Over at McClatchy, Kevin Hall provides what promises to be the final word on the allegations of North Korean counterfeiting promoted by hardliners within the Bush administration.
...evidence to support Bush's charges against North Korea is uncertain at best and that the claims of the North Korean defectors cited in news accounts are dubious and perhaps bogus.
Hall delves into the interesting and, for me, new issue of the administration’s cooperation with friendly and perhaps overly obliging elements inside the South Korean intelligence and/or policy and/or emigre community to use defectors and their possibly tall tales to advance the story:
Many of the administration's public allegations about North Korean counterfeiting trace to North Korea "experts" in South Korea who arranged interviews with North Korean defectors for U.S. and foreign newspapers. The resulting news reports were quoted by members of Congress, researchers and Bush administration officials who were seeking to pressure North Korea.
The defectors' accounts, for example, were cited prominently in a lengthy July 23, 2006, New York Times magazine story that charged North Korea with producing the sophisticated supernotes.
The McClatchy investigation, however, found reason to question those sources. One major source for several stories, a self-described chemist named Kim Dong-shik, has gone into hiding, and a former roommate, Moon Kook-han, said Kim is a liar out for cash who knew so little about American currency that he didn't know whose image is printed on the $100 bill. (It's Benjamin Franklin.)
When the definitive history of Bush administration shenanigans is written (I know, probably never) there will be a big chapter on the regime change ideologues’ creation of an international fraternity of ethically challenged spooks and wannabes who served up incendiary but dodgy intelligence...dossiers that could be stovepiped to the policy level without the inconvenience of skeptical vetting or evidentiary nitpicking by the experts at the CIA and State Department.
David Asher, the sharp end of the stick for allegations against North Korea, is still keeping the flag flying, albeit rather circumspectly:
David Asher, who was the coordinator of a working group at the State Department that collected details on North Korean criminal activities, said his group turned up evidence of the counterfeiting and didn't rely on "intelligence" to make its case.
Asher, now a researcher at the Heritage Foundation, a conservative Washington policy organization, declined to provide any details.
I guess it depends on what your definition of evidence—or “intelligence”—is.
As for John Bolton, the moustachio’d menace whose relentless regime-change machinations gave Kim Jung Il so much heartburn, he seems to be in Fuhgedaboutit mode:
John Bolton, the former Bush administration official most identified with a hard line on North Korea, told McClatchy that he never saw hard evidence that the North Korean government was making the supernotes.
As far as the Bush administration is considered, there is no more reliable means of coverup than failure.
When a policy craters, as the hardline North Korean policy assuredly did, people don't even remember the policy itself, let alone its shaky factual and logical underpinnings.
Hopefully, we won’t forget about this particularly disastrous, ill-conceived, and dishonest foray into foreign policy chicanery.
And we can start by reading Kevin Hall. His most recent article, previous pieces, and a raft of supporting documentation can be found here .
Showing posts with label David Asher. Show all posts
Showing posts with label David Asher. Show all posts
Monday, January 14, 2008
Thursday, July 19, 2007
Two Lost Years
History Gets Whacked by Lazy Time Magazine Stenography on North Korean “Soprano State”...
...But Lawrence Wilkerson Provides a Much Needed Corrective
With the shutdown of the reactor at Yongbyon, the Six Party agreement to denuclearize North Korea has lumbered into its next stage.
That means it’s time for all the hardliners who eagerly predicted the collapse of the agreement (and, indeed, may have worked actively to sabotage it by hindering the unfreezing of the North Korean accounts at Banco Delta Asia in Macau) to avoid unwelcome comparisons between their own counterproductive measures and the current success of the engagement policy.
Facts must be spun, failure must be obfuscated, reputations must be burnished and, I suppose, think tank sinecures must be defended until indifference and fading memory permit these indefatigable and unchastened screwups to return to positions of power within the U.S. foreign policy bureaucracy.
So it looks like it’s time once again for a complacent press will provide political cover to anxious Beltway apparatchiks in return for access to a selective slice of the inside story...
...one that glosses over a crucial two year period of failure—2005 and 2006—during which North Korea policy was under the undisputed control of the hardliners.
Case in point: Time Magazine’s expose of Kim Jung Il, “The Tony Soprano of North Korea.”
The article draws on assertions by David Asher, currently at the Heritage Foundation, who worked as a senior advisor in the State Department until mid-2005.
Mr. Asher was the driving force behind the hardliners’ aggressive implementation of the Illegal Activities Initiative (IAI). The IAI focused the enforcement actions of various U.S. departments on alleged illegal activities by North Korea, including cigarette counterfeiting, the meth trade, Supernote counterfeiting, money laundering and trade in protected species.
Mr. Asher’s twin legacies will probably be 1) using the IAI to instigate the Patriot Act Section 311 investigation of Banco Delta Asia in Macau that turned into an embarrassing fiasco and 2) his notorious but publicly unsupported statement that the investigation was a part of a planned effort to intimidate China by “killing the chicken to scare the monkeys”.
Time’s authors, Bill Powell and Adam Zagorin, could have grilled Mr. Asher about his role in the Bush administration’s hardline North Korean diplomacy in 2005/2006, which ended in North Korea’s detonation of its first atomic bomb, the failure to create an effective regional coalition to support Washington’s policy of confrontation against Pyongyang, the departure of the key hardline architects, Bolton, Joseph, et. al., and the laborious dismantling (and discrediting) of the ineffectual U.S.-led financial blockade that failed to bring Kim Jung Il to his knees.
Too bad they didn’t.
The story of how the hardliners drove America’s North Korea policy into a ditch is an interesting and important one, and it isn’t too hard to dig out.
Recently, I had the pleasure of corresponding with Lawrence Wilkerson, Secretary of State Colin Powell’s Chief of Staff during the first George W. Bush administration.
My attention had been drawn to Mr. Wilkerson by the contrast between his perspective on the IAI and a recent claim of Mr. Asher’s.
Lawrence Wilkerson, as reported in the Wall Street Journal in 2005, had this to say about the IAI:
Larry Wilkerson, who was former Secretary of State Colin Powell's chief of staff, said in an interview that the effort -- which officials named the Illicit Activities Initiative -- was launched to augment, rather than undercut, diplomacy.
In Congressional testimony in 2007, David Asher spoke of his resistance to the U.S. concession on Banco Delta Asia that ended the standoff concerning the frozen North Korean funds, and provided his characterization of the IAI::
“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”
Well, which was it? Was the IAI designed for diplomacy...or something else?
Mr. Wilkerson, who, one might say, was present at the creation, commented to China Matters:
[The North Korea Working Group] was the most successful interagency group of the first Bush administration. It had members from every element of the federal bureaucracy. We forged a consensus, a way ahead, a plan of attack...
The primary reason of the Illicit Activities Initiative was to give us a tool for negotiating the Six Party agreement. That tool would be the "stick" with which we would attempt to make the DPRK negotiators more receptive to our desires with regard to their nuclear and missile programs, as well as their illicit activities. ...
David Asher liked to assume there was a real crimefighter I’m going to get you [component to the IAI]. [But it was always meant to be] orchestrated with astute diplomacy.
... I believe that once we had gone, John Bolton and others put the IAI to use as a stand-alone policy to attempt to force regime change in Pyongyang by drying up the money with which Kim Jong-il essentially kept his generals happy.
As to whether getting the North Koreans to walk out of the Six Party talks was part of the original, devilishly clever scheme for the Illicit Activities Initiative, I had this exchange with Mr. Wilkerson:
Was the BDA investigation part of the plan? Was the North Korean walkout in 2005 a contingency you had planned for?
No. [In President Bush’s second term] other people, John Bolton, Bob Joseph took away the dual track. They lusted after it, got ahold of it [the IAI], went whole hog [to use it to destabilize North Korea ].
That wasn’t so hard, was it?
In contrast to Mr. Asher’s assertion, Mr. Wilkerson states that the Illicit Activities Initiative was designed to complement American diplomacy in the Six Party talks.
So it might be enlightening for Mr. Asher to explain how the Illicit Activities Initiative was repurposed at the beginning of President Bush’s second term as an acceptable substitute for Six Party diplomacy...
...so that North Korea walked out of the Six Party talks, detonated a bomb, and demanded a humiliating retreat by the United States on the signature action of the Illicit Activities Initiative—the action against BDA...
...so that the talks could resume in early 2007 under China’s aegis at essentially the same point we were at in early 2005...
...or during the Clinton administration for that matter...
...except of course that North Korea now has the atomic bomb...
...and enough plutonium stockpiled to make several more.
Hardly a glowing endorsement for the decision to pursue the Illicit Activities Initiative independently of (and seemingly at the expense of) Six Party diplomacy
I did request a comment from Mr. Asher, but he didn’t respond.
Maybe Time had the same problem.
Of course, now that the hardliner policy failed with a thud (or the crump of an underground nuclear test), it seems to be in Mr. Asher’s interest to downplay the marked discontinuity in North Korea policy during the first two years of President Bush’s second term, as well as the role Mr. Asher played in that redirection.
Instead, Time got another retelling of Mr. Asher’s increasingly shopworn tales concerning Royal Charm and Smoking Dragon stings against alleged illicit North Korean activity, albeit with some of that patented Time factchecking.
That would seem to be the point, as far as Mr. Asher is concerned: keeping the focus on continued North Korean perfidy instead of the spasm of hardliner ineptitude that gave North Korea the bomb and left America playing second fiddle to China in North Asia.
There is some news, albeit of a negative sort, buried deep in the end of the article--the relative softpedaling of North Korean counterfeiting allegations.
Time writes:
According to U.S. and South Korean intelligence reports, the North has been producing the counterfeit bills at least since 1994. The South Korean intelligence service two years ago said it could confirm production only until 1998, but at least twice in recent years, claim U.S. and South Korean sources, the U.S. has presented the South Korean government with supernotes said to have been produced in 2001 and 2003.
A 2006 State Department estimate puts the amount of counterfeit currency in circulation at $45 million to $48 million. Estimate is the key word. Of all the illicit businesses from which North Korea profits, counterfeiting is the one about which outsiders know the least. U.S. officials say they don't believe the North Koreans produced the equipment to print such high-quality counterfeit bills. If that's the case, where did they get it from? No U.S. agency interviewed for this story, including Treasury, State and the Secret Service, could say. U.S. sources also say they do not know where in North Korea the notes are produced.
It does seem likely, however, that Kim's government is running the scam. [emphasis added]
Pretty weak beer, especially when compared to the prior allegations of extensive Supernote counterfeiting by North Korea that formed the central justification for the global financial campaign orchestrated against North Korea in 2005 and 2006 by the hardliners.
Heritage Foundation researcher Balbina Hwang—who currently occupies Mr. Asher’s advisor slot at the State Department—asserted that North Korea annually produced hundreds of millions of dollars worth of Supernotes.
Supernote counterfeiting was deemed an act of economic warfare, an act that Ed Royce (Rep., California, and the voice of the hardliners on the House Foreign Affairs Committee) darkly opined would justify the financial implosion of the Pyongyong regime by the United States.
