Interview With Jim Willie

Interview With Jim Willie

An interview with Jim Willie where we discuss the potential of bank failures emanating from the Middle East and rippling throughout the world being the catalyst for the next round of the credit contraction.

TRACE MAYER: Hey this is Trace Mayer and you’re listening to the 50th episode of the podcast (mp3)and today I’ve got a special guest with me – Jim Willie from Hi Jim!

JIM WILLIE: Hi, good to be here.


TM: Yeah, good to have you with me. I know we communicate every now and then about lot of the very important things. And you have just posted a really important article about five minutes ago. Can you give us a brief overview about what this article is about?

JW: Sure. The article is entitled “U.S. Bank Enemies at the Gate“, I wanted to take off on that wonderful title about the Siege of Stalingrad, but you know there’s a lot of attention, Trace, that US Banks are doing this and interest rates kept low, liquidity is strong and blah, blah, blah. And what they’re missing is that foreigners have their own agenda. They have their own bank failures.  They have their own failed construction projects and their own failed-nations if you will, like Spain. I think we may see a threat to the U.S. banking system come from outside. Like for instance Persian Gulf bank failures just span across the United Arab Emirates and Kuwait and Saudi Arabia and before you know it – London and New York, so maybe there is a threat outside and we have got too much attention on the inside.

TM: Yes.  Because we are seeing really high inflation rates in many middle eastern countries and they are also engaging in their own type of bailouts and stimulus packages, although they might be named differently. And so you are thinking that we may see perhaps a major bank failure come out of the middle east which will affect one of our large London or New York banks?

JW: Yeah. What I am hearing that the Dubai construction projects with all the pictures of magnificent bridges and unbelievable architecture for high rise buildings may look good but are failing at an unbelievable rate – the construction boom has turned into a magnificent bust and the bailouts have come from Abu Dhabi, the financial center, is like the London of the entire Persian Gulf. So, they are bailing out these construction firms, billions are changing hands, and the currency of choice that is being loaded up on all kinds of balance sheets is Treasury Bonds.  So they will start liquidating and they have already begun this and if they continue the liquidation process then we are likely to see more bank failures just from lower values.

And you know, they have to deal with their own reality. They do not have a Plunge Protection Team there, they do not have phony stress tests there, they do not have phony accounting standards board.  I go into more details in the article and even more detail in my August Hat Trick Letter member’s only which is a great source of information.

There is a lot of stinking stuff coming down the pipe and if we see some bank failures string across the Persian Gulf then there is no way it does not reach London and New York because they own a lot of bank stocks for the giant U.S. Banks. Now, there is a threat that you are just not catching in the financial networks in the U.S.


TM: Right.  Interest rates regulate production over time.  By keeping the interest rates artificially low, we stimulated this huge commercial real estate bubble here in the U.S., but if we think the US commercial real estate bubble is a mess then just look at what has happened in Dubai.  They built all this commercial real estate and what underlying economy do they have in Dubai; sand.  There is no real underlying economy there to support any of these loans on the bank’s balance sheets.

So now they have built all these giant skyscrapers that are all like white elephants of dehydrating debt in the dessert.  There are these huge buildings and they are all completely empty; are they not? Of course we are going see many bank failures coming out of Dubai.  Do you think that is going to start impacting the U.S. banks here because like Prince Alwaleed, a big shareholder in Citigroup, for example  might want some New York banks to subsidize these failed projects with bailout fund?

JW: Well, I think that could be the sequence that happens and there are a lot of unknowns. There is one particular construction project that I think of all the time when somebody says, “Oh, the big Dubai construction boom”. Well, there is a big property with all kinds of housing and it is laid out from shaped like a big palm tree.  If you are looking down from 5,000 feet it is a beautiful, beautiful thing.

What I have heard is that it is entirely empty.  It has failed with no income stream. Now, I would like to just to make a quick point here and it is not like their economies are based on processing sand.  They have an oil industry and a petro-chemical industry. They make refined gasoline, chemical products, have feed stock, crude oil and natural gas.

Saudi Arabia actually has the most diversified economy in the Persian Gulf.  I do not think they make their own pharmaceutical aspirin pills or razor blades or soap but maybe some.  But as for other Persian Gulf nation like Kuwait, U.A.E. and Bahrain, they do not have a diversified economy but they do have a petro-chemical industry and that is it. Banks and Petro-chemical.

