Kevin G. Hall’s Counterfeit Journalism (Updated)

[Update 28 Jan 08:   I’m going to keep flogging this story until I’ve corrected the record.  A reader (thank you)  directs me to this Bloomberg story by none other than Bradley K. Martin and Hideko Takayama.  This one is second only to Steven Mihm’s  for  the quality of its  investigative reporting.  If you’ve read Martin’s book, you’ll  already know  that he’s no neocon collapsist, to say the least.   

Takayama and Martin interviewed Yoshihide Matsumura, “whose Matsumura Technology Co. supplies counterfeit-detection machinery to Japan’s post offices, banks and law enforcement agencies.”   Matsumura extingishes whatever remained of Klaus Bender’s  credibility by pointing to a rather significant fact Bender missed:

Some say the North Koreans aren’t capable of producing such high-quality fakes. German author Klaus W. Bender wrote in the Frankfurter Algemeine Zeitung newspaper in January that North Korea’s machinery from Switzerland-based KBA-Giori SA, “is completely antiquated, unsuitable for printing the ‘supernote.”’ Giori machines are used to print real dollars.

Matsumura disagrees. “I know the printing process and I have seen Giori machinery,” he said. “It doesn’t matter that it’s old. Maintenance is what counts.”   In Matsumura’s analysis, North Korea’s own notes — which he called far superior in printing technique to yuan notes produced in neighboring China — most likely are made using Giori machinery for about 80 percent of the process. Additional machinery is needed to print the won notes because they are more colorful than U.S. bills, he said.   [Hideko Takayama and Bradley K. Martin; emphasis mine]

I  might speculate  about how  Bender  got this critical fact wrong.  North Korea actually  uses three different types of currency.  Bender may have gotten his hands on some of the worthless hoi-polloi scrip.  Not that careful research tends to be a hallmark of kook conspiracy theorists, or the journalists who try to pass them off as serious news sources.

Martin and Takayama then cite direct and circumstantial evidence linking North Korea to the distribution of supernotes:

Matsumura, whose Tokyo-based company started in the counterfeit-detection business around the time of the 1988 Seoul Olympics, said North Korea’s early efforts were often seized in quantity from diplomats and trade officials. Japanese authorities continued to confiscate counterfeits in shipments from Wonsan, North Korea, until they banned the entrance of North Korean ships late last year.

And this:

Matsumura says the printing techniques and ink used on the most recent fake $100 bills are identical to those used in producing North Korea’s own 100-won bill.

“North Korea has used front companies to purchase ink for currencies,” Matsumura said. “Any country that makes automobile paint can make the ink.” The volume needed for a major print run could be transported in a single large paint can, he said, estimating the cost of producing each fake note at around four U.S. cents.

Matsumura, like Mihm, points to a printing house in  Pyongsong as the source of the supernote.  So, incidentally does Kim Il Nam, a former North Korean diplomat who relates his experience getting caught passing supernotes (inadvertently, he says).  End update.]

[Original post date 14 Jan 08; updated and bumped 25 Jan 08; scroll down]

Kevin G. Hall is a reporter for McClatchey News Service, formerly known as Knight-Ridder, which for many years has been the Dr. Pepper of the wire services.  Hall breathlessly  reports that he has concluded a  “10-month” investigation on “four continents” that  has  called into question whether  North Korea counterfeited U.S. currency.  DPRK Forum  links to this eight-paragraph one-pager.  After reading it, I thought Hall must be holding back his best stuff, so I  kept looking. 

A few clicks later, I found this more detailed version, and if that’s all there is, I  pronounce Kevin G. Hall the single least competent American journalist whose work I have ever read, a man who owes McClatchey ten months of back  wages.   Hall rests this painstaking  piece of work on four main points: 

1.  The Swiss Federal Police question the story.

2.   Hall  questions the credibility of  the defectors  who were sources for previous stories.

3.  The U.S. government wouldn’t tell Hall about the details of its investigation.

4.  Macau professes its innocence.

It took one nobody blogger a few hours of one day off to moot or refute each of these points.   Eventually,  Hall accuses the CIA of being  behind everything, but doesn’t cite  one shred of evidence to support this claim, and in fact never  quite musters  the  sac  to make it directly.   Let’s take Hall’s points in inverse order.