In 2006, David Asher characterized North Korea’s Supernote involvement as follows :
The US Secret Service has been investigating the circulation of the “supernote” counterfeit dollars since 1989. Last year it charged that the counterfeit US notes were “manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea (“North Korea”). Individuals, including North Korean nationals acting as ostensible government officials, engaged in the worldwide transportation, delivery, and sale of quantities of Supernotes.” As the Secret Service has now revealed, the Federal Reserve Bank has come into the possession of roughly $48 million of these notes in the last fifteen years. Some argue that this shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
To be fair, it wasn’t just David Asher.
According to Mr. Wilkerson, when he was at State before 2005 the briefings were pretty categorical:
I sat in meetings with the Treasury and Secret Service and they essentially convinced me [that North Korea was producing Supernotes inside North Korea and trafficking in them].
Now he adds a self-deprecating verbal shrug:
But I thought there were WMDs inside Iraq too.
Maybe the reporting of McClatchy and the investigations of Karl Bender concerning the immense technical and logistical hurdles Pyongyang would have had to overcome—and the paucity of evidence for any significant operation--are persuading the administration to back away from the North Korean Supernote allegations.
Or maybe, with the North Korean crisis cooling off, the government decided simply to stop yanking our chain about Kim Jung Il’s private Supernote factory, and allow the location of the purported facility to continue its hegira to our next designated boogie man (prior to North Korea, the United States had cited Lebanon’s Bekaa Valley a.k.a. Hezbollah, and then Iran as sources for the insidious notes).
In any event, the shift from a casus belli involving hundreds of millions of dollars in Supernotes produced inside North Korea to Time’s “we don’t know where or how much or how they do it or if they’re still even making them” is quite a step back.
While Mr. Powell and Mr. Zagorin missed the significance of the apparent retreat on the Supernote story, they also managed to add a few errors to their reporting about this hot-button issue:
a) Contra their statement quoted above, “estimate” is not the “key word” in describing the $45-$48 million number for circulating counterfeit currency; the key word is “confidence”.
Mr. Asher has energetically hyped the possibility of an enormous undetected North Korean Supernote menace by dismissing Treasury’s data on counterfeits as a mere “estimate”.
However, the Treasury Department has studied the international traffic in counterfeit U.S. currency exhaustively in a multi-year effort by the Federal Reserve Board involving visits to dozens of countries and is confident—with considerably more authority than Mr. Asher can muster-- that there is no significant reservoir of undetected counterfeit notes of any kind, including Supernotes.
b) The total of $45--$48 million in circulation is all counterfeit currency, not just Supernotes.
c) Only $45 million in Supernotes has been seized in the last fifteen years, as Asher himself says in his other statement. That’s an average of $3 million a year (for perspective, about $500 billion in US currency is in circulation worldwide).
Humph. I’ll bet Mr. Luce only needed one reporter to get it all wrong, back in the day.
Extensive Supernote counterfeiting was an important allegation not only because of the provocative and symbolic character of the outrage against America’s currency.
It was the only case in which the United States could claim to be the primary injured party and assert the right to lead a global action against North Korea outside the frustratingly incremental, multi-lateral Six Party and UN processes reserved for the nuclear, WMD, and missile issues.
The other major examples of alleged North Korean illicit activities did not have the United States as their primary target—they were concerns for China and Japan.
In both these cases, even with Japan’s highly confrontational stance toward North Korea, the injured parties did not see fit to characterize the North Korean activity as a casus belli that could not be handled by local and international law enforcement.
If the North Koreans are churning out huge quantities of counterfeit cigarettes, the main destination would be China, where an astounding percentage--over 90%--of imported cigarettes on the market are illicit—either smuggled or counterfeit.
If North Korean factories were making meth, the primary market would be Japan.
According to reports I’ve seen, meth is tolerated in Japan, presumably because it encourages the get-up-and-go-and-go-and-go-go-go ethos that is supposed to make Japanese society tick, and the yakuza’s drug trafficking is tolerated as long as it sticks to meth and stays away from cocaine and opiates. As a result, the market is served by immense illegal factories in the Philippines, Taiwan, and/or whatever locale offers the best combination of access to ephedrine, lax enforcement, and corruption.
The business is run by sophisticated, flexible, and internationalized criminal cartels whose entrepreneurial acumen is one of the true faces of 21st century globalism.
Which brings me to a gripe about the soundbite du jour on North Korea, “the Soprano State.”
David Asher et. al. probably found this formulation very useful, as the concept of a North Korean state fundamentally criminal in its nature justified an attack against any and all North Korean activities without the need to build a persuasive case in each and every instance.
I wouldn’t be surprised if the North Korean government, at a high level, countenances some dirty dealing. But I don’t think they’re the Sopranos; I think they’re the Gang Who Couldn’t Shoot Straight, relatively ineffectual amateur criminals stuck in the low-profit links of the Asian criminal supply chain.
Does anybody think the North Korean bureaucrats and generals can outhustle and outmuscle the fearsome Chinese triads who, if one might recall, were the designated Asian menace back in the 1990s?
I believe North Korea’s fundamental identity is that of a sclerotic dictatorship trying to cling to power and revive its moribund economy in an environment of overt US and Japanese hostility and Chinese malign indifference. Its willingness to engage in criminal activity is moderated by the requirements of its diplomacy and the need to achieve some sort of modus vivendi with the West that will allow Pyongyang to share in the immense river of trade and investment cash flowing through North Asia via South Korea, Europe, and China today.
Which means I believe this piece of analysis in the Time article is just plain wrong:
But even if Pyongyang agrees to disarm, there's little reason to believe that the regime will abandon its nefarious business dealings. By keeping Kim's top military and security officials happy, such lucrative enterprises help the dictator maintain his grip on power and resist pressure to open up the North's broken, Stalinist economy. [emphasis added]
Fact is, Kim Jung Il is trying to strengthen his regime by a controlled opening to the West—as the Chinese did in the 1980s—through special economic development zones and preferential policies to attract foreign investment.
Kim would love to preside over a one-party post-socialist business-friendly state that could claim US appreciation and support for acting as a counterweight to China in Asia.
Prospects for a Nixon-goes-to-China rapprochement have, of course, been pretty dim during the Bush administration.
The US campaign to block North Korea’s foreign trade and investment-related initiatives—and prevent Kim from prolonging his rule by presiding over a more prosperous and globalized North Korean economy—would make for an interesting story by itself.
The story would include items like our serial harassment of the Daedong Credit Bank—the foreign-owned North Korea bank meant to promote foreign investment in the Hermit Kingdom, that happened to account for 25% of the money tied up in Banco Delta Asia—and efforts to discourage participation in the Kaesong Industrial Park, North Korea’s flagship export processing zone catering to foreign manufacturers.
But I guess it’s too complicated.
The simple narrative of North Korea as a “Soprano State” is comforting, because it allows us to ignore or disdain the forces acting against American diplomacy in the region.
That, of course, is the problem.
It’s reckless and dangerous to simplify the North Korean issue to that of a repulsive toad king that the world would gladly spit out of its mouth, if only it got a strong enough slap on the back from the United States.
That kind of mindset makes it too easy for lazy and cynical bureaucrats to promote badly-conceived policies and then excuse and obscure their own failures by exploiting the genuine but also carefully cultivated abhorrence that America feels for Kim Jung Il.
Looking at the current state of play on the Korean peninsula, we should be asking:
Was it worth it to abandon nuclear diplomacy for two years to pursue provocative but relatively insignificant allegations of North Korean wrongdoing in a futile effort to get Kim Jung Il to dance to our tune?
In other words, was pursuing the Illicit Activities Initiative more important than supporting the Six Party talks, as Mr. Asher seems to think?
Now, with North Korea possessing the bomb, and lined up with China, Russia, and South Korea in a position of advantage in North Asia, the answer seems obvious.
I just wish Time had asked the question.
...But Lawrence Wilkerson Provides a Much Needed Corrective
With the shutdown of the reactor at Yongbyon, the Six Party agreement to denuclearize North Korea has lumbered into its next stage.
That means it’s time for all the hardliners who eagerly predicted the collapse of the agreement (and, indeed, may have worked actively to sabotage it by hindering the unfreezing of the North Korean accounts at Banco Delta Asia in Macau) to avoid unwelcome comparisons between their own counterproductive measures and the current success of the engagement policy.
Facts must be spun, failure must be obfuscated, reputations must be burnished and, I suppose, think tank sinecures must be defended until indifference and fading memory permit these indefatigable and unchastened screwups to return to positions of power within the U.S. foreign policy bureaucracy.
So it looks like it’s time once again for a complacent press will provide political cover to anxious Beltway apparatchiks in return for access to a selective slice of the inside story...
...one that glosses over a crucial two year period of failure—2005 and 2006—during which North Korea policy was under the undisputed control of the hardliners.
Case in point: Time Magazine’s expose of Kim Jung Il, “The Tony Soprano of North Korea.”
The article draws on assertions by David Asher, currently at the Heritage Foundation, who worked as a senior advisor in the State Department until mid-2005.
Mr. Asher was the driving force behind the hardliners’ aggressive implementation of the Illegal Activities Initiative (IAI). The IAI focused the enforcement actions of various U.S. departments on alleged illegal activities by North Korea, including cigarette counterfeiting, the meth trade, Supernote counterfeiting, money laundering and trade in protected species.
Mr. Asher’s twin legacies will probably be 1) using the IAI to instigate the Patriot Act Section 311 investigation of Banco Delta Asia in Macau that turned into an embarrassing fiasco and 2) his notorious but publicly unsupported statement that the investigation was a part of a planned effort to intimidate China by “killing the chicken to scare the monkeys”.
Time’s authors, Bill Powell and Adam Zagorin, could have grilled Mr. Asher about his role in the Bush administration’s hardline North Korean diplomacy in 2005/2006, which ended in North Korea’s detonation of its first atomic bomb, the failure to create an effective regional coalition to support Washington’s policy of confrontation against Pyongyang, the departure of the key hardline architects, Bolton, Joseph, et. al., and the laborious dismantling (and discrediting) of the ineffectual U.S.-led financial blockade that failed to bring Kim Jung Il to his knees.
Too bad they didn’t.
The story of how the hardliners drove America’s North Korea policy into a ditch is an interesting and important one, and it isn’t too hard to dig out.
Recently, I had the pleasure of corresponding with Lawrence Wilkerson, Secretary of State Colin Powell’s Chief of Staff during the first George W. Bush administration.
My attention had been drawn to Mr. Wilkerson by the contrast between his perspective on the IAI and a recent claim of Mr. Asher’s.
Lawrence Wilkerson, as reported in the Wall Street Journal in 2005, had this to say about the IAI:
Larry Wilkerson, who was former Secretary of State Colin Powell's chief of staff, said in an interview that the effort -- which officials named the Illicit Activities Initiative -- was launched to augment, rather than undercut, diplomacy.
In Congressional testimony in 2007, David Asher spoke of his resistance to the U.S. concession on Banco Delta Asia that ended the standoff concerning the frozen North Korean funds, and provided his characterization of the IAI::
“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”
Well, which was it? Was the IAI designed for diplomacy...or something else?
Mr. Wilkerson, who, one might say, was present at the creation, commented to China Matters:
[The North Korea Working Group] was the most successful interagency group of the first Bush administration. It had members from every element of the federal bureaucracy. We forged a consensus, a way ahead, a plan of attack...
The primary reason of the Illicit Activities Initiative was to give us a tool for negotiating the Six Party agreement. That tool would be the "stick" with which we would attempt to make the DPRK negotiators more receptive to our desires with regard to their nuclear and missile programs, as well as their illicit activities. ...