So, beware of the threat from the back door where you have some bank failures as this is not just a liquidation of Treasury Bonds, I am talking about bank failures – large, large Persian Gulf banks that go bust and as a result there is a vast liquidation that takes place which ripples into New York and London. That is what I think could happen.

TM: Yeah, and then we see the next round of this credit contraction start because, as you know, we had the first shocks last year and we had a little bit of shaking and we saw couple of buildings go down – Lehman Brothers and AIG, but as I have written about in my book The Great Credit Contraction, which you like, is that this is just getting started. And we are seeing the collapse of a multiple centuries old monetary system.  We are in for the next round and I would not be surprised if we do see the next shock-waves emanate from the Middle East.


JW: But we are getting shock-waves that happen from the inside too, Trace. Look at the FDIC today. FDIC came out and says four hundred and sixteen troubled banks, well try a thousand.

TM: Or four thousand!

JW: And their fund is dead, so they raised some fees earlier this year on member banks within the system. But they are going to have to raise it again and the bank industry has said this will reduce earnings and it is going to reduce liquidity which decreases their ability to lend. So, the FDIC itself is going to be a wet blanket on the banking industry even if they appeal to Congress for the increased funds and that is going to cause the insolvency of more banks and add pressure to the U.S. government and the Dollar.  So the threat is outside the gate.

The point my article is that we have got many threats inside the economy and I agree with you completely-we are about to the second round of the monetary banking credit crisis.  Perhaps September or October, probably September, but there are a lot of factors that point to the next few weeks.  The FDIC  announcement may be one of those factors. The summer vacation is another, they have to increase the Federal Debt limit beyond $12.1 trillion and look for Congress to come back with an attitude of responsibility when they cannot afford to stop the printing press. So, we a lot of factors coming in right now.


TM: And so, what do people do, obviously my site RunToGold, I like the monetary metals – Gold, Silver, Platinum – what do you suggest people do, to protect themselves and to protect their capital?

JW: Well, on a smaller scale, if you only have a few thousand dollars that you want to protect, and you are not huge saver from the last twenty years from your career then I would suggest getting some gold coins or silver coins.  But I would avoid the century old, you know, like the Morgan Silver Dollars.  But you do not  want to be buying fifty thousand dollar coins.  You want bullion coins like the Silver Eagle, Kruggerand, Mable Leafs, Gold Eagles, etc.  Get the standard coins because you get a lot more bullion for the price.  But I do not think buying $150,000 worth of coins makes too much practical sense. You have to store them.

I believe that GoldMoney as you do, is a fine institutions, and there are others like the BullionVault, etc, but I like GoldMoney because of the way it is run and the payment features that they have.

I recommend buying gold and silver bullion bars whether 1 kilogram, 5 kilograms, 10 kilograms and etc. The real lesson that we are seeing in this credit contraction, economic failure and banks system insolvency is that because for a full generation the money has been been paper and now what survives will be not paper. It will be the metal.


TM: Yes. And in most cases, it is not even paper that is the currency supply but just little digits on a hard drive which is even less real than paper. We might even see a rush to the physical paper notes before we see a rush from the physical paper into the physical metal.

JW: The electronic money trade makes not only possible paper counterfeit but electronic counterfeit and where you can have computer programs counterfeiting your bonds, I mean imagine, this is why we have got trillion dollar frauds. One of the points I make in this article is something that Karl Deninger said that we need a new resolution trust corporation.  But that is totally of the mark.  We are never going to see it because because many properties are tied to different mortgage bonds and the fraud. And you cannot have an RTC if they go and buy a mortgage bond and then they have got to pay it out three times.  It will not make any money and so there will not be a new RTC.  You are going to have a top down solution with more and more fraud like TARP solutions, etc.


TM: Well good interview.  I know that we are pretty short on time so I would like to thank you for coming on and sharing a little bit with our listeners. Once again, you have been listening to Jim Willie of the and thanks Jim.

JW: It has been my pleasure and watch this case that is likely its going to go the Supreme Court where the Federal Reserve is going to defend itself against the Freedom of Information Act. It is going to be the private Wall Street Syndicate versus the People. This will be quite interesting.