4.  Macau:  Supernotes?  Us?

Buried deep within Hall’s story is this self-fisking statement: 

McClatchy obtained an audit by the international accounting firm Ernst & Young on behalf of the Macau government that indicated only a single case of counterfeit notes was found at Banco Delta Asia. This was in 1994, when the bank found the notes and alerted authorities.  And those fakes did not originate in North Korea.  [Kevin G. Hall, McClatchey]

Emphasis mine.  That’s actually Hall’s best argument, but  he doesn’t  mention the evidence to the contrary.  Hall, whose main argument  depends on drawing inferences  from what the government wouldn’t tell him,  apparently never bothered to look in  the Federal Register.   Here’s one graf from Treasury’s Final Rule on Banco Delta Asia:

The bank did not conduct due diligence to attempt to verify the source of the unusually large currence deposits made involving these [North Korean] clients….  Despite widely reported counterfeiting concerns, the bank provided a discount as an incentive to a high-risk North Korean-related bulk currency depositor to encourage its  continued use of the bank, and continued to accept deposits from that customer even after it had knowledge that another institution had rejected those transactions.  [72 Fed. Reg. 12,730, Mar. 19, 2007]

They can’t both be right.  So how would  Ernst & Young know whether all of the currency that had passed through BDA was legit  unless BDA had reported it as counterfeit?  If,  as Treasury alleges,  BDA was turning a blind eye to counterfeiting, how would  the Macau authorities know how many supernotes it had  passed?  And what incentive would Macau have to out them?   Let’s remember that BDA was one of  Macau’s largest banks,  and that its primary shareholder, Stanley Au, was recently a candidate for city executive.   Au lost to another shady banker, from which I infer that looking the other way at suspicious transactions is accepted behavior in Macau.

[Update, 25 Jan 08:   The new  Levin  Subcommittee report on  North Korea’s scamming of the UN Development program contains  new evidence  refuting Hall’s reporting.   Hall characterizes the Ernst & Young report as vindicating BDA.  Either Hall never got his hands on the report or didn’t read the same report the Subcommittee read; either way, his quote is a deceptive parsing of what E&Y actually said. 

I can’t find the whole E&Y report myself, but  here’s how it characterizes the use of one North Korean account at BDA, held by IFTJ, a front for the North Korean Foreign Trade Bank (FTJ).  By North Korea’s own admission, the account was used for the deceptive and surreptitious movement of funds between Pyongyang and its overseas missions, through an account that was supposed to be used for UN funds only:

Once BDA was listed by the Treasury Department, the Macanese Monetary Authority commissioned Ernst & Young to conduct a lengthy review of the bank’s procedures.  Ernst & Young found that the bank had poor document control with regard to IFTJ in particular, and a bank employee stated that the bank conducted little review of IFTJ transactions because of its longstanding relationship with the bank.  Ernst & Young concluded that FTB and IFTJ remitted millions of Dollars and Euros between their accounts at Banco Delta Asia.  Upon reviewing the remittances, Ernst & Young classified the transfers involving FTB and IFTJ at BDA as carrying “the highest risk of money laundering” of the transactions reviewed at the bank.  Compounding this risk, BDA did not provide Ernst & Young with any commercial justification or information regarding these transactions. Moreover, Ernst & Young concluded that BDA lacked adequate record keeping, which prevented it from determining both the total value of the remittances and their direction and destination. 

All of these accounts were at Banco Delta Asia, which  exercised  little oversight over its North Korean transactions.  And did I mention that some of the  cash that North Korea “withdrew” from its BDA accounts  while managing the UN’s money turned out to be counterfeit?  That’s right:

72. In the course of the audit UNDP staff alleged that the UNDP DPRK country offce had in its possession $3,500 of counterfeit United States currency.  UNDP indicated to the Board that “”¦in agreement with US authorities, the supected counterfeit dollars were handed over to the US authorities on 20 March 2007 in New York “¦”   The Board did not investigate this matter further as it does not form part of the Board’s mandate. 