David Asher liked to assume there was a real crimefighter I’m going to get you [component to the IAI]. [But it was always meant to be] orchestrated with astute diplomacy.
... I believe that once we had gone, John Bolton and others put the IAI to use as a stand-alone policy to attempt to force regime change in Pyongyang by drying up the money with which Kim Jong-il essentially kept his generals happy.
As to whether getting the North Koreans to walk out of the Six Party talks was part of the original, devilishly clever scheme for the Illicit Activities Initiative, I had this exchange with Mr. Wilkerson:
Was the BDA investigation part of the plan? Was the North Korean walkout in 2005 a contingency you had planned for?
No. [In President Bush’s second term] other people, John Bolton, Bob Joseph took away the dual track. They lusted after it, got ahold of it [the IAI], went whole hog [to use it to destabilize North Korea ].
That wasn’t so hard, was it?
In contrast to Mr. Asher’s assertion, Mr. Wilkerson states that the Illicit Activities Initiative was designed to complement American diplomacy in the Six Party talks.
So it might be enlightening for Mr. Asher to explain how the Illicit Activities Initiative was repurposed at the beginning of President Bush’s second term as an acceptable substitute for Six Party diplomacy...
...so that North Korea walked out of the Six Party talks, detonated a bomb, and demanded a humiliating retreat by the United States on the signature action of the Illicit Activities Initiative—the action against BDA...
...so that the talks could resume in early 2007 under China’s aegis at essentially the same point we were at in early 2005...
...or during the Clinton administration for that matter...
...except of course that North Korea now has the atomic bomb...
...and enough plutonium stockpiled to make several more.
Hardly a glowing endorsement for the decision to pursue the Illicit Activities Initiative independently of (and seemingly at the expense of) Six Party diplomacy
I did request a comment from Mr. Asher, but he didn’t respond.
Maybe Time had the same problem.
Of course, now that the hardliner policy failed with a thud (or the crump of an underground nuclear test), it seems to be in Mr. Asher’s interest to downplay the marked discontinuity in North Korea policy during the first two years of President Bush’s second term, as well as the role Mr. Asher played in that redirection.
Instead, Time got another retelling of Mr. Asher’s increasingly shopworn tales concerning Royal Charm and Smoking Dragon stings against alleged illicit North Korean activity, albeit with some of that patented Time factchecking.
That would seem to be the point, as far as Mr. Asher is concerned: keeping the focus on continued North Korean perfidy instead of the spasm of hardliner ineptitude that gave North Korea the bomb and left America playing second fiddle to China in North Asia.
There is some news, albeit of a negative sort, buried deep in the end of the article--the relative softpedaling of North Korean counterfeiting allegations.
Time writes:
According to U.S. and South Korean intelligence reports, the North has been producing the counterfeit bills at least since 1994. The South Korean intelligence service two years ago said it could confirm production only until 1998, but at least twice in recent years, claim U.S. and South Korean sources, the U.S. has presented the South Korean government with supernotes said to have been produced in 2001 and 2003.
A 2006 State Department estimate puts the amount of counterfeit currency in circulation at $45 million to $48 million. Estimate is the key word. Of all the illicit businesses from which North Korea profits, counterfeiting is the one about which outsiders know the least. U.S. officials say they don't believe the North Koreans produced the equipment to print such high-quality counterfeit bills. If that's the case, where did they get it from? No U.S. agency interviewed for this story, including Treasury, State and the Secret Service, could say. U.S. sources also say they do not know where in North Korea the notes are produced.
It does seem likely, however, that Kim's government is running the scam. [emphasis added]
Pretty weak beer, especially when compared to the prior allegations of extensive Supernote counterfeiting by North Korea that formed the central justification for the global financial campaign orchestrated against North Korea in 2005 and 2006 by the hardliners.
Heritage Foundation researcher Balbina Hwang—who currently occupies Mr. Asher’s advisor slot at the State Department—asserted that North Korea annually produced hundreds of millions of dollars worth of Supernotes.
Supernote counterfeiting was deemed an act of economic warfare, an act that Ed Royce (Rep., California, and the voice of the hardliners on the House Foreign Affairs Committee) darkly opined would justify the financial implosion of the Pyongyong regime by the United States.
In 2006, David Asher characterized North Korea’s Supernote involvement as follows :
The US Secret Service has been investigating the circulation of the “supernote” counterfeit dollars since 1989. Last year it charged that the counterfeit US notes were “manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea (“North Korea”). Individuals, including North Korean nationals acting as ostensible government officials, engaged in the worldwide transportation, delivery, and sale of quantities of Supernotes.” As the Secret Service has now revealed, the Federal Reserve Bank has come into the possession of roughly $48 million of these notes in the last fifteen years. Some argue that this shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
To be fair, it wasn’t just David Asher.
According to Mr. Wilkerson, when he was at State before 2005 the briefings were pretty categorical:
I sat in meetings with the Treasury and Secret Service and they essentially convinced me [that North Korea was producing Supernotes inside North Korea and trafficking in them].
Now he adds a self-deprecating verbal shrug:
But I thought there were WMDs inside Iraq too.
Maybe the reporting of McClatchy and the investigations of Karl Bender concerning the immense technical and logistical hurdles Pyongyang would have had to overcome—and the paucity of evidence for any significant operation--are persuading the administration to back away from the North Korean Supernote allegations.
Or maybe, with the North Korean crisis cooling off, the government decided simply to stop yanking our chain about Kim Jung Il’s private Supernote factory, and allow the location of the purported facility to continue its hegira to our next designated boogie man (prior to North Korea, the United States had cited Lebanon’s Bekaa Valley a.k.a. Hezbollah, and then Iran as sources for the insidious notes).
In any event, the shift from a casus belli involving hundreds of millions of dollars in Supernotes produced inside North Korea to Time’s “we don’t know where or how much or how they do it or if they’re still even making them” is quite a step back.
While Mr. Powell and Mr. Zagorin missed the significance of the apparent retreat on the Supernote story, they also managed to add a few errors to their reporting about this hot-button issue:
a) Contra their statement quoted above, “estimate” is not the “key word” in describing the $45-$48 million number for circulating counterfeit currency; the key word is “confidence”.
Mr. Asher has energetically hyped the possibility of an enormous undetected North Korean Supernote menace by dismissing Treasury’s data on counterfeits as a mere “estimate”.
However, the Treasury Department has studied the international traffic in counterfeit U.S. currency exhaustively in a multi-year effort by the Federal Reserve Board involving visits to dozens of countries and is confident—with considerably more authority than Mr. Asher can muster-- that there is no significant reservoir of undetected counterfeit notes of any kind, including Supernotes.
b) The total of $45--$48 million in circulation is all counterfeit currency, not just Supernotes.
c) Only $45 million in Supernotes has been seized in the last fifteen years, as Asher himself says in his other statement. That’s an average of $3 million a year (for perspective, about $500 billion in US currency is in circulation worldwide).
Humph. I’ll bet Mr. Luce only needed one reporter to get it all wrong, back in the day.
Extensive Supernote counterfeiting was an important allegation not only because of the provocative and symbolic character of the outrage against America’s currency.
It was the only case in which the United States could claim to be the primary injured party and assert the right to lead a global action against North Korea outside the frustratingly incremental, multi-lateral Six Party and UN processes reserved for the nuclear, WMD, and missile issues.
The other major examples of alleged North Korean illicit activities did not have the United States as their primary target—they were concerns for China and Japan.
In both these cases, even with Japan’s highly confrontational stance toward North Korea, the injured parties did not see fit to characterize the North Korean activity as a casus belli that could not be handled by local and international law enforcement.
If the North Koreans are churning out huge quantities of counterfeit cigarettes, the main destination would be China, where an astounding percentage--over 90%--of imported cigarettes on the market are illicit—either smuggled or counterfeit.
If North Korean factories were making meth, the primary market would be Japan.
According to reports I’ve seen, meth is tolerated in Japan, presumably because it encourages the get-up-and-go-and-go-and-go-go-go ethos that is supposed to make Japanese society tick, and the yakuza’s drug trafficking is tolerated as long as it sticks to meth and stays away from cocaine and opiates. As a result, the market is served by immense illegal factories in the Philippines, Taiwan, and/or whatever locale offers the best combination of access to ephedrine, lax enforcement, and corruption.
The business is run by sophisticated, flexible, and internationalized criminal cartels whose entrepreneurial acumen is one of the true faces of 21st century globalism.
Which brings me to a gripe about the soundbite du jour on North Korea, “the Soprano State.”
David Asher et. al. probably found this formulation very useful, as the concept of a North Korean state fundamentally criminal in its nature justified an attack against any and all North Korean activities without the need to build a persuasive case in each and every instance.
I wouldn’t be surprised if the North Korean government, at a high level, countenances some dirty dealing. But I don’t think they’re the Sopranos; I think they’re the Gang Who Couldn’t Shoot Straight, relatively ineffectual amateur criminals stuck in the low-profit links of the Asian criminal supply chain.
Does anybody think the North Korean bureaucrats and generals can outhustle and outmuscle the fearsome Chinese triads who, if one might recall, were the designated Asian menace back in the 1990s?
I believe North Korea’s fundamental identity is that of a sclerotic dictatorship trying to cling to power and revive its moribund economy in an environment of overt US and Japanese hostility and Chinese malign indifference. Its willingness to engage in criminal activity is moderated by the requirements of its diplomacy and the need to achieve some sort of modus vivendi with the West that will allow Pyongyang to share in the immense river of trade and investment cash flowing through North Asia via South Korea, Europe, and China today.
Which means I believe this piece of analysis in the Time article is just plain wrong:
But even if Pyongyang agrees to disarm, there's little reason to believe that the regime will abandon its nefarious business dealings. By keeping Kim's top military and security officials happy, such lucrative enterprises help the dictator maintain his grip on power and resist pressure to open up the North's broken, Stalinist economy. [emphasis added]
Fact is, Kim Jung Il is trying to strengthen his regime by a controlled opening to the West—as the Chinese did in the 1980s—through special economic development zones and preferential policies to attract foreign investment.
Kim would love to preside over a one-party post-socialist business-friendly state that could claim US appreciation and support for acting as a counterweight to China in Asia.
Prospects for a Nixon-goes-to-China rapprochement have, of course, been pretty dim during the Bush administration.
The US campaign to block North Korea’s foreign trade and investment-related initiatives—and prevent Kim from prolonging his rule by presiding over a more prosperous and globalized North Korean economy—would make for an interesting story by itself.
The story would include items like our serial harassment of the Daedong Credit Bank—the foreign-owned North Korea bank meant to promote foreign investment in the Hermit Kingdom, that happened to account for 25% of the money tied up in Banco Delta Asia—and efforts to discourage participation in the Kaesong Industrial Park, North Korea’s flagship export processing zone catering to foreign manufacturers.
But I guess it’s too complicated.
The simple narrative of North Korea as a “Soprano State” is comforting, because it allows us to ignore or disdain the forces acting against American diplomacy in the region.
That, of course, is the problem.
It’s reckless and dangerous to simplify the North Korean issue to that of a repulsive toad king that the world would gladly spit out of its mouth, if only it got a strong enough slap on the back from the United States.