TM NOTE:  Be sure to pre-order a copy of End The Fed by Ron Paul which debuts on 16 September 2009 and help Raze The Fed.  With enough pre-orders it will make its appearance as #1 on Amazon and perhaps be a bestseller on the New York Times list which will cause even more pain for the Federal Reserve and Tim ‘tax cheat’ Geithner regarding House Resolution 1207.  He was extremely uncomfortable in his interview with the Wall Street Journal.

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  • Abul Hashem Khan

    Supernote or counterfeit United States dollars are becoming a great headache for the U.S. administration as well as several large financial institutions in the world. According to rough estimation, a few hundred million counterfeit currency enter into regular circulation each year, which will ultimately turn into a big problem for the global economy.

    British daily The Independent published a very interesting thus investigative report on the counterfeit U.S. dollars last week. In this report, The Independent said, “the existence of the supernote came to the notice of Western governments just after the fall of the Berlin Wall in December 1989, when a money handler at Central Bank of the Philippines became suspicious of a banknote that passed all the usual tests but still felt odd. The note, a $100 bill supposedly printed in the year 1988, made its way to Yoshihide Matsumura, a Japanese currency expert whose machines for detecting fake bills are among the most advanced in the business. The bill was an astoundingly accurate fake, Matsumura decided, the best that he had ever seen – yet it did not show any of the characteristics of the advanced fakes that he had encountered from Japan and Russia.

    “Like the real $100 bills, the fake was printed on paper that was made of three-quarters cotton and one-quarter linen fibres, which is manufactured for the US government using specialised machinery by Crane & Co, the stationary company. The images are then stamped on the paper using an intaglio press – a piece of specialised printing machinery so heavy and expensive that only governments normally own them. The fake made its way to the headquarters of the Secret Service in Washington, D C, where it was compared to the agency’s master file of 20,000 examples of forged US currency. The bill was assigned the identifying numeric C-14342, the letter “C” indicating that it was a circular, or the first in what was expected to be a series of high-quality forgeries from a single source.

    “Bills from the same series turned up a year later in Lebanon’s Bekka Valley, leading to suspicion that the supernote was being printed in the Islamic Republic of Iran, which needed foreign currency to fund an estimated $100 million a year in donations to Hezbollah and other terrorist organisations – who, as it happened, were being trained in bomb-making in Lebanon by Sean Garland. Intelligence analysts noted that Iran had taken delivery of two intaglio printing presses shortly before the fall of the Shah, who had sent a team of 20 master engravers to be trained by the Federal Bureau of Engraving in the US.

    “Since the beginning of its investigations, the Secret Service has routinely declined to comment on the origins and distinguishing characteristics of the “supernote”, for fear of aiding the forgers and a variety of other reasons – including the fact that the supernote represents a gigantic, ongoing law enforcement failure fuelled by the agency’s early and continuing refusal to acknowledge the nature, scope and source of the threat. The Secret Service discourages currency experts from discussing identifying flaws in the supernote and admonishes those who speak to the press. Still, it is known that the first widely-distributed supernote carried the date “1988″ and was distinguished by at least three flaws, one of which may have been deliberately introduced by the forgers so that they could demonstrate the difference between real money and their own fakes.

    “Money handlers often refuse to handle certain series of $100 bills because of the high percentages of bad notes, with $100 bills from the years 1996 and 1999 attracting a high degree of scrutiny. “Any one series of supernotes stays in production only a few months or a year or so before the counterfeiters have to change to keep up,” the currency expert said.

    “According to a recent study by two economists with access to Secret Service data, at least one in every 10,000 US banknotes in circulation is a fake. One reason that the Secret Service showed so little initial interest in the supernote is that they were found overseas, where two-thirds of the $800bn in US currency circulates.

    “It’s a spit in the ocean compared to what’s being printed,” the Secret Service liaison at the American Embassy in London, John Sullivan, told a newspaper in 1993 in response to an inquiry about counterfeit $100 bills and other fakes, whose numbers had more than quadrupled between 1990 and 1992 – from $29.9m to $137.7m. By 1994, the Secret Service still had only six agents on permanent detail overseas to deal with what had become an epidemic that worried bankers and criminals alike. In December of 1993, for example, gunmen stormed a classroom in the Russian city of Rostov and demanded a ransom of $10m in $100 bills – along with a sophisticated machine to weed out the fakes.