Too bad.  Here is how Ambassador Mark Wallace described the scam in a 2007 letter to the UNDP:

As you are further aware UNDP frequently sponsored international travel for DPRK offcials. In a varety of intances UNDP’s locally hired employees (seconded from the DPRK government), appears to have “withdrawn” counterfeit U.S. currency from UNDP’s account at the DPRK’s Foreign Trade Bank (FTB) for such travel even after UNDP purportedly stopped using U.S. dollars in the DPRK country program in 2002.  [Page 121]

That’s certainly strong circumstantial evidence that North Korea was passing counterfeit currency through BDA.  It does not say that the counterfeits were supernotes or say where they were manufactured, but it certainly tells us a lot  about BDA, North Korea, and counterfeit currency that Kevin Hall chose to leave out of his story.   If the Ambassador and the UN whistleblower are relating these facts accurately,  this is  a direct link between North Korea’s accounts at BDA and counterfeit U.S. currency, in this case,  being pawned off on the UN.  It would also  refute BDA’s  defense that it could not have fenced counterfeit money for the North Koreans because HSBC checked its “large” deposits of  currency for counterfeits (see comments).   End update]

3:  The Secret Service won’t tell me its secrets.  

If it’s not obvious why the Secret Service might not want to share its intelligence sources and methods with a journalist who wants to print them where you, I, and Kim Jong Il will be able to read about all of them, you may just be one of those people who doesn’t think the government should have any secrets at all.  For a certain class of journalist, the power to print a story like this imbues the writer with great extortionate power:  give me my exclusive or I’ll write that you’re a bunch of frauds.  That may not have been Hall’s intention; other journalists covered this story far better than Hall years ago.  But when he intentionally confuses  denying him access to evidence with proof of its falsity, the effect is the same. 

In the same spirit, Hall goes to a number of other sources — from John Bolton to a disgrunted, like-minded ex-State Department  official — and  makes much significance of the fact that they hadn’t seen details of the Supernote investigation, either.  Here, via the Disgruntled One, is Hall’s best shot: 

“I never really saw the intelligence myself to make an independent judgment.  

How … inconclusive!   What Hall never explains is whether these people  should have reviewed  this evidence  in the course of their duties.  As U.N. Ambassador, for example, Bolton’s  interest in  North Korea was passing two resolutions related to its missiles and nuclear weapons.  Not one person who saw, or should have seen, the evidence in detail told Hall that it was bogus.

2:  I don’t believe the defectors.

Next, Hall claims that there is reason to question the credibility of  defectors who told other reporters and government agencies about the Supernote operation.  Hall specifically notes  his reasons to question only one, Kim Dong Shik, whom Hall claims disappeared.   To discredit Kim, Hall even  drags up  a financial  quarrel between Kim and  his roommate, a spurious claim  that tells us nothing about how Kim’s accounts compare to other known evidence (but tells us  plenty about Hall). 

If Kim Dong Shik disappeared from anyone but Hall and his roommate, that’s very understandable.  When you say the things about Kim Jong Il that Kim Dong Shik did, you’d damn well better disappear.   The Supernote story cost  Kim Jong Il a lot of Hennessey and, very nearly, his life.  For a porcine  little stump of a  man,  Kim Jong Il has a very long arm, and if you don’t believe me, just  read about what  happened to Rhee Il-Nam or Choe Deok-Geun  not so long ago.   Kim Dong  Shik’s roommate trouble could also be an example of the difficulty most North Korean defectors  have had  adjusting to life in South Korea. These are things that should not surprise any journalist with any knowledge of North Korea. 

Lastly, Hall finds it significant that Kim Dong Shik couldn’t name Benjamin Franklin.  I don’t.  Leaving aside the question of how abundant U.S. history majors are in North Korea, what is the  possible relevance of this?  By coincidence, it was reported today that  art historians have  finally revealed the name behind history’s most duplicated face.  For that matter, I forgot long ago whose face was on the original version of this.

Hall really means for us to presume, as he does, that all defectors are  liars, and  that the only North  Koreans who  never lie are in Pyongyang.   This is a crude  but fashionable prejudice among apologists for odious regimes.   And of course, not just one North Korean has  survived to  link the North Korean regime to supernotes.  The Daily NK even  sent a correspondent to buy one right from the source. 

1:  The doubts of the Swiss

The  doubts of the Swiss Federal Police are grounded in  jarringly bad logic and  driven by the most basic of bureaucratic instincts:  C.Y.A.   Like Hall, the Swiss whine that the Secret Service hasn’t showed them its information; therefore, the Swiss also  miscast the absence of evidence as evidence of absence.  (Might the evidence be Secret/Noforn?  That would explain that.)  