That kind of mindset makes it too easy for lazy and cynical bureaucrats to promote badly-conceived policies and then excuse and obscure their own failures by exploiting the genuine but also carefully cultivated abhorrence that America feels for Kim Jung Il.
Looking at the current state of play on the Korean peninsula, we should be asking:
Was it worth it to abandon nuclear diplomacy for two years to pursue provocative but relatively insignificant allegations of North Korean wrongdoing in a futile effort to get Kim Jung Il to dance to our tune?
In other words, was pursuing the Illicit Activities Initiative more important than supporting the Six Party talks, as Mr. Asher seems to think?
Now, with North Korea possessing the bomb, and lined up with China, Russia, and South Korea in a position of advantage in North Asia, the answer seems obvious.
I just wish Time had asked the question.
Thursday, June 07, 2007
Setting the Cat Among the Pigeons
Reader DJ sets the cat among the pigeons, e-mailing the Hong Kong and Shanghai Banking Corp. asking if HSBC, Banco Delta Asia’s main correspondent partner until September 2005, was part of the web of collusive bankers that David Asher alleged is knowingly passing Supernotes instead of confiscating them, thereby keeping the magnitude of the North Korean counterfeiting problem hidden from the U.S. government statistics and the public view.
What Mr. Asher said:
Some argue that [the low level of seizures] shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
First, although supernote definitely can be detected, it is of such high grade that much of it circulates undetected. Largely this is because it has been primarily distributed in the economies of Asia, the former Soviet Union, Africa, and the Americas where the dollar functions as a parallel currency and major money center banks that process currency are few. Another reason for the low amount of detected circulation is that the banks themselves only lose money if they allow the notes to be turned over for processing back to the US. They receive no compensation for being honest. The dirty little secret among bankers and bank tellers appears to be that if they unwittingly accept supernote deposits they should then recirculate them along with genuine currency. They can do this because to almost everyone the notes appear genuine and can be passed as “real.” Thus, for these reasons there could be a lot more of the notes out there than we can document.
The macro issue—of the purported parallel economy, insulated from the banking system, chugging along on U.S. cash, and without the means to detect high quality counterfeits—has been authoritatively debunked by the Treasury Department.
Mr. Asher’s second assertion—that banks are doing catch-and-release, detecting counterfeits but returning them to the wild instead of confiscating them—would require a common policy of evasion by all the banks in a region, otherwise the honest bank or banks would be confiscating the counterfeit currency they detect, and that would make it into the statistics...
And the banks would have to segregate the counterfeit notes from the general population, to make sure they kept circulating funny money while they sent the good stuff back to the money center banks...
...and, since banks only keep a small amount of cash on hand (5 to10% of deposits, which for Banco Delta Asia would have amounted to about $15 to $30 million), if they were stockpiling large quantities of Supernotes they might have to explain to their stockholders and auditors why they were keeping an inordinate amount of money in non-income earning cash, instead of buying T-bills for the benefit of stockholders...
...or maybe falsify their books.
That’s a nice, big, dangerous conspiracy for the privilege of trafficking in Supernotes.
Doesn’t sound like the sort of thing HSBC would do, does it?
HSBC replied to DJ and confirmed that HSBC received cash deposits from BDA and checked them.
Their spokesperson also took pains to disassociate HSBC from any formal role in vetting currency on behalf of BDA, or of knowingly handling North Korean currency.
Of course, the most plausible target for Mr. Asher’s allegations is not HSBC—or Wachovia, Banco Delta Asia’s other correspondent bank.
That target would seem to be China.
China holds $50 billion in U.S. currency.
Theoretically, the Chinese government could have decided to accept a boxcar of Supernotes from North Korea to settle North Korea’s Chinese debts.
But China couldn’t—and wouldn’t—try to launder them in Macau. As the Treasury Department itself has pointed out, counterfeit banknotes in open economies inevitably end up confiscated—and in the Treasury Department statistics.
The only possible way for the Chinese to pass hundreds of millions in Supernotes would be to pass them in China, against its own citizens, and with the collusion of all its deposit-taking banks to maintain separate stashes of Supernotes for local circulation.
If David Asher made the allegation that China is defrauding its own citizens with counterfeit hundred dollar bills, that would really set the cat among the pigeons, freaking out the millions of Chinese who use US currency—and provide a gratifying poke in the eye for the Chicoms whom Asher blames for laundering hundreds of millions of illicit North Korean proceeds.
Why hasn’t he done that?
What Mr. Asher said:
Some argue that [the low level of seizures] shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
First, although supernote definitely can be detected, it is of such high grade that much of it circulates undetected. Largely this is because it has been primarily distributed in the economies of Asia, the former Soviet Union, Africa, and the Americas where the dollar functions as a parallel currency and major money center banks that process currency are few. Another reason for the low amount of detected circulation is that the banks themselves only lose money if they allow the notes to be turned over for processing back to the US. They receive no compensation for being honest. The dirty little secret among bankers and bank tellers appears to be that if they unwittingly accept supernote deposits they should then recirculate them along with genuine currency. They can do this because to almost everyone the notes appear genuine and can be passed as “real.” Thus, for these reasons there could be a lot more of the notes out there than we can document.
The macro issue—of the purported parallel economy, insulated from the banking system, chugging along on U.S. cash, and without the means to detect high quality counterfeits—has been authoritatively debunked by the Treasury Department.
Mr. Asher’s second assertion—that banks are doing catch-and-release, detecting counterfeits but returning them to the wild instead of confiscating them—would require a common policy of evasion by all the banks in a region, otherwise the honest bank or banks would be confiscating the counterfeit currency they detect, and that would make it into the statistics...
And the banks would have to segregate the counterfeit notes from the general population, to make sure they kept circulating funny money while they sent the good stuff back to the money center banks...
...and, since banks only keep a small amount of cash on hand (5 to10% of deposits, which for Banco Delta Asia would have amounted to about $15 to $30 million), if they were stockpiling large quantities of Supernotes they might have to explain to their stockholders and auditors why they were keeping an inordinate amount of money in non-income earning cash, instead of buying T-bills for the benefit of stockholders...
...or maybe falsify their books.
That’s a nice, big, dangerous conspiracy for the privilege of trafficking in Supernotes.
Doesn’t sound like the sort of thing HSBC would do, does it?
HSBC replied to DJ and confirmed that HSBC received cash deposits from BDA and checked them.
Their spokesperson also took pains to disassociate HSBC from any formal role in vetting currency on behalf of BDA, or of knowingly handling North Korean currency.
Of course, the most plausible target for Mr. Asher’s allegations is not HSBC—or Wachovia, Banco Delta Asia’s other correspondent bank.
That target would seem to be China.
China holds $50 billion in U.S. currency.
Theoretically, the Chinese government could have decided to accept a boxcar of Supernotes from North Korea to settle North Korea’s Chinese debts.
But China couldn’t—and wouldn’t—try to launder them in Macau. As the Treasury Department itself has pointed out, counterfeit banknotes in open economies inevitably end up confiscated—and in the Treasury Department statistics.
The only possible way for the Chinese to pass hundreds of millions in Supernotes would be to pass them in China, against its own citizens, and with the collusion of all its deposit-taking banks to maintain separate stashes of Supernotes for local circulation.
If David Asher made the allegation that China is defrauding its own citizens with counterfeit hundred dollar bills, that would really set the cat among the pigeons, freaking out the millions of Chinese who use US currency—and provide a gratifying poke in the eye for the Chicoms whom Asher blames for laundering hundreds of millions of illicit North Korean proceeds.
Why hasn’t he done that?
Saturday, June 02, 2007
A Drop in the Bucket
The Federal Reserve Board Debunks Allegations of Large Scale Laundering of North Korean Supernotes
In my previous post about alleged North Korean counterfeiting, I wrote that the U.S. Secret Service had reported that only $50 million in Supernotes had been seized over the last 15 years. This meager haul provides little evidentiary or logical support for the idea that North Korea was funding its current account deficit through counterfeiting.
The counterfeiting allegation is an important part, perhaps a central pillar, of the hardline case for aggressive action against the North Korean state.
It’s difficult to make the case for North Korea as a “Soprano state” relying on hundreds of millions of dollars in profits (not revenues, mind you) from criminal activity to finance its current account shortfall through counterfeit cigarettes, narcotics, and pharmaceuticals trafficking alone.
With the allegation of counterfeiting—and the picture of North Korean printing presses cranking out hundreds of millions of dollars of fake US currency every week—these difficulties would seem to evaporate.
Also, in contrast to illicit production of cigarettes and drugs--which could be plausibly if not convincingly blamed on rogue elements inside the North Korean economic and security apparatus--the massive effort, expense, and difficulty of counterfeiting and distributing Supernotes in large quantities could only be undertaken with the knowledge of the North Korean government.
Finally, while North Korea’s other alleged criminal activities primarily impact China, Japan, and other Asian countries, Supernote counterfeiting can be considered a direct affront, even a threat, to the United States.
Indeed, counterfeiting another nation’s currency has been declared a casus belli under international law by David Asher, architect of the Illicit Activities Initiative against North Korea--although I have as yet been unable to find an independent citation supporting this position.
In light of the insignificant quantity of Supernotes seized, I wrote that conspiracy theorists would need an alternate explanation to justify an aggressive campaign against North Korea: that there were hundreds of millions in undetected Supernotes out there, and this theory would necessarily require collusion by some big financial guns:
...especially since the only way to pass a significant, obviously suspicious wad of hundreds of millions or billions in US currency, even if the bills were perfectly undetectable, would be with the collusion of Chinese or Russian banks—and their governments.
I don’t know if Mr. Asher would take such a big step [as confronting China on the pretext of an investigation against BDA] on the shaky assumption that North Korea was grinding out hundreds of millions of dollars in absolutely undetectable supernotes. I suppose we’ll have to await the publication of his memoirs to learn his true feelings on the subject and whether I am pummeling a straw man on this subject.
Well, impatient readers need wait no longer...and straw men can retire unmolested to their hayricks.
David Asher, architect of the anti-money laundering campaign against Banco Delta Asia and North Korea, apparently does not believe the North Korean government can produce undetectable Supernotes.
However, he does make the assertion that detectable Supernotes can circulate in the world economy undetected—and through the vagaries of the world financial system and the connivance of bankers—leaving the door open for continued allegations that the Chinese are assisting the North Korean in injecting significant amounts of counterfeit currency into the global market.
Unfortunately for Mr. Asher, this position has been authoritatively debunked by the U.S. government—four times.
In remarks to a Heritage Foundation seminar in April 2006, David Asher stated:
As the Secret Service has now revealed, the Federal Reserve Bank has come into the possession of roughly $48 million of these notes in the last fifteen years. Some argue that this shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
First, although supernote definitely can be detected, it is of such high grade that much of it circulates undetected. Largely this is because it has been primarily distributed in the economies of Asia, the former Soviet Union, Africa, and the Americas where the dollar functions as a parallel currency and major money center banks that process currency are few. Another reason for the low amount of detected circulation is that the banks themselves only lose money if they allow the notes to be turned over for processing back to the US. They receive no compensation for being honest. The dirty little secret among bankers and bank tellers appears to be that if they unwittingly accept supernote deposits they should then recirculate them along with genuine currency. They can do this because to almost everyone the notes appear genuine and can be passed as “real.” Thus, for these reasons there could be a lot more of the notes out there than we can document.