    “Where circumstantial evidence about the source of the supernote had originally pointed towards the Shah’s intaglio presses and US-trained engravers now under the control of the Islamic Republic of Iran, the Secret Service was eventually forced to start looking elsewhere. In 1994, executives of a North Korean trading company carrying diplomatic passports were arrested for depositing $250,000 in supernotes in a bank in Macao. Similar incidents involving a weird assortment of diplomats, terrorists and criminals with ties to North Korea followed. In January 1996, a middle-aged Japanese man approached a money changer in the beach resort of Pattaya, Thailand and gave him 90 crisp US $100 bills in exchange for 225,000 baht. The bills were fake, and were soon traced to Yoshimi Tan-aka – a Japanese Red Army terrorist who had disappeared inside North Korea in 1970. Tanaka fled to Cambodia and took refuge in the North Korean embassy in Phnom Penh. He was later apprehended at the Vietnamese border in an embassy Mercedes after trying to bribe a border guard with $10,000 in $100 bills, which the guard wisely refused – they were probably counterfeit.

    “The revamped $100 bill, unveiled in 1996, featured a new engraving by the artist Tom Hipschen, who gave Franklin an enigmatic look that recalled the half-smile on the face of the Mona Lisa, and drew attention to the portrait. Microprinted in Franklin’s lapel were the words “United States of America”, a phrase that was also microprinted inside one of the numbers on the bill, which were printed in colour-shifting OVI ink. Concentric lines in the oval surrounding the portrait were designed to create interference when scanned by a laser. Red and blue fibres were embedded in the paper, along with other safety features designed to protect the banknote from forgers. Tiny security threads that repeated the denomination of each bill were embedded in the paper to prevent counterfeiters from washing off the ink and turning dollar bills into hundreds – a favourite trick of Columbian counterfeiters. Within two years, all of these features would be successfully copied in the “big head” incarnation of the supernote, which turned up in London first and was called C-21555 by the Secret Service.

    By the late 1990s, nearly all available evidence pointed to North Korea as the source of the supernote: Sean Garland’s trips to Moscow were made for the purpose of picking up a new supernote that precisely replicated the safety features of the redesigned US currency. By the time Garland was arrested on 7 October 2005, in a hotel in Belfast, Northern Ireland, it was estimated that he and his associates had passed $28m in redesigned supernotes produced inside North Korea. According to the Congressional Research Service (CRS), Garland’s network, while sizeable, distributed only a tiny fraction of the supernotes still in circulation. At least $45m in North Korean supernotes have been detected in circulation, out of an estimated production of bills with a face value of $45-$75m per year.

    “According to people who regularly handled the bills, the North Korean fakes are so good and are updated with such regularity that the best way to tell that they are fakes is their superior quality. “The joke was, they were better than the Bureau of Federal Engraving produces,” says David Asher, a former Treasury department official who was in charge of leading the fight against the criminal activities of the North Korean state. Asher mentions the high quality of the paper and the precision of the printing process, including the sharp relief of the clock hands on the tower on the back of the bill, as among the few reliable giveaways that a bill with Ben Franklin’s face on it was printed in North Korea. According to Asher, the biggest victims of the supernote are the Chinese, who have found that between 2-4 per cent of the $100 bills circulating in some regions of the country are fake – a de facto tax on Chinese money changers by North Korean forgers.

    “Trying to trace the supernotes to their source is a difficult task, owing to the fact that North Korea is a highly-militarised totalitarian country ruled by the dictator Kim Jong-Il. Recent reports from North Korea analysts suggest that Kim was recently treated for pancreatic cancer: the Korean leader looked thin and grey in footage of his recent meeting with former US President Bill Clinton, who arrived in Pyongyang on 4 August to pick up two American journalists who were incarcerated in a North Korean labour camp for crossing the border earlier this year. In June, Kim announced his intention to hand over to his 26-year-old son, Kim Jong-Un – the third Kim to ass-ume the central role in the political cult. Recent interviews by researchers, including this author, with South Korean intelligence officials and North Korean defectors, have resulted in what appears to be a more-or-less accurate picture of the mechanics of the century’s greatest forgery operation – one of the officially-sanctioned large-scale criminal activities that have earned North Korea the nickname “the Sopranos state”.

