April 3, 2006

China warns banks against counterfeit US notes

By Lindsay Beck

BEIJING (Reuters) - China's central bank has warned lenders
to be on guard against counterfeit US$100 notes, in a move that
could signal the latest irritant in the relationship between
North Korea and Beijing, its most important ally.

The statement from the People's Bank of China did not
specify the origin of the fake bills, but said they came from
outside China and referred to them as "supernotes" -- the word
the U.S. government uses for the high-quality counterfeit money
it says is printed by North Korea.

"These fake American notes have flowed from outside across
our borders. Criminals attempt to use them for money laundering
activities through smuggling and trafficking," said the notice
on the central bank's Web site.

The Communist governments of China and North Korea are seen
as having a special relationship, with the two Korean War
allies sharing a 1,400-km (850-mile) border and Beijing playing
host to six-nation talks aimed at dismantling Pyongyang's
nuclear programs.

China provides North Korea with about 70 percent of its
oil, and has hosted tours by enigmatic leader Kim Jong-il. But
analysts say Beijing no longer subscribes entirely to a
description of relations as being "as close as lips and teeth."

China is also the biggest victim of the web of illicit
government-directed activities in North Korea that are thought
to be a crucial source of funds keeping its impoverished and
isolated government in power, they say.

The United States has been getting tough on firms it
suspects of aiding Pyongyang's illegal financial activities, in
one case bringing Macau's Banco Delta Asia to its knees after
calling it a "willing pawn" of North Korea. The bank denied the
allegations but cut business with North Korean entities anyway.

"We commend the PBOC for taking steps to protect its
financial system from this type of abuse," Molly Millerwise, an
official at the U.S. Department of Treasury, said in an e-mail.

"Generally speaking, the supernote is a class of
counterfeit note manufactured and distributed by the government
of North Korea."

North Korea denies any wrongdoing and says it cannot return
to the nuclear talks until Washington ends the crackdown on its

The criminal sector may account for 35 to 40 percent of
North Korea's export earnings, scholar David Asher said in a
report published by the Nautilus Institute think-tank.

Others have estimated it earns tens of millions a year
through illegal means and analysts say Pyongyang avoids
legitimate economic activity out of fears it will lead to
political change.