Special Operations: Bad Paper Makes A Good Weapon

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December 13, 2017: In late 2017 the U.S. and Germany revealed that they had detected and disrupted an Iranian currency counterfeiting operation that had already produced several hundred million dollars’ worth of Yemeni currency. This was apparently used to bolster the Iran-backed Shia rebels in Yemen while at the same time weakening the Yemeni government and their Arab allies. The Iranian currency counterfeiting was carried out by the of IRGC (Iranian Revolutionary Guard Corps) Quds Force (similar to the U.S. Special Forces, but which specializes in supporting Islamic terrorists not fighting them).

The IRGC and especially Quds has long been active in smuggling operations. While the IRGC smuggling efforts are mainly about supporting the Iranian military, Quds smuggling is more tactical. Thus even with most economic sanctions lifted by a 2015 treaty Iran was still blocked from buying the special paper and inks needed for the fake Yemeni banknotes. Quds arranged for the necessary supplies to be obtained by a German company which then transferred materials to another firm that arranged for their shipment to Iran. This was eventually detected but only after some of the fake currency began to show up. The United States is urging that the 2015 treaty be declared revoked because of Iranian misbehavior and has already imposed unilateral sanctions on Iran.

Uncovering the Iranian counterfeiting operation was also believed to have been aided by Arab countries who fear Iran will, or already has, developed the capability to print high-quality counterfeits of other Arab nations. This may also have had something to do with the continued visits by North Korean “technical experts” to Iran. These two nations have been exchanging forbidden technology (mainly about weapons, including nuclear one and ballistic missiles). Another illegal technology the North Koreans were known to have is skill at counterfeiting currency, especially American, Japanese, Chinese and South Korean. North Korea has been using counterfeit foreign currency for a long time, often in support of espionage or special operations outside North Korea. This was not a unique tactic as it had been used by many countries during World War II and the subsequent Cold War. For obvious reasons nations keep these counterfeiting efforts secret as long as possible.

The North Korean use of counterfeit currency is not without risks. Since the 1990s the United States has been trying, with varying degrees of success, to halt the blatant North Korean counterfeiting of American currency. Unfortunately North Korea long ago figured out that counterfeiting U.S. hundred dollar bills was a viable way to get a lot of cash. Not an unlimited amount, because of problems getting the bills into circulation. What caused the North Koreans the most problems has been the new designs of American currency, especially the most recent hundred dollar bills. These changes were expressly 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 high 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.

China may have also cooperated in crippling the North Korean currency counterfeiting operations. That because in late 2015 high quality counterfeit Chinese currency showing up in China. Experts agreed that the most likely source was North Korea, which has been turning out similar high-grade counterfeits of American and Japanese currency for decades. In North Korea counterfeiting currency was a government monopoly. Since 2009 foreign (mainly Chinese and American) currency has been preferred inside North Korea because the local currency was seen as worthless and unpredictable. The counterfeit Chinese 100 Yuan notes (worth about $13) began showing up in North Korea earlier in 2015 and moved into China via unsuspecting merchants and tourists. Officially the North Koreans deny any responsibility for the fake currency and always have. At the same time North Korea has openly said it will strike back at China for enforcing UN economic sanctions. North Korea has long considered counterfeiting currency as a weapon and their Iranian allies seem to agree and learned much from North Korea.

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. By 2010 the Colombian drug gangs and leftist rebel groups had 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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