I would say that Mr. Asher is taking the logically risky tactic of starting with a negative—that trade statistics provide no clear evidence about how North Korea is covering its current account deficit—to make a dubious assumption—that North Korea is counterfeiting currency—and, in order to deal with the objection that very little counterfeit currency has been detected, takes that second negative—the absence of counterfeit currency—to posit a new interpretation of currency flows in which large amounts of counterfeit currency are knowingly injected into a parallel global cash economy by venal bankers.
Mr. Asher’s chain of reasoning is logically shaky and also contradicted by analysis by people who probably know more about it that he does: the Federal Reserve Board.
In connection with introduction of the new, difficult to counterfeit US currency—the NCD or New Currency Design—the Federal Reserve Board and the Treasury Department undertook a massive, multi-year effort to understand the nature and vulnerabilities of the international demand for US currency.
A 2002 paper entitled Estimating the Worldwide Volume of Counterfeit U.S. Currency: Data and Extrapolation, by Ruth Judson and Richard Porter, was prepared for the Division of Monetary Affairs of the Federal Reserve System, and later formed the basis for a series of three reports to Congress by the Treasury Department.
It analyzed the statistics on counterfeit confiscations and analyzed the worldwide flow of US$ cash. The authors concluded that there was no significant “parallel economy” insulated from the big money center banks.
Contra Mr. Asher’s apparently undocumented assertions concerning his understanding of the world currency markets, I particularly enjoyed this passage:
Locations visited by the authors of the current paper included Argentina, Bahrain, Belarus, Bolivia, Bulgaria, Chile, China, Colombia, the Dominican Republic, Ecuador, El Salvador, Egypt, Greece, Hong Kong, Latvia, Lithuania, Mexico, Panama, Peru, the Philippines, Poland, Romania, Russia, Saudi Arabia, Singapore, South Africa, Switzerland, Taiwan, Turkey, United Arab Emirates, the United Kingdom, and Vietnam. Other team members visited Brazil, Cambodia, Indonesia, Japan, South Korea, Paraguay, and Thailand.
Believers in the North Korean counterfeit story may try to extract some comfort from the fact that the Fed team didn’t visit Macau.
However, the point of the report is that it is impossible for counterfeit currency injected into an open economy such as Macau’s to be quarantined from the banking system.
Consider the circulation lives of $100 notes. Genuine notes circulate, return to Reserve Banks, and sometimes recirculate; their average lifespan is about eight years. In contrast, counterfeits end their lives when they are detected, which at the very latest is on their first (and only) trip to a Federal Reserve Cash Office....we assume that on average counterfeits could remain in circulation at most for one year, with a few months being much more likely.
The authors make the interesting point that cash is exchanged, on the average, once a week, and the probability of a note finding its way to a bank after 22 weeks of circulation is 95%. They conclude:
Based on what we observed, it was apparent that currency does not endlessly recirculate in any of the markets we visited. Currency is used for a wide range of transactions, but even in gray or black market economies it will eventually find its way into a commercial banking institution, most likely after being used in relatively few transactions.
In sum, we find it unlikely that counterfeits can circulate for long outside the banking system and thus outside reasonably sophisticated counterfeit detection for very long. These figures suggest that notes are unlikely to circulate outside banks for much more than a year.
...We believe that an estimate in the neighborhood of $40 to $50 million...is the most plausible and is consistent with a relatively short average lifespan for a given counterfeit note.
I recently corresponded with individuals familiar with the issues addressed in this report, and they advised that they have not come across any new evidence that would lead them to question its conclusions concerning the magnitude or character of counterfeit US currency circulation in the world economy.
In a footnote, the North Korean counterfeiting conspiracy theory is addressed:
For years, stories have circulated that some government(s) hostile to the United States had obtained plates to print currency and were going to produce a flood of counterfeits in an effort to destabilize the dollar. It was argued that these counterfeits could circulate endlessly and freely within the bounds of such countries. We have no way of confirming or denying such stories. If “closed” countries (e.g. North Korea) do indeed have many counterfeits in circulation, it is impossible to know as long as the system remains closed. The evidence and model we present here apply to open markets and economies.
In other words, the existence of North Korean counterfeits could be concealed from the world financial system—if they are only circulated in North Korea. So, if North Korea is counterfeiting vast quantities of US currency, maybe Kim Jung Il is doing it to build a palace from bricks of hundred dollar bills; an offense against good taste, perhaps, but hardly a casus belli.
Bottom line is, Mr. Asher’s allegation that Supernotes of the type that have already been detected are circulating in large quantities thanks to the vagaries of the international cash system and the cupidity of bankers is extremely implausible.
And, parenthetically, where are our counterfeits coming from?
The number one source of counterfeits (measured by counterfeits seized) for the last four years running: Colombia.
How ‘bout that!
Counterfeiting is apparently an attractive business for narcotics traffickers, using similar distribution networks but with decreased risks and legal penalties. The main markets are in Latin and South America, where use of the dollar is widespread (Ecuador and El Salvador went so far as to dollarize their economies), but packages of counterfeit bills also end up in the U.S.
The 2006 report provides the enticing news that a large number of Supernotes entered the Peruvian economy in early 2005, but provides no information on the amount or their origin.
The 2003 report also describes a high level of Chinese expertise in detecting counterfeits:
During its visit to China, the ICAP team learned that People’s Bank of China statistics indicate that mainland Chinese banks have been receiving between $4 to $6 million in counterfeit U.S. dollars annually. While the ICAP team was not able to substantiate these figures by the usual means of directly inspecting the suspect notes, they could determine that the PBOC had a well-developed process for handling, archiving, and maintaining statistics on counterfeit U.S. currency. Furthermore, Secret Service representatives on the team examined a small sample of counterfeit notes provided by the PBOC in Shanghai and determined that the majority were of high quality.
For perspective, China accounts for about 20% (second behind Russia) in overseas holdings of U.S. currency, in other words about $50 billion.
As to whether North Korea is involved in Supernote production, even if it is not passing a significant number, the 2006 report on counterfeiting states:
The U.S. Secret Service has determined through investigative and forensic analysis that these highly deceptive counterfeit notes are linked to the Democratic People’s Republic of Korea (DPRK) and are produced and distributed with the full consent and control of the North Korean government.
I would like to think of the U.S. Secret Service as unpoliticized, interested in genuine enforcement issues, and conservative in its conclusions.
So I find the statement attributed to the Secret Service that the DPRK is involved in Supernotes persuasive, despite the seemingly immense technical and logistical difficulties involved in making Supernotes in North Korea, let alone continually redesigning them to track changes in the legit currency.
Well, maybe the Supernotes aren’t being made in North Korea.
And a not-too-convoluted parsing of the statement might beg the question, why didn’t they say the Supernotes are produced in North Korea? Instead they said the notes are “linked” to the DPRK and “produced and distributed with the full consent and control of the North Korean government”.
Maybe somebody in another country is cranking out some Supernotes for North Korea.
I’d vote Russia instead of China, simply because the Chinese seem to have their spooks under control, while the lid came off in Russia and there might be some skilled and connected forgers over there who would be willing to run off small orders of Supernotes for Kim Jung Il.
Or maybe the U.S. government is confident about North Korean involvement in Supernotes because it provided them some detectable, traceable Supernotes in a sting, which would be...funny, but not the kind of smoking gun the international enforcement community would be looking for.
In any case, the Treasury Department reports Supernotes remain a drop in the bucket. Since 1996, only $22.4 million have been confiscated while being passed, while $50 million worth have been seized.
$75 million in $100 notes represents a stack of currency smaller than a refrigerator.
Kim Jung Il may have more stashed in his palace. Maybe when there’s an opportunity—like the faulty currency-checking system that existed in Peru for a few months—he takes a desperate risk to pass some Supernotes through a criminal gang.
Nevertheless, the bottom line is, it can be said with considerable confidence that Supernotes are not a significant source of revenue—or focus of money laundering—for the North Korean government.
This state of affairs leads believers in the North Korean counterfeit story to an awkward place.
It’s a place where the investigations of the U.S. government itself—hey, the Treasury Department itself!—indicate there is no significant flow of Supernotes into the world economy.
It’s a place where the only argument for massive North Korean counterfeiting would have to rest on their ability to forge undetectable supernotes.
That’s a place no Treasury official committed to protecting the viability of the US dollar as a world currency is willing to go.
That’s a place no American diplomat interested in preserving his or her credibility is willing to go.
Heck, it doesn’t even seem to be a place David Asher wants to go, as his apparent acceptance of the detectability of Supernotes (see above, “supernote definitely can be detected “) seems to indicate.
And that leaves his allegations of significant North Korean counterfeiting of supernotes...nowhere.
So I would pronounce the story of collusive money laundering of counterfeits by Macau banks—and a large part of the justification for the BDA action and the effort to confront China over alleged complicity in laundering of hundreds of millions in North Korean Supernotes—DOA.
Without the counterfeiting angle, Mr. Asher must now rely on counterfeit cigarettes, counterfeit pharmaceuticals, trade in endangered species, weapons sales, and provision of money laundering services to support his business model of North Korea financing an annual current account deficit of $500 million through illicit activities—and justify his allegation that Chinese banks in Macau are laundering hundreds of millions of dollars of illicit North Korean proceeds.
With an important element of his seductive narrative of the North Korean criminal state largely discredited, the burden of proof is shifting to Mr. Asher to demonstrate that the move against Macau banks was inspired by compelling evidence of extensive money-laundering of North Korean criminal proceeds—and not lazy, unproven assumptions of criminality exploited to disrupt North Korea’s legitimate access to the international gold markets, South Korean financial aid, overseas cash remittances, and its bona fide government and personal forex accounts.
In my previous post about alleged North Korean counterfeiting, I wrote that the U.S. Secret Service had reported that only $50 million in Supernotes had been seized over the last 15 years. This meager haul provides little evidentiary or logical support for the idea that North Korea was funding its current account deficit through counterfeiting.
The counterfeiting allegation is an important part, perhaps a central pillar, of the hardline case for aggressive action against the North Korean state.
It’s difficult to make the case for North Korea as a “Soprano state” relying on hundreds of millions of dollars in profits (not revenues, mind you) from criminal activity to finance its current account shortfall through counterfeit cigarettes, narcotics, and pharmaceuticals trafficking alone.
With the allegation of counterfeiting—and the picture of North Korean printing presses cranking out hundreds of millions of dollars of fake US currency every week—these difficulties would seem to evaporate.
Also, in contrast to illicit production of cigarettes and drugs--which could be plausibly if not convincingly blamed on rogue elements inside the North Korean economic and security apparatus--the massive effort, expense, and difficulty of counterfeiting and distributing Supernotes in large quantities could only be undertaken with the knowledge of the North Korean government.
Finally, while North Korea’s other alleged criminal activities primarily impact China, Japan, and other Asian countries, Supernote counterfeiting can be considered a direct affront, even a threat, to the United States.
Indeed, counterfeiting another nation’s currency has been declared a casus belli under international law by David Asher, architect of the Illicit Activities Initiative against North Korea--although I have as yet been unable to find an independent citation supporting this position.
