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Macau focus of push on NK activity

By Mike Chinoy
CNN Senior Asia Correspondent

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These fake U.S. notes were seized in the Philippines.

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MACAU, China (CNN) -- The Chinese enclave of Macau is known for its gambling, sex trade and Chinese gangsters, with intrigue and shady deals long part of its landscape.

But now the former Portuguese colony is at the center of an aggressive and expanding campaign targeting illicit activities by North Korea, which has long used this territory as a base of operations.

Next to a sauna and attached to a casino is one of the eight branches of Macau's Banco Delta Asia. Last year, the U.S. government blacklisted the bank, accusing it of laundering money for North Korea. This is a charge the bank denies.

"Banco Delta Asia provided a tolerant environment for illicit North Korean activities," said Daniel Glaser, from the U.S. Treasury Department.

The North Korean companies laundered money and attempted to pass it through the bank, he said.

The fake $100 bills are of such high quality it is almost impossible to distinguish them from the real thing. U.S. officials contend the regime of Kim Jong Il has manufactured and put into circulation tens of millions of these counterfeit bills, labeled supernotes, around the world.

These charges are backed up by the U.S. secret service, which says it has made a connection between the highly deceptive counterfeit notes and North Korea.

"Our investigation has revealed that the supernote continues to be produced and distributed from sources operating out of North Korea," said Michael Merritt, from the U.S. Secret Service.

Dirty deals

At the heart of North Korea's illicit operations, U.S. officials and law enforcement sources say, is the Zokwang trading company. It is staffed by North Koreans with diplomatic passports. In the mid 1990s, several Zokwang officials were arrested by Macau police on suspicion of passing fake U.S. bills, some of which were traced to Banco Delta Asia.

The accused North Koreans used their diplomatic status to leave Macau without ever going on trial. But the U.S. government is convinced the counterfeiting continued. When the sanctions against Banco Delta Asia were announced, there was a run on the bank, with thousands lining up to get their cash out.

The U.S. move and the resulting panic led the Macau authorities to take control of the bank and freeze dozens of accounts linked to North Korea worth more than $20 million.

"They have already stopped all transactions of those North Korean accounts," said Deborah Ng from the Macau Monetary Authority.

American officials say Pyongyang's dirty deals go well beyond counterfeiting U.S. dollars.

"It's amazing the quality of counterfeit cigarettes being produced in North Korea. Counterfeit Viagra -- major market. These items are providing income that goes right to the top," says David Asher, a former state department official.

Until recently, Asher was in charge of what the Bush administration called its Illicit Activities Initiative, which last year also led to Atlantic City, New Jersey. Like Macau, it is known for its casinos and its waterfront.

Fake wedding

It is in Atlantic City that a joint FBI and secret service investigation called Royal Charm reached its climax. Chinese gangsters operating in America but linked to North Korea came under the spotlight.

"There was a Chinese, ethnic-Chinese-organized crime group existing on the East Coast and the West Coast that was able to procure large amounts of counterfeit U.S. currency, the so-called supernote," said Asher.

Asher says it was likely the suspects procured these extremely high quality notes on the Chinese border. But the notes have been forensically linked to North Korea, and officials suspect North Koreans were involved in the network.

In a bid to crack down on the crime ring, the FBI created a fake Mafia front family to penetrate the Asian gangs and invited the suspects to Atlantic City.

"It was amazing how many crooks showed up to this wedding wearing tuxedos, bringing gold Rolex watches and even narcotics for the bride and groom, who they had no idea were undercover agents for the Federal Bureau of Investigation," said Asher.

The rouse proved to be a success.

"They thought it was going to be a wedding. They thought transport was going to be provided for them. It was provided for them, by agents of the FBI, who took them not to a wedding, but to jail," said Charles McKenna, assistant U.S. district attorney in New Jersey.

Irish connection

As the charges made their way through the courts, the U.S. investigation led to the battle-scarred streets of Northern Ireland. The U.S. Justice Department indicted a long-time senior figure in the IRA, Sean Garland, on charges of distributing North Korean-made supernotes.

"He was tied to several KGB operatives as well as to North Korean intelligence agents who were providing the notes that he was then distributing throughout Europe and Eastern Europe," said Asher.

Garland, who is now in the Irish Republic, insisted he is innocent of the counterfeiting charge.

For its part, the government of North Korea has also vehemently denied the allegations. But the U.S. moves have already had a huge diplomatic impact.

Pyongyang says it won't return to six party talks on its nuclear program unless its money at Banco Delta Asia is unfrozen and the United States halts the financial pressure.

American officials say Pyongyang's agitated response shows the pressure is hitting home.

"I think the targeted actions that we've taken have had a tremendous effect on the ability of North Korea to engage in illicit activity around the world. I think it's been a wake-up call for the international community," said Glaser.

Back in Macau, the Zokwang Trading Company has shut its doors and disappeared from view. Rumor has it the company has relocated across the border in mainland China, but there is no way to confirm the secretive company's whereabouts or activities.

Meanwhile, Banco Delta Asia is struggling to stay afloat as international financial institutions across the globe, under relentless American pressure, cut their ties to North Korea.

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