    “The printing of supernotes is overseen by an organisation called Office 39, which runs state-sponsored criminal activities and is housed in a plain, barracks-like building on Changgwant Street in Pyongyang (the proceeds of these operations are managed by Office 38, which is located in the same building). Estimates are that illegal exports from North Korea, including counterfeit money, methamphetamine, fake pharmaceuticals and weapons amount to $500m per year – a sum that equals or exceeds the value of the country’s legitimate exports.

    “The supernote has a place of honour in North Korea’s criminal economy. The main printing plant is housed at 62 Printing House, an address that suggests that it is located in Pyongyang city; the building is actually located in Pyongsung. According to a North Korean defector who worked for the central committee of the Communist Party, the workers who produce the supernote get superior food rations that include 600 grams of rice a day as well as “family food”. The presses used to produce the supernote come from a company called De la rue Giori in Switzerland, with additional equipment from Japan, paper from Hong Kong and ink from France. Because their identity cards list them as citizens of Pyongyang, they are allowed to travel to the capital.

    “A South Korean analyst claimes that there are two other plants inside North Korea where fake currency is produced – the Song Shin printing factory, which is under the control of the North Korean army reconnoitering corps, and a second plant using Austrian printing machinery that is under the control of the Communist Party Central Committee. While the counterfeiting operations exist to make money, the analyst explained, they are also motivated by a healthy dose of anti-Americanism as well as by North Korea’s state philosophy of juche, or self-reliance. “Juche means that North Korea can and should produce for itself anything that the rest of the world can produce,” the analyst explained. “If other nations have missiles, then North Korea should have missiles. If America produces dollars, which are the world’s reserve currency, North Korea must produce its own dollars.” While Office 39 personnel who help distribute supernotes were asked to leave the North Korean embassy in Beijing two years ago, the South Korean analyst says, they are still active in Germany, in Zagreb, Croatia and the Middle East.

    Official North Korean publications firmly reject the suggestion that their country is involved in producing supernotes. In an article published in 2006 by the North Korean weekly Tongil Sinbo, a government spokesman insisted: “Even while noisily babbling about ‘counterfeit currencies’, the United States has not produced any evidence to back up what it says.”

    A remarkable undercover operation run by the FBI from 2003 to 2005 had provided more than enough evidence of the depth and scale of North Korea’s involvement in the supernote scam, as well as providing a frightening hint of the uses to which North Korea’s smuggling networks might be put. On 2 October 2, 2004, a Panamanian freighter, the Ever Unique, arrived in Newark, New Jersey, from Yantai, China, with boxes of toys, which hid a cargo of $300,000 in supernotes. Two months later, the initial shipment was followed by $3m in supernotes that arrived in Newark, and another $700,000 that arrived in the port of Long Beach, California.

    All three shipments were part of one of the most mind-blowing FBI undercover operations in recent history, which would escalate from contraband cigarettes to supernotes, to requests for automatic weapons, mortars, and surface-to-air missiles, and result in the arrest of 87 people in the United States. The sting began with the successful infiltration of a 400lb agent named Jack Garcia into the Gambino crime family in New York under the name Jack Falcone. Two FBI agents named Lou Calvarese and Tom Zyckowski, were working an unrelated case whose goal was to expose Chinese smuggling networks that might be able to move weapons into the United States.

    The three agents became involved with an elderly and proper-seeming Chinese-American couple named Bill and Mary Liu, who claimed to be able to obtain anything they wanted from connections in China. Posing as an overweight Mafioso, Garcia claimed to be involved in the drug business with Columbians who wanted weapons in exchange for cocaine. “We told the Lius we had a dirty customs official at the docks who’d let that container go in,” Garcia said. “We would then remove the container and bring it to a neutral location.”

    The Lius’ main interest was not weapons but counterfeit cigarettes, which turned out to be such a stunningly-lucrative business that Garcia and his fellow agents soon despaired of convincing the Lius to move anything more risky. In the course of their involvement with the sting, the Lius wound up importing approximately 250 million packs of counterfeit cigarettes to the US. Through the Lius, the agents met Keith Tang, a Vietnamese-born Chinese who lived in California. Tang, an avid golfer rarely seen without his trademark Tiger Woods golfing cap, also wanted Garcia’s supposed connections at the Port of Newark to import phoney cigarettes, but claimed to be able to provide weapons as well. After a trip to Asia, he returned with an OK on the weapons as well as samples that the agents hadn’t asked for – three phoney $100 bills.

