By Charles Scanlon
BBC News, Seoul
The US is cracking down on what it terms North Korea's criminal activities.
Washington accuses North Korea of circulating fake greenbacks
American secret service agents have been in the South Korean capital, Seoul, on the trail of the famed "supernotes" - expertly forged hundred dollar bills that the US says are made by the North Korean government.
More supernotes have been turning up in South Korea and the quality is getting better all the time - a recent report for the US Congress estimated that $45m of the notes are in circulation worldwide.
South Korean police this month uncovered a haul of 700 fake $100 bills.
"They're about 95% identical to the real thing," said Suh Tae-suk, South Korea's leading expert on counterfeit currency, "but there's a slight difference in the texture of the paper and the make-up of the chemicals, so experts can still spot them."
Most of the notes are brought in from China; and organised crime networks are reported to be distributing them in Asia, and through Russia into Europe. American officials say they have no doubt the notes are manufactured in North Korea.
Last September, the US identified Banco Delta Asia in the Chinese territory of Macau as an institution of "primary money laundering concern" under the Patriot Act.
That move had a snowball effect. Other banks followed suit and cut their links with North Korea.
"The DPRK [North Korea] needs to understand that as long as it's producing nuclear weapons we're going to have a real close look at its finances... that's just life in the big city," Assistant Secretary of State, Christopher Hill, said on a recent visit to Seoul.
North Korea denies the charges of counterfeiting and has been boycotting talks on its nuclear weapons programme in protest against the US financial squeeze.
It says it will step up the production of its nuclear "deterrent" unless the US lifts its sanctions.
High-level North Korean defectors back up some of Washington's claims that Pyongyang is involved in counterfeiting and other illicit activities.
They say that going after the money will strike a painful blow at the leader Kim Jong-il and could weaken his grip on power.
One former North Korean diplomat painted a picture of cash-strapped embassies that are expected to finance themselves, and of diplomats racking their brains for new ways to raise money.
He asked not to be identified because he had left family behind in Pyongyang, who he now considers hostages of the regime.
"We were each given a quota of foreign currency that we had to raise each year to show our loyalty to the state," he explained. "I was expected to produce $100,000 a year and remit it to a bank in China".
The former diplomat, who has lived in Seoul since his defection, said a superior once handed him fake US bank notes, mixed in with the real thing, to conduct a trade deal in South East Asia.
He said he raised money from kick-backs on trade deals, but would also smuggle gold and "currency by the kilogramme" in diplomatic bags.
And there were other scams: Trading in tax-free cars, smuggling liquor into Islamic countries, and trafficking horns and ivory out of Africa to sell to Chinese businessmen.
At the centre of much of the trade is North Korea's top-secret Bureau 39, which defectors say was set up in the 1970s to create a personal slush fund for Kim Jong-il.
"Bureau 39 has a monopoly on earning foreign currency," said Kim Dok-hong, who worked for 17 years alongside the bureau's agents at the North Korean Workers' Party Central Committee.
Christopher Hill says N Korea must expect a probe into its activities
Mr Kim was accompanied by two plainclothes police when we met. He has been under constant guard since his high profile defection in 1997.
"Bureau 39 has a monopoly of trade in high-quality agricultural products like pine mushrooms and red ginseng. They also control the drug trade. Opium is produced across the country and then refined into heroin. Their other main role was distributing the supernotes," he said.
Mr Kim's own role was to proselytise North Korea's ultra-nationalist philosophy of Juche.
He was sent to Beijing to pose as the head of a trading company, where he was also expected to raise money for Kim Jong-il.
He came up with a lucrative scheme to arrange meetings between rich South Koreans and family members in North Korea.
"Closing the bank accounts is the way to bring down Kim Jong-il", concluded Mr Kim.
The US says it is trying to enforce the law and protect its own currency. But analysts say it has also found a highly effective instrument to exert pressure on the North Korean leadership.