Probe Traces Global Reach of Counterfeiting Ring

By Peter Finn
Washington Post Foreign Service
Sunday, November 26, 2006

TBILISI, Georgia -- The U.S. Secret Service and Georgian police are investigating an international counterfeiting operation that stretches from a separatist enclave in this former Soviet republic to Maryland, where fake $100 bills have been seized, according to senior officials and investigators here. The allegations are supported by American diplomats, U.S. court documents and a recent report to Congress.

From a printing press in South Ossetia, a sliver of land with no formally recognized government, more than $20 million in the fake bills has been transported to Israel and the United States, according to investigators. The counterfeit $100 notes have also surfaced in Georgia and Russia, officials said.

The fake notes have been passed at numerous businesses throughout the Baltimore area and have also surfaced in New York, Newark and Buffalo, according to court papers and the joint report to Congress by the Secret Service, the Treasury Department and the Federal Reserve. The report, issued in September, also said the number of counterfeit notes produced in this region and passed in the United States has "increased dramatically" in recent years.

The presence in South Ossetia of an international counterfeiting ring capable of producing thousands of bills, according to investigators, is a stark example of how organized crime has flourished, sometimes through the neglect or alleged involvement of officials, in areas of the former Soviet Union whose territorial status remains unresolved 15 years after the fall of communism.

"Counterfeiting is not the only headache for us if you're talking about criminality in South Ossetia," Ekaterine Zguladze, Georgia's deputy interior minister, said in an interview. "You also have drug trafficking, weapons trafficking, robbery, kidnapping. And our opportunity to fight criminals in there is very limited."

A spokesman for the U.S. Secret Service, in an e-mail message, declined to discuss the case "due to the sensitivities of the ongoing investigations and political considerations." But the joint report to Congress said the Secret Service "is currently investigating a scheme with ties to suspects in Israel, Russia, and the Republic of Georgia to produce counterfeit U.S. currency. The U.S. Secret Service has reason to believe this family of counterfeit notes is being produced in the Caucasus region," as the mountainous area encompassing parts of southern Russia and Georgia is called.

U.S. diplomats confirmed that the location was South Ossetia.

The cash from the Caucasus, as with other lines of counterfeit dollars believed to be from the same source, was given its own code by the Secret Service: c-21558, according to the joint report to Congress.

"Since the c-21558 family's first detection in March 1999 the total counterfeit activity (passed and seized notes) has exceeded $23 million," according to the report. In 2005, the Secret Service detected $5.3 million from the Caucasus ring, up from $1.5 million in 2003, the report said.

That compares to the approximately $2.8 million in "supernotes" linked to North Korea that the agency says it confiscates, on average, each year. The production of supernotes, so called for their quality, has become a major diplomatic issue between the United States and the government of Kim Jong Il.

Georgian investigators said the fake bills from South Ossetia are made with special ink and paper and have watermarks, different serial numbers and other features that allow them to be easily passed off as real. "They are of very high quality," Konstantin Kemularia, secretary of Georgia's National Security Council, said in an interview.

The counterfeiting operation in the region has become another irritant in U.S. relations with Russia, which acts, in effect, as a protector for South Ossetia; Russian peacekeeping troops patrol the breakaway enclave, and most of its residents have been issued Russian passports.

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