    “We were told they were manufactured in North Korea,” Garcia remembers. “I actually looked at it with Louie Calvarese. I had seen a lot of counterfeit because I worked a lot of dope in my career. This stuff was great.” Calvarese, who recently retired from the FBI, was equally impressed. “When they left, I took out my bills and compared, I couldn’t tell the difference,” he remembers. “I said, ‘Jack took a look. Can you tell the difference?’ He said no.” The agents passed the bills to the FBI lab and the Secret Service, which confirmed that they were supernotes. Tang then invited the agents to Phuket, Thailand, to meet his supernote contact, who also dealt in heroin and weapons. They would stay at the Le Meridien resort and enjoy the beaches and food, as well as the company of local women.

    Garcia, whose weight made it hard for him to fly in a commercial aircraft, declined the invitation, but Calvarese went, along with a female agent who posed as his girlfriend. In Phuket, he met Jyimin “Jimmy” Horng, a Chinese from Macao who had supposedly competed for China in judo in the Olympics and now worked for the North Korean government selling supernotes and weapons. “He had connections to very high officials in the North Korean government,” Calvarese remembered.

    When Horng quoted a price of $500 a piece for AK47 rifles, Calvarese objected that he had purchased the same guns in Russia for $100. Horng went off and called a contact in North Korea, and then returned with some bad news. “‘Listen it has to be $500,’” Calvarese remembers Horng saying. “If I do it on my own through my contacts, the price could be lower but if we get caught my family is going to die, and my family’s family is going to die.” Horng offered Calvarese $5m in supernotes, and sent him a half-inch thick catalogue translated from Korean that offered artillery shells, rocket launchers and other forms of advanced weaponry. Calvarese and Garcia met with Horng and Tang again in Atlantic City, and ordered $1m in supernotes at a price of 30 cents on the dollar. Horng threw in another $2m on consignment as well as some counterfeit Viagra.

    The agents had landed in the middle of a global bazaar presided over by a weird dictator in which seemingly-limitless quantities of weapons, drugs, and fake currency were being made available to well-connected criminals by a foreign government that itself seemed to function like a mafia family. Frightened by the terror bombings in London in 2005, the US government got cold feet and ordered the arrest of everyone involved in the cigarette-smuggling business and other scams before the AK47s and rocket-launchers were imported into the States. Tang and Horng were invited to attend Calvarese’s fake mafia-style wedding in Atlantic City, with Jack Garcia ostensibly acting as best man. “They gave us Rolex watches,” Calvarese remembers with chuckle. “I said, ‘is this counterfeit?’ ‘Oh no, we wouldn’t do that to you.’ They were real. They paid a lot of money for those watches.” Eighty-seven people went to jail, but the production of the supernote continues. In March, 2006, a supernote stash was seized by Hong Kong police from a Chinese-American man coming from Macao. Later that year, supernotes were reportedly discovered in the take at several Las Vegas casinos and turned over to the Secret Service.

    Winning the fight against counterfeiting seems even less likely, as long as governments retain the power to turn paper and safety features worth pennies into certificates of value worth thousands of times what they cost to produce. “You watch that beautiful, free-line elegant engraving coming up at you gradually with this red safe light around. Your heart starts to beat,” explained the printer Mike Landress, who counterfeited American currency in the 1960s and then wrote an autobiography called I Made It Myself. Landress compared the experience of having a life-sized image of US currency in his possession to having an orgasm. Cheap digital technology has made the kind of thrill that Landress experienced available not only to governments and large criminal organisations, but to anyone who can afford a digital scanner and an inkjet printer. A counterfeiter named Wesley Weber crippled Canada’s $100 bill by using techniques he found on websites, commercially-available paper, and four Hewlett Packard Deskjet 1220C printers. In 2005, a man named Yakub Yusupov and his two sons Eduard and Pinchas were arrested in New York City and charged with selling $9.5m worth of near-perfect $100 bills from a video store on Parsons Boulevard in Queens.