In light of the insignificant quantity of Supernotes seized, I wrote that conspiracy theorists would need an alternate explanation to justify an aggressive campaign against North Korea: that there were hundreds of millions in undetected Supernotes out there, and this theory would necessarily require collusion by some big financial guns:
...especially since the only way to pass a significant, obviously suspicious wad of hundreds of millions or billions in US currency, even if the bills were perfectly undetectable, would be with the collusion of Chinese or Russian banks—and their governments.
I don’t know if Mr. Asher would take such a big step [as confronting China on the pretext of an investigation against BDA] on the shaky assumption that North Korea was grinding out hundreds of millions of dollars in absolutely undetectable supernotes. I suppose we’ll have to await the publication of his memoirs to learn his true feelings on the subject and whether I am pummeling a straw man on this subject.
Well, impatient readers need wait no longer...and straw men can retire unmolested to their hayricks.
David Asher, architect of the anti-money laundering campaign against Banco Delta Asia and North Korea, apparently does not believe the North Korean government can produce undetectable Supernotes.
However, he does make the assertion that detectable Supernotes can circulate in the world economy undetected—and through the vagaries of the world financial system and the connivance of bankers—leaving the door open for continued allegations that the Chinese are assisting the North Korean in injecting significant amounts of counterfeit currency into the global market.
Unfortunately for Mr. Asher, this position has been authoritatively debunked by the U.S. government—four times.
In remarks to a Heritage Foundation seminar in April 2006, David Asher stated:
As the Secret Service has now revealed, the Federal Reserve Bank has come into the possession of roughly $48 million of these notes in the last fifteen years. Some argue that this shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
First, although supernote definitely can be detected, it is of such high grade that much of it circulates undetected. Largely this is because it has been primarily distributed in the economies of Asia, the former Soviet Union, Africa, and the Americas where the dollar functions as a parallel currency and major money center banks that process currency are few. Another reason for the low amount of detected circulation is that the banks themselves only lose money if they allow the notes to be turned over for processing back to the US. They receive no compensation for being honest. The dirty little secret among bankers and bank tellers appears to be that if they unwittingly accept supernote deposits they should then recirculate them along with genuine currency. They can do this because to almost everyone the notes appear genuine and can be passed as “real.” Thus, for these reasons there could be a lot more of the notes out there than we can document.
I would say that Mr. Asher is taking the logically risky tactic of starting with a negative—that trade statistics provide no clear evidence about how North Korea is covering its current account deficit—to make a dubious assumption—that North Korea is counterfeiting currency—and, in order to deal with the objection that very little counterfeit currency has been detected, takes that second negative—the absence of counterfeit currency—to posit a new interpretation of currency flows in which large amounts of counterfeit currency are knowingly injected into a parallel global cash economy by venal bankers.
Mr. Asher’s chain of reasoning is logically shaky and also contradicted by analysis by people who probably know more about it that he does: the Federal Reserve Board.
In connection with introduction of the new, difficult to counterfeit US currency—the NCD or New Currency Design—the Federal Reserve Board and the Treasury Department undertook a massive, multi-year effort to understand the nature and vulnerabilities of the international demand for US currency.
A 2002 paper entitled Estimating the Worldwide Volume of Counterfeit U.S. Currency: Data and Extrapolation, by Ruth Judson and Richard Porter, was prepared for the Division of Monetary Affairs of the Federal Reserve System, and later formed the basis for a series of three reports to Congress by the Treasury Department.
It analyzed the statistics on counterfeit confiscations and analyzed the worldwide flow of US$ cash. The authors concluded that there was no significant “parallel economy” insulated from the big money center banks.
Contra Mr. Asher’s apparently undocumented assertions concerning his understanding of the world currency markets, I particularly enjoyed this passage:
Locations visited by the authors of the current paper included Argentina, Bahrain, Belarus, Bolivia, Bulgaria, Chile, China, Colombia, the Dominican Republic, Ecuador, El Salvador, Egypt, Greece, Hong Kong, Latvia, Lithuania, Mexico, Panama, Peru, the Philippines, Poland, Romania, Russia, Saudi Arabia, Singapore, South Africa, Switzerland, Taiwan, Turkey, United Arab Emirates, the United Kingdom, and Vietnam. Other team members visited Brazil, Cambodia, Indonesia, Japan, South Korea, Paraguay, and Thailand.
Believers in the North Korean counterfeit story may try to extract some comfort from the fact that the Fed team didn’t visit Macau.
However, the point of the report is that it is impossible for counterfeit currency injected into an open economy such as Macau’s to be quarantined from the banking system.
Consider the circulation lives of $100 notes. Genuine notes circulate, return to Reserve Banks, and sometimes recirculate; their average lifespan is about eight years. In contrast, counterfeits end their lives when they are detected, which at the very latest is on their first (and only) trip to a Federal Reserve Cash Office....we assume that on average counterfeits could remain in circulation at most for one year, with a few months being much more likely.
The authors make the interesting point that cash is exchanged, on the average, once a week, and the probability of a note finding its way to a bank after 22 weeks of circulation is 95%. They conclude:
Based on what we observed, it was apparent that currency does not endlessly recirculate in any of the markets we visited. Currency is used for a wide range of transactions, but even in gray or black market economies it will eventually find its way into a commercial banking institution, most likely after being used in relatively few transactions.
In sum, we find it unlikely that counterfeits can circulate for long outside the banking system and thus outside reasonably sophisticated counterfeit detection for very long. These figures suggest that notes are unlikely to circulate outside banks for much more than a year.
...We believe that an estimate in the neighborhood of $40 to $50 million...is the most plausible and is consistent with a relatively short average lifespan for a given counterfeit note.
I recently corresponded with individuals familiar with the issues addressed in this report, and they advised that they have not come across any new evidence that would lead them to question its conclusions concerning the magnitude or character of counterfeit US currency circulation in the world economy.
In a footnote, the North Korean counterfeiting conspiracy theory is addressed:
For years, stories have circulated that some government(s) hostile to the United States had obtained plates to print currency and were going to produce a flood of counterfeits in an effort to destabilize the dollar. It was argued that these counterfeits could circulate endlessly and freely within the bounds of such countries. We have no way of confirming or denying such stories. If “closed” countries (e.g. North Korea) do indeed have many counterfeits in circulation, it is impossible to know as long as the system remains closed. The evidence and model we present here apply to open markets and economies.
In other words, the existence of North Korean counterfeits could be concealed from the world financial system—if they are only circulated in North Korea. So, if North Korea is counterfeiting vast quantities of US currency, maybe Kim Jung Il is doing it to build a palace from bricks of hundred dollar bills; an offense against good taste, perhaps, but hardly a casus belli.
Bottom line is, Mr. Asher’s allegation that Supernotes of the type that have already been detected are circulating in large quantities thanks to the vagaries of the international cash system and the cupidity of bankers is extremely implausible.
And, parenthetically, where are our counterfeits coming from?
The number one source of counterfeits (measured by counterfeits seized) for the last four years running: Colombia.
How ‘bout that!
Counterfeiting is apparently an attractive business for narcotics traffickers, using similar distribution networks but with decreased risks and legal penalties. The main markets are in Latin and South America, where use of the dollar is widespread (Ecuador and El Salvador went so far as to dollarize their economies), but packages of counterfeit bills also end up in the U.S.
The 2006 report provides the enticing news that a large number of Supernotes entered the Peruvian economy in early 2005, but provides no information on the amount or their origin.
The 2003 report also describes a high level of Chinese expertise in detecting counterfeits:
During its visit to China, the ICAP team learned that People’s Bank of China statistics indicate that mainland Chinese banks have been receiving between $4 to $6 million in counterfeit U.S. dollars annually. While the ICAP team was not able to substantiate these figures by the usual means of directly inspecting the suspect notes, they could determine that the PBOC had a well-developed process for handling, archiving, and maintaining statistics on counterfeit U.S. currency. Furthermore, Secret Service representatives on the team examined a small sample of counterfeit notes provided by the PBOC in Shanghai and determined that the majority were of high quality.
For perspective, China accounts for about 20% (second behind Russia) in overseas holdings of U.S. currency, in other words about $50 billion.
As to whether North Korea is involved in Supernote production, even if it is not passing a significant number, the 2006 report on counterfeiting states:
The U.S. Secret Service has determined through investigative and forensic analysis that these highly deceptive counterfeit notes are linked to the Democratic People’s Republic of Korea (DPRK) and are produced and distributed with the full consent and control of the North Korean government.
I would like to think of the U.S. Secret Service as unpoliticized, interested in genuine enforcement issues, and conservative in its conclusions.
So I find the statement attributed to the Secret Service that the DPRK is involved in Supernotes persuasive, despite the seemingly immense technical and logistical difficulties involved in making Supernotes in North Korea, let alone continually redesigning them to track changes in the legit currency.
Well, maybe the Supernotes aren’t being made in North Korea.
And a not-too-convoluted parsing of the statement might beg the question, why didn’t they say the Supernotes are produced in North Korea? Instead they said the notes are “linked” to the DPRK and “produced and distributed with the full consent and control of the North Korean government”.
Maybe somebody in another country is cranking out some Supernotes for North Korea.
I’d vote Russia instead of China, simply because the Chinese seem to have their spooks under control, while the lid came off in Russia and there might be some skilled and connected forgers over there who would be willing to run off small orders of Supernotes for Kim Jung Il.
Or maybe the U.S. government is confident about North Korean involvement in Supernotes because it provided them some detectable, traceable Supernotes in a sting, which would be...funny, but not the kind of smoking gun the international enforcement community would be looking for.
In any case, the Treasury Department reports Supernotes remain a drop in the bucket. Since 1996, only $22.4 million have been confiscated while being passed, while $50 million worth have been seized.
$75 million in $100 notes represents a stack of currency smaller than a refrigerator.
Kim Jung Il may have more stashed in his palace. Maybe when there’s an opportunity—like the faulty currency-checking system that existed in Peru for a few months—he takes a desperate risk to pass some Supernotes through a criminal gang.
Nevertheless, the bottom line is, it can be said with considerable confidence that Supernotes are not a significant source of revenue—or focus of money laundering—for the North Korean government.
This state of affairs leads believers in the North Korean counterfeit story to an awkward place.
It’s a place where the investigations of the U.S. government itself—hey, the Treasury Department itself!—indicate there is no significant flow of Supernotes into the world economy.
It’s a place where the only argument for massive North Korean counterfeiting would have to rest on their ability to forge undetectable supernotes.
That’s a place no Treasury official committed to protecting the viability of the US dollar as a world currency is willing to go.
That’s a place no American diplomat interested in preserving his or her credibility is willing to go.
Heck, it doesn’t even seem to be a place David Asher wants to go, as his apparent acceptance of the detectability of Supernotes (see above, “supernote definitely can be detected “) seems to indicate.
And that leaves his allegations of significant North Korean counterfeiting of supernotes...nowhere.
So I would pronounce the story of collusive money laundering of counterfeits by Macau banks—and a large part of the justification for the BDA action and the effort to confront China over alleged complicity in laundering of hundreds of millions in North Korean Supernotes—DOA.
Without the counterfeiting angle, Mr. Asher must now rely on counterfeit cigarettes, counterfeit pharmaceuticals, trade in endangered species, weapons sales, and provision of money laundering services to support his business model of North Korea financing an annual current account deficit of $500 million through illicit activities—and justify his allegation that Chinese banks in Macau are laundering hundreds of millions of dollars of illicit North Korean proceeds.
