What effect do North Korean supernotes still have on U.S. payments?

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Over the past two decades, the U.S. has accused North Korea of making some of the best counterfeit money in the world. However, since 2008, these counterfeits have seemingly disappeared — but some experts say this might be a sign that the country's counterfeiting skills have gotten too good to detect.

The so-called supernote “is a highly deceptive counterfeit note and it’s hard to find,” said Elena Quercioli, assistant professor of economics at the University of Texas Rio Grande Valley. In her paper, “Counterfeit Money,” she suggests that as the U.S. gets better at catching supernotes, North Korea could also be getting better at printing them.

“It’s sort of a game of cat-and-mouse between criminals and the government,” she said.

Since the risk of handling counterfeit notes is high — the Secret Service does not reimburse people who discover fake currency — many businesses could find comfort in accepting digital alternatives such as cards and mobile wallets.

It’s generally accepted that the North Korean government is a source of counterfeit U.S. $100 bills, and Quercioli said the production of these bills could increase as a response to U.N. sanctions.

“From an economics point of view, the strain on North Korea is huge,” she said. “So it would make sense that they would continue conducting illegal activities, but I don’t know for sure.”

Julia McMurray, public affairs specialist with U.S. Secret Service, said less than one percent of the total counterfeit received in 2017 was from North Korea, and says these notes are filtering out of the economy.

When someone stumbles upon a counterfeit bill, they’re usually the ones to bear the consequences. U.S. law requires anyone who receives fake bills through payment to give them to the Secret Service. Otherwise, the person who discovers the bill is committing a crime of uttering — the misdemeanor of knowingly passing a forged document onto someone else.

Quercioli says uttering is almost never prosecuted by the Secret Service, but intuitively it puts at risk private companies far more than individuals since there are more witnesses, a possible paper trail and more at stake.

Supernotes are now more of a diplomatic issue for commercial banking, she said.

With recent sanctions on North Korea, Quercioli said that the nation may be under such strain that it returns to producing supernotes — assuming the practice has stopped. But there is no way to know for sure.

The digital alternative
Rob Enderle, tech analyst with the Enderle Group, was researching blockchain security for banks and the slow transferring of currency to digital cash when he came across banks’ proactive measures against the counterfeit money.

Supernotes "became one of the reasons why banks suddenly got much more concerned about much more secure transactions,” Enderle said. “And moving away more aggressively from paper currency to digital currency altogether.”

In a paper by Dick Nanto with the Congressional Research Service, Nanto said since 2009, $45 million had been detected in the U.S. Nanto also said North Korea has earned $15 to $25 million per year over several years from counterfeiting. The cash circulates via its border with China to pay for food or weapons, Enderle said.

“Now with the latest sanctions, China is getting pissed,” he said. “North Korea has embarrassed them now a series of times. China is being much less forgiving, but they are very concerned about collapsing North Korea’s economy.”

Enderle estimates the amount of counterfeit money being transferred from North Korea to the U.S. is steep, printed from the same machines that the U.S. uses.

“It’s significant enough to the U.S. government, so that means its millions or maybe hundreds of millions,” he said. “So it’s a lot.”

Education and detection
Alex Reichmann is the CEO of itestcash.com, which sells counterfeit detector machines.

He said his customers wouldn’t really know if they’re carrying supernotes, but has some tips for counterfeit money in general. His customers are mostly retailers, restaurant owners and some banks.

Reichmann recommends using machines he sells to check for ultraviolet security marks. This goes beyond the performance of the pens that only test the quality of the paper the bills are printed on. But there's also something to be said for the human touch.

“One tip I always give is you can always reference a bill with a different bill, so if you’ve got a $20 and something looks or feels off you can compare it to another bill, compare the feel of the bill, compare how the serial numbers look,” Reichmann said.

When a counterfeit bill is discovered, it’s important to report to the Secret Service as it gives the agency valuable data to track the bills to their source.

The U.S. Secret Service and the U.S. Currency Education Program can also help.

“The best way to prevent becoming a victim of counterfeit is the same for an individual as it is for a business or a bank,” McMurray said. “It is to become educated in the carefully designed and integrated security features within U.S. currency.”

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Cash Digital payments Mobile wallets Fraud detection North Korea U.S.