring country. It used to be that about half the fake U.S. currency seized each year (over fifty million) was found inside Colombia itself. Now that has shifted to Peru, although a lot of the fake hundreds are still showing up in Colombia.

Only about fifteen to twenty percent of the fakes get grabbed in the U.S. As a practical matter, the counterfeiters find it easier to pass the phony bills outside the United States. Typically, the counterfeiters will "sell" their counterfeit bills, as such, to others at a discount. Thus, in out-of-the-way parts of the world, where there are fewer people who can spot a good counterfeit, the bad bills become a secondary currency. This has already happened in North Korea. In many countries U.S. currency, even if it's possibly counterfeit, is seen as more reliable then the local stuff.

North Korea has long had an edge in distributing its counterfeits because it could ship them, as diplomatic mail (which is not subject to inspection) to their embassies. There, embassy officials could sell the currency to local gangs for distribution. It’s not that easy if you are operating out of the North Korean embassy, which have also been used for distributing illegal drugs produced in North Korea and for all sorts of illegal schemes. So the North Koreans have to be careful even when operating out of their own embassies. This has limited how many of these super notes they could sell. In practice the North Koreans move their embassy distribution to other countries if the local police become too much of a problem. If the North Koreans can successfully copy the new hundred they will have a hot product and there will be much demand in many countries where there is a North Korean embassy. Figuring out how to make convincing fakes of the new hundred is a priority project for the North Koreans because the various embargoes, and continuing domestic economic problems, mean foreign currency is more precious than ever. 

 


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