With an important element of his seductive narrative of the North Korean criminal state largely discredited, the burden of proof is shifting to Mr. Asher to demonstrate that the move against Macau banks was inspired by compelling evidence of extensive money-laundering of North Korean criminal proceeds—and not lazy, unproven assumptions of criminality exploited to disrupt North Korea’s legitimate access to the international gold markets, South Korean financial aid, overseas cash remittances, and its bona fide government and personal forex accounts.
Saturday, April 28, 2007
David Asher’s Dead End
"Presumed guilty until proven guilty" makes for a quick and easy North Korea policy...but it's no substitute for global diplomacy
“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea...and we’re not talking about tens of millions, we’re talking hundreds of millions.” David Asher, oral testimony, April 18, 2007
We gave them back the chicken...is the monkey still scared? Brad Sherman (D-CA), Chairman, House Foreign Affairs Subcommittee on Terrorism, Nonproliferation, and Trade, April 18, 2007
David Asher’s testimony before a joint House subcommittee on April 18 provided considerable entertainment—inadvertent as well as intentional.
It also revealed some things about North Korea, a lot about the Bush administration and David Asher--and gave little reason to be optimistic about U.S. policy in Northeast Asia.
Certainly, the Chinese are wondering if there are any tangible rewards for engaging with the United States on North Korea—beyond serving as a target of U.S. financial coercion—and as result are probably less than enthusiastic about helping us out on Iran.
Asher—who served the coordinator of North Korea Activities Group at State Department from 2001 to 2005 and takes credit for a raft of activities harassing Pyongyang, including the Patriot Act Section 311 action against Banco Delta Asia-- was brought to the hearing by California Republican Ed Royce to provide conservative talking points on North Korea (Asher’s opening statement and subsequent responses can be found after the 1:58 mark in the webcast).
Asher articulated the hard-line view that using Treasury sanctions to force North Korea to abandon its alleged counterfeiting and proliferation-related activities was more important than the Six Party process, stating explicitly that, in his personal opinion,
“I don’t think the North Koreans are going to give us any more than a freeze for compensation”.
And
“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”
And
“We did not design the initiative to give it away.”
And
“Even as a diplomatic act of expediency [returning the BDA funds] strains one’s litmus test of what’s reasonable..."
And
[Returning the funds] is “not a constructive effort”.
Nothing like designing failure into the Six Party process at the start, David.
To help Asher get his point across, Royce framed his questions around Asher’s published statements, making assertions that Asher, naturally, was only too eager to endorse.
As in:
Royce, April 18, 2007:
Referring to allegation of North Korean counterfeiting:
"What would happen if we just decided to implode that regime by responding to an act of economic warfare in a way that embargoed that system?...This is the first time since the second world war that one country has copied another country’s currency..."
David Asher, November 2005:
Under International Law, counterfeiting another nation's currency is an act of causus belli, an act of economic war. No other government has engaged in this act against another government since the Nazis under Hitler.
Royce also had a ready made laugh line to contribute to the tag team entertainment, having mocked the North Korean request for two counterfeit bill detecting machines during the morning testimony.
Asher (who, I’d be willing to bet a jar of kimchi fed Royce the story in the first place), didn’t even wait for a prompt and jumped in himself:
"[North Korea is] interested in obtaining bill detectors so they can improve the quality of their counterfeit...I think it’s likely they’ll be making efforts to counterfeit our new bills which would mean that we’d have redesigned our dollars twice now because of North Korea and we’d have to do it a third time..."
Given the growing doubts swirling around the North Korean counterfeit story (Asher himself twice remarked agitatedly, “some people think we’re making this stuff up...”), I would personally give some credence to the idea that the North Koreans need the machines so they can vet their cash locally, now that having it checked by money center banks like HSBC New York (as BDA did) is apparently no longer possible.
However, the revolting mental image of a leering Kim Jung Il salaciously violating our greenbacks (causus belli, baby!) is central to the conception of North Korea as a rogue actor on the world stage .
Therefore, I expect the Supernote story to be defended to the last ditch.
Asher, a conservative-leaning Japan expert whose career arc has included stints at the American Enterprise Institute and Heritage Foundation as well as the State Department, has built his public career on hyping the criminality of the North Korean regime.
The title of his November 2005 paper, "The North Korean Criminal State, its Ties to Organized Crime, and the Possibility of WMD Proliferation", pretty much says it all in terms of Asher’s conceptual framing of the North Korea issue.
By his formulation, North Korea (or the “Soprano state”, as he refers to it) is, in its essence, criminal and, in any and all conduct of its international activities, is assumed guilty... until proven guilty.
In his oral testimony on April 18, Asher took the argument to the dingbat quadrant.
North Korea is being accused of inflating or manufacturing insurance claims (using “suspiciously” complete and timely documentation) to defraud Lloyd’s names in cases involving $150 million in coverage.
Asher, who was quoted in the article that presumably inspired his remarks, got a little carried away in his testimony, characterizing the proceeds as “pure profit”, disregarding the fact that actual losses such as sinking ferryboats and burning warehouses had occurred, and that the North Korean insurance company had to pay for the reinsurance it acquired on the London market.
Then he grabbed the ball and took it to a new level:
"...[the North Koreans] even scuttled, apparently, one of their ships. They collided deliberately with a Hyundai merchant ship in the middle of the Indian Ocean. It carried $70 (?) million dollars in insurance. The ship...their ship...collided with the Hyundai ship—this is right in the middle of the run-up to the 2000 summit and the ship, even though it had basically a dent in its bow, it just merely [sic] sank which implies it was exploded. They blew it up and sank it...a great way to collect insurance."
Ah, Google. This powerful, little known tool tells us:
Hyundai pays for tragedy
“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea...and we’re not talking about tens of millions, we’re talking hundreds of millions.” David Asher, oral testimony, April 18, 2007
We gave them back the chicken...is the monkey still scared? Brad Sherman (D-CA), Chairman, House Foreign Affairs Subcommittee on Terrorism, Nonproliferation, and Trade, April 18, 2007
David Asher’s testimony before a joint House subcommittee on April 18 provided considerable entertainment—inadvertent as well as intentional.
It also revealed some things about North Korea, a lot about the Bush administration and David Asher--and gave little reason to be optimistic about U.S. policy in Northeast Asia.
Certainly, the Chinese are wondering if there are any tangible rewards for engaging with the United States on North Korea—beyond serving as a target of U.S. financial coercion—and as result are probably less than enthusiastic about helping us out on Iran.
Asher—who served the coordinator of North Korea Activities Group at State Department from 2001 to 2005 and takes credit for a raft of activities harassing Pyongyang, including the Patriot Act Section 311 action against Banco Delta Asia-- was brought to the hearing by California Republican Ed Royce to provide conservative talking points on North Korea (Asher’s opening statement and subsequent responses can be found after the 1:58 mark in the webcast).
Asher articulated the hard-line view that using Treasury sanctions to force North Korea to abandon its alleged counterfeiting and proliferation-related activities was more important than the Six Party process, stating explicitly that, in his personal opinion,
“I don’t think the North Koreans are going to give us any more than a freeze for compensation”.
And
“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”
And
“We did not design the initiative to give it away.”
And
“Even as a diplomatic act of expediency [returning the BDA funds] strains one’s litmus test of what’s reasonable..."
And
[Returning the funds] is “not a constructive effort”.
Nothing like designing failure into the Six Party process at the start, David.
To help Asher get his point across, Royce framed his questions around Asher’s published statements, making assertions that Asher, naturally, was only too eager to endorse.
As in:
Royce, April 18, 2007:
Referring to allegation of North Korean counterfeiting:
"What would happen if we just decided to implode that regime by responding to an act of economic warfare in a way that embargoed that system?...This is the first time since the second world war that one country has copied another country’s currency..."
David Asher, November 2005:
Under International Law, counterfeiting another nation's currency is an act of causus belli, an act of economic war. No other government has engaged in this act against another government since the Nazis under Hitler.
Royce also had a ready made laugh line to contribute to the tag team entertainment, having mocked the North Korean request for two counterfeit bill detecting machines during the morning testimony.
Asher (who, I’d be willing to bet a jar of kimchi fed Royce the story in the first place), didn’t even wait for a prompt and jumped in himself:
"[North Korea is] interested in obtaining bill detectors so they can improve the quality of their counterfeit...I think it’s likely they’ll be making efforts to counterfeit our new bills which would mean that we’d have redesigned our dollars twice now because of North Korea and we’d have to do it a third time..."
Given the growing doubts swirling around the North Korean counterfeit story (Asher himself twice remarked agitatedly, “some people think we’re making this stuff up...”), I would personally give some credence to the idea that the North Koreans need the machines so they can vet their cash locally, now that having it checked by money center banks like HSBC New York (as BDA did) is apparently no longer possible.
However, the revolting mental image of a leering Kim Jung Il salaciously violating our greenbacks (causus belli, baby!) is central to the conception of North Korea as a rogue actor on the world stage .
Therefore, I expect the Supernote story to be defended to the last ditch.
Asher, a conservative-leaning Japan expert whose career arc has included stints at the American Enterprise Institute and Heritage Foundation as well as the State Department, has built his public career on hyping the criminality of the North Korean regime.
The title of his November 2005 paper, "The North Korean Criminal State, its Ties to Organized Crime, and the Possibility of WMD Proliferation", pretty much says it all in terms of Asher’s conceptual framing of the North Korea issue.
By his formulation, North Korea (or the “Soprano state”, as he refers to it) is, in its essence, criminal and, in any and all conduct of its international activities, is assumed guilty... until proven guilty.
In his oral testimony on April 18, Asher took the argument to the dingbat quadrant.
North Korea is being accused of inflating or manufacturing insurance claims (using “suspiciously” complete and timely documentation) to defraud Lloyd’s names in cases involving $150 million in coverage.
Asher, who was quoted in the article that presumably inspired his remarks, got a little carried away in his testimony, characterizing the proceeds as “pure profit”, disregarding the fact that actual losses such as sinking ferryboats and burning warehouses had occurred, and that the North Korean insurance company had to pay for the reinsurance it acquired on the London market.
Then he grabbed the ball and took it to a new level:
"...[the North Koreans] even scuttled, apparently, one of their ships. They collided deliberately with a Hyundai merchant ship in the middle of the Indian Ocean. It carried $70 (?) million dollars in insurance. The ship...their ship...collided with the Hyundai ship—this is right in the middle of the run-up to the 2000 summit and the ship, even though it had basically a dent in its bow, it just merely [sic] sank which implies it was exploded. They blew it up and sank it...a great way to collect insurance."
Ah, Google. This powerful, little known tool tells us:
Hyundai pays for tragedy
A compensation payment of US$6m has been made by Hyundai Group for the sinking of the North Korean bulker Manpok in March last year. A collision between the 4,411 teu Hyundai Duke and the 15,193 dwt Manpok, carrying a cargo of cement at the time, resulted in the loss of 37 lives aboard the bulk carrier, which sank within moments after the incident 500 miles from Colombo, Sri Lanka. Only two crew were found and rescued by the 1992-built box ship. In a statement, Hyundai said that insurance firms representing both the company and the North Korean government, who owned the Manpok, had reached an agreement on the amount of compensation to be paid. The circumstances of the collision have been surrounded by controversy since it happened, with reports from the Hyundai Duke stating that the Manpok cut across its bow denied by the North Korean government, who claim that the container ship had been shadowing the bulker.