    For economic and psychological reasons, the counterfeit business is likely to continue as long as human beings use currency, and counterfeit $100 bills will be easy to find. I recently visited a detective named Jim Capaldo in his modest office in the NYPD’s Organised Crime Control Bureau, which contains a government-issue file cabinet, bare linoleum floors and an award for exemplary service. Capaldo’s raincoat hung on a bare wire hangar near his desk. In the evidence bag in front of him was a phoney $100 bill, seized as part of an investigation into Mexican gangs who had engaged in three shootings on Roosevelt Avenue in Queens, a hotspot for obtaining forged documents. One subject of the investigation had also sold counterfeit money to undercover cops on five separate occasions. “I’m sure he had other customers. How many, I have no idea,” Capaldo says. “It seems clear he didn’t produce the money himself.”

    The fake in the evidence bag was dated 1999. When we compared it with a real $100 bill from 2003, a number of differences became apparent. In the fake, Franklin’s eyes looked fuzzier, as if he had been up late and felt sad – an effect that was most likely the result of a digital printing process. On the other hand, each one of the known security features that was present in the real note – the two watermarks of Franklin’s head, the red and blue fibres, and the security strip with the number “100″ embedded in the paper – was also present in the fake.

    The question of why North Korea continues to produce the supernote has a simple answer: because they can. “Crime is a very lucrative business,” says David Asher. “If you are a nation and you can deal drugs and print someone else’s currency, you can make a lot of money.” Asher quit the Bush administration over the decision to downplay North Korean counterfeiting and other illicit economic activities in the hopes of sealing an ever-elusive agreement on the disposal of North Korea’s nuclear reactors and stocks of weapons-grade plutonium.

    While policymakers in the State Department and elsewhere have portrayed the fuss over the supernote as a distraction from the real business of cutting a deal on North Korean nuclear weapons, Asher regards the two issues as inextricably linked. “The idea was, ‘Oh my God, if we stop them, they might not want to negotiate.’” Asher states. “It’s a false premise.”

    The failure of Bush’s second-term diplomacy offensive makes it all the more unlikely that Obama’s campaign promises about the wonders of engagement will result in real-world success. While Bush’s late-blooming interest in diplomacy may have seemed churlishly overdue, it also carried a credible threat of force. Bush’s failure to achieve diplomatic progress with Iran or North Korea means that the Obama administration will be forced to come up with even bigger carrots – assuming that the North Koreans are interested in making a deal. However, Bill Clinton’s success this month in bringing home the two US journalists suggests that Pyongyang has not shut down completely. Nonetheless, some see Obama’s failure to respond decisively to North Korea’s provocative 4th of July missile tests as raising the likely price of any deal even further.

    The fact that the North Korean state has grown quite comfortable doing business through criminal middlemen around the world in a wide variety of contraband merchandise suggests that the supernote and the threat of nuclear proliferation may be linked in even more frightening ways. North Korea has already transferred nuclear technology to Iran and Syria. During a visit to the Yongbyon nuclear facility in North Korea, the former head of the Los Alamos National Laboratory, Siegfried Hecker, was allowed to hold a sealed glass jar containing a 200g casting of alloyed plutonium metal produced by North Korean scientists. Six hockey pucks of plutonium approximately 6.5cms in diameter and 2cm thick, Hecker noted in a subsequent report about his visit, would be enough to assemble a simple nuclear bomb. Hecker estimated the likelihood of detecting six hockey pucks of plutonium alloy properly coated in plastic and lead, carried in a briefcase from North Korea to Iran, as virtually zero.

    Given North Korea’s years of experience in the transportation and distribution of illicit goods through criminal networks, it would seem easy enough to find willing and experienced volunteers to carry a nuclear briefcase. FBI agent Lou Calvarese concurs. “Its pretty scary,” he says, summarising his conclusions about the connections between North Korea’s black economy and the threat of nuclear proliferation. “I think everything is held together by a Band-Aid.”

    For past several years, counterfeit American dollars are reportedly circulated in a number of Asian nations directly by North Korean diplomats. They maintain close link with the local money changers through their network of Worker’s Party. additionnally North Korean diplomats are also visiting money changers and even banks with counterfeit currencies and getting those changed.

    At present North Koreans are selling American dollars printed in 2005, 2006 and 2007. Any Korean or Chinese approaching any money changer or bank with handsome amount of cash American dollars should now be closely monitored by the law enforcing agencies. Moreover, North Koreans are also using ‘diplomats pouches’ for transporting counterfeit American dollars from one country to another.

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