The  silliest basis for the Swiss conclusion is that the North Koreans —  the people  who built nuclear bombs from scratch — are simple folk,  too quaint and  primitive to do something this sophisticated.

Finally, there is the slightly embarrassing  matter of where North Korea obtained  the key components of  its operation.   The North Koreans bought their green-to-magenta color-shifting ink from … Switzerland.  The  expensive intaglio printing presses?  Also Swiss.  You can imagine plenty of reasons for the Swiss to want to deflect screw-ups on that scale. 

[Update, 25 Jan 08:   I also  contacted David Asher, an expert on North Korea’s illegal activities,  to ask him if he had anything to add to this story.  Asher has not yet given me permission to quote his response, but I can safely say that nothing he said  in any way  undermines the allegation  that North Korea manufactured the Supernote.]

This is  the part where he eats his own head.

In passing, Hall refers to a New York Times article by Stephen Mihm, “No ordinary Counterfeit,” published July 23, 2006.   Mihm’s story is exhaustive in its detail of how North Korea set up its counterfeiting operation and tracking the geneology of the supernote.   For Hall, mentioning Mihm’s piece  is like Paris Hilton posing  next to  Beyonce Knowles:  it just begs unfavorable comparison.  Mihm explains how North Korea obtained highly specialized intaglio printing presses and  optically variable  ink, known as  OVI, in an effort to closely mimic the colors used in the genuine Benjamin.  Then Hall actually brings up the fact that North Korea doesn’t even use intaglio presses (or, we can infer, color-shifting ink) for its own currency.   [See Update of 28 Jan 08; North Korea may actually use this technology for its own currency after all.]   So why  would North Korea have a legitimate reason to buy such expensive equipment?  Remember:  this is a country struggling to feed its  people nuclear weapons programs.  Hall quotes  the Swiss ink supplier:

“We ceased all OVI deliveries (to North Korea) in early 2001, and later in the year all security ink supplies.

By inference, then,  the North Koreans were ordering  OVI before 2001.  What on earth for? 

Another worthwhile read, from Justin Mitchell and Catherine Jiang,  is “Tracking the North Korean Supernote” in the  Asia Sentinel (Hat tip to  GI Korea). 

The only thing missing from Hall’s story is a citation to  our guten freund  Klaus Bender, the Soft Reich nutter who  claims that  the CIA  is printing the supernotes somewhere in suburban DC.   And sure enough:  Hall is peddling that one, too.  I give the CIA’s spokesman points for his response:

“As a matter of course, we don’t comment on such claims, regardless of how ridiculous they might be,” said CIA spokesman Mark Mansfield.  [McClatchey, Kevin Hall]

Neither Bender nor Hall cites a single shred of evidence  to support  this theory, and the entire basis for  it is that, hey,  it could possibly happen (and therefore did?).  Thanks to  Hall story, my wife tells me that Bender’s CIA hallucination has new life  on the Korean internet.  Why do they hate us?   Because unethical journalists like Kevin G. Hall  have nothing better to do than make up shit like this.

Like Hall, I haven’t examined the Secret Service files.  Like Hall, I don’t have a clearance, a need to know, or the authority to impose economic sanctions or  set national policy.  There may even be reasons to doubt the supernote story; it’s just that Hall hasn’t given us any.  Unlike Hall, blind self-hatred isn’t my default position, and  I lack the desperate desire to disbelieve  a story that interferes with the particular policy I happen to prefer.  Yes,  I tend to believe and highlight the worst about North Korea here, but  in the parade of North Korean horrors, counterfeiting  marches far behind  concentration  camps, gas chambers, baby killing,  dope dealing, abductions, extortion, terrorism, and nuclear proliferation.  Still, with North Korea being so prolific  a fount of evil,  I  can’t help but  wonder why some would put their professional reputations on quicksand like this  to  defend their innocence.

Finally,  for those of you  who’d  love nothing more than to  believe the CIA  burned down the Reichstag,  it’s not only the  dollar we’re speaking of here.  North Korean crewmen periodically get caught in possession of counterfeit yen in Japan.   The North Koreans have also been accused of counterfeiting the Thai Baht, the Euro, and  least comprehensibly, the Chinese Yuan.  That may be why both South Korea and China also believe that North Korea is the maker of the supernote.