The Hyundai Duke, by the way, is a 52,000 ton behemoth. It, not the Manpok, sustained minor damage to its bow. The Manpok, as befits a little bulk carrier struck either on the side or stern by a vessel at least 3 times larger steaming at 25 knots, sank like a rock, with all but two of its crew perishing.
As to the insurance settlement, the Korea Times reported:
Amid rescue operations for the missing North Korean seamen, two insurance experts have been dispatched to Colombo, Sri Lanka to investigate the cause of Wednesday's boat collision, said a spokesman for Hyundai Merchant Marine Co. (HMM) yesterday.The spokesman said that one of the two is a Korean marine surveyor appointed by Hyundai Maritime and Fire Insurance Co. and the other is a British surveyor dispatched by the London-based Britannia P&I (Protection and Indemnity) Club. The Hyundai Duke, which collided with a North Korean freighter in the Indian Ocean, is insured by Britannia P&I Club and Hyundai Maritime and Fire Co.
...
The Hyundai Duke, by the way, is a 52,000 ton behemoth. It, not the Manpok, sustained minor damage to its bow. The Manpok, as befits a little bulk carrier struck either on the side or stern by a vessel at least 3 times larger steaming at 25 knots, sank like a rock, with all but two of its crew perishing.
As to the insurance settlement, the Korea Times reported:
Amid rescue operations for the missing North Korean seamen, two insurance experts have been dispatched to Colombo, Sri Lanka to investigate the cause of Wednesday's boat collision, said a spokesman for Hyundai Merchant Marine Co. (HMM) yesterday.The spokesman said that one of the two is a Korean marine surveyor appointed by Hyundai Maritime and Fire Insurance Co. and the other is a British surveyor dispatched by the London-based Britannia P&I (Protection and Indemnity) Club. The Hyundai Duke, which collided with a North Korean freighter in the Indian Ocean, is insured by Britannia P&I Club and Hyundai Maritime and Fire Co.
...
Yoo said that in the case of HMM, Britannia will cover the human losses from the collision, with Hyundai Maritime and Fire Insurance taking full responsible for all damages to the vessels."When the final report comes out, then we will decide on whether we will compensate for the physical and human losses of North Korean seamen purely from the humanitarian point of view," Yoo said. (Kang Seok-jae, Insurance experts sent to Sri Lanka to investigate cause of boat collision, THE KOREA HERALD, April 3, 1999)
Did the captain of the Manpok steer his boat in front of a South Korean container vessel and then go the extra mile and blow up his ship (with its high value declared cargo of cement, for Chrissakes) and his crew after the crash just to be sure to slake his master’s kleptocratic lust for insurance company gold?
Or is David Asher a dingbat?
I guess this is why these guys prefer not to testify under oath.
There are a few conclusions that can be drawn, beyond the observation that David Asher is sloppy and irresponsible in his testimony before Congress.
First, Mr. Asher is still partying like it’s 2002, when the U.S. (or at least Colin Powell) had the credibility to accuse Saddam Hussein of anything and everything under the sun and when Saddam tried to clear himself, Donald Rumsfeld could harrumph “absence of evidence is not evidence of absence.”
That *ahem* ship has sailed, David. Or sunk.
The hardliners will have to do better than Asher’s junior G-man tales of running stings with fake weddings against Chinese triads to interdict small quantities of NORK counterfeit currency, cigarettes, Viagra, and meth...or easily debunked stories about extravagant suicidal insurance frauds...to make their case about the dangerously criminal character of North Korean regime.
Otherwise, the North Korean effort will be tainted by the same perception of cherrypicking, mendacity, and special pleading that is the enduring legacy of America’s Iraq intelligence.
Asher’s testimony makes one wonder about the quality of our dossiers, the honesty of our representations, and the validity and effectiveness of our tactics.
In this context, I found it most interesting that Asher brought up the issue of the 2000 summit “cash for peace” bribe.
South Korea’s prime minister at the time, Kim Dae Jung, has admitted to passing US$100 million to North Korea to facilitate the historic North-South summit (and Kim’s Nobel Prize).
Hyundai Asan, the intermediary, also passed on another US$400 million, either to smooth the way for its own business plans for North Korea or on behalf of the government in an additional unacknowledged payoff.
The financing is made rather murky by the fact that Kim Dae Jung was apparently joined at the hip with the particular chaebol faction running Hyundai Asan, and unleashed a torrent of $3 billion in government and private loans—to prop Hyundai up in the liquidity crunch following the Asian financial crisis, to smooth the way for his summit, and allegedly, to create a campaign slush fund for certain politicians and provide graft for some well-compensated political fixers.
All one can say is, the 2000 summit was very good for Kim Jung Il.
And if Kim spent the $500 million to develop his nuclear deterrent instead of blowing it on cars, cognac, and Swiss bank accounts, he probably considers it the best $500 million he ever spent.
It looks like that money made it to North Korea via Macau and it looks like that really annoys David Asher:
"...this may sound a little bit exaggerated but the South Korean government alone poured something on the order of $500 million dollars in bribes in order to obtain the 2000 summit and they investigated this...it’s been prosecuted in their courts...in the banks in Macau...in banks accounts which were--we would assume were—controlled by Kim Jung Il, that’s certainly what they assessed."
Grousing about purported income from illicit activities is one thing.
But Asher’s annoyance over Macau’s role in the summit payoff—a piece of checkbook diplomacy that violated plenty of South Korean laws but involved no illicit activity by North Korea—must be traced to the fact that Kim Jung Il got half a billion legal dollars out of it.
The summit bribe must hang like a dark cloud over hardline efforts to isolate, destabilize, and perhaps topple the North Korean regime through financial pressure.
What’s the point of all this time, work, and vexation of trying to financially isolate Pyongyang if South Korean business and government can just write North Korea some big checks any time Kim Jung Il feels backed into a corner and decides to trade some concessions for cash?
Perhaps one objective of the whole Macau brouhaha was to have a chilling effect on checkbook diplomacy, by making the Pyongyang and Seoul anxious that America might drop the hammer on some Macau bank just when it’s got a huge payoff from Hyundai sitting in a North Korean account.
An unexamined by-product of this initiative might be resentment by South Korean government of unilateral and coercive US efforts to pre-empt checkbook diplomacy, a prudent measure that I imagine is closer to Seoul’s diplomatic strategy than trying to kick Pyongyang’s financial can all over Asia.
Asher seems intent upon poisoning the well for State Department’s diplomatic initiatives, not only for North Korea, but also for Macau, China, and, by extension, Iran, with his relentless boasting about the Patriot Act Section 311 sanctions.
In his oral testimony (1:57), Asher stated:
"The Illicit Activities Initiative prominently involved the use of several—the development of the—conceptualization of the use of several of the tools you’re discussing today including USA Patriot Act Section 311. We worked hand in glove with the Treasury Department to apply and plan to apply against North Korea, and after a time of deep research we came to conclude that one of the best spots was in Macau against Banco Delta Asia."
Trouble is, that makes this March 2006 press release from the State Department look kinda like a lie...
Treasury Briefs North Korea on U.S. Financial System Protections
Regulatory action against Macau bank not meant as sanction on North Korea
...
The Treasury Department stressed that the Section 311 action against BDA was not intended as a sanction against North Korea and should be considered matter completely separate from the Six-Party Talks, the ongoing negotiations on nuclear programs on the Korean Peninsula that involve the United States, North Korea, South Korea, China, Japan and Russia.
Asher’s statement raises a raft of questions, such as, if the BDA action was truly directed against North Korea (which, I think, most people believed at the time, despite Treasury’s protestations), why wasn’t it better coordinated with the Six Party talks?
In other words, why did we announce this sanction at the same time that North Koreans had announced a return to the Six Party Talks, thereby giving them a reason to walk out and, apparently...
...convince them that they would get a lot further in their negotiations with the United States if they came back to the talks armed with an atomic bomb, instead of simply enveloped in warm feelings about American good faith and reasonableness?
Awkward...
I’m sure David Asher doesn’t want to go down in history as one of the fathers of Kim Jung Il’s atomic bomb...
...or, perhaps, Iran’s.
Which is the way it might go down, if Asher’s efforts to tangle Macau and the PRC in the Patriot Act web succeed.
Growing out of the premise that North Korea was essentially a criminal state, since Macau was handling North Korean money—and had the presumption to assert that the transactions were legal--well then, Macau had a problem, too:
"DPRK had for decades enjoyed a protected relationship with Macau’s government and many of the business leaders and political leaders that reached far beyond Banco Delta Asia. Not only was Macau a global center for North Korean proliferation, and for illicit activities, it was also a central node for managing the...kleptocratic finances of Kim Jung Il."
Strong words. And there is, of course, more.
Such as Asher’s statement quoted at the top of the article:
“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea...and we’re not talking about tens of millions, we’re talking hundreds of millions.”
The implication being, if China refused to share the US assumption that North Korean funds were illicit and act and investigate accordingly, Chinese banks would become subject to US sanctions.
So the action against Banco Delta Asia wasn’t just a legal action against a dirty bank, or a targeted sanction against illicit and WMD-complicit sectors of the North Korean economy.
It was a broad embargo, orchestrated globally, with threats of financial sanctions against the entire North Korean economy and regime, and also against North Korea’s enablers in Macau...and North Korea’s patron, the People’s Republic of China.
That’s a pretty big deal.
Most people have such an ingrained revulsion for Kim Jung Il’s regime that any action that sticks a thumb in Dear Leader’s eye is welcomed, no matter what the implications for US credibility as an ally, a negotiating partner, enforcer of international good-guy norms, or even the superpower that cares about keeping its facts or just its stories straight.
But China is a different matter, and I wouldn’t be surprised if concern over Asher’s reckless enthusiasm for strongarming Macau and China as part of his anti-North Korea campaign contributed to his departure from the State Department in 2005.
It would be easily to dismiss Asher’s anti-DPRK initiative as Axis of Evil nostalgia and hardliner overreach run amok, now that the realists are supposedly running North Korea policy and Asher is free to babble about his dubious achievements and undeniable ambitions while ensconced at a right-wing think tank.
Except for one thing...
...the State Department realists supposedly running our North Korea policy have been unable to get beyond the BDA cul de sac, even after the general exodus of Asher and other hardliners from State.
As far as can be seen, the problem is not with the Section 311 decision that has cut BDA off from the US financial system.
The problem seems to be that the US government is still threatening additional sanctions against non-US banks if they handle the $25 million.
It doesn’t seem plausible, given the mare’s nest that l’affaire BDA has become, that Treasury needs to preserve the credibility of its campaign against Iran by taking further unannounced action to tie up the North Korean funds and make a bad situation even more embarrassing.
Instead, the ongoing imbroglio implies that the Bush administration cannot move beyond its predilection for secretive, deceptive, and coercive unilateralism and dreams of regime change.
It also indicates that Washington’s willingness to engage China as a global security partner is subject to so many unspoken caveats (like “we’ll cut Bank of China off from the US financial system if you don’t go along with us on North Korea”) that it is virtually meaningless.
Taken together, that’s not good news for a successful, global united front against Iran.
Let’s hope that the last two years of Bush administration diplomacy isn’t remembered as David Asher’s dead end.
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