Probe Traces Global Reach of Counterfeiting Ring

"We have expressed our concerns on this subject to both the Russians and the South Ossetians," said a U.S. State Department official who did not have approval to speak on the record. "This problem is one of many that underscore the urgent need for resolution of the conflict in South Ossetia and the threat it poses to security and border control, among other consequences."

Russia's Interior Ministry, which is responsible for fighting counterfeiting, did not respond to requests for comment. Officials in South Ossetia, where Russian rubles are used for currency, bitterly contested any allegation that a counterfeiting ring existed on their territory.

"Counterfeit dollars? Well, if you are going to listen to Georgians, soon you will say that we have a nuclear bomb here," Mikhail Mindzayev, interior minister in the separatist government, said in a telephone interview. Mindzayev asserted that "we do not have any counterfeit dollars here, and we do not have any criminals."

After a short, bloody war in the early 1990s, South Ossetia broke away from Georgia and achieved de facto independence. Despite the presence of Russian troops, crime has flourished in the province, and in a report, the German Marshall Fund of the United States described South Ossetia and other breakaway enclaves in the Black Sea region as "breeding grounds for transnational organized crime."

On Oct. 27, 2004, its fingers reached Linthicum, Md. At the Hampton Inn near Baltimore-Washington International Airport, Hazki Hen, who had just flown to the United States from Israel, met with two men, one of whom was an undercover Secret Service agent. Hen expected to consummate a deal that had been negotiated over 19 tapped phone calls.

Hen agreed to exchange $230,000 in counterfeit $100 bills for $80,000 in genuine currency, according to a Secret Service affidavit filed in U.S. District Court in Baltimore. Hen also planned to accept $220,000 as a down payment on the delivery of another $1.5 million in fake bills. The affidavit filed in Baltimore said that "Hen also displayed samples of paper used to produce counterfeit Euros and U.S. currency. The paper contained red and blue fibers similar to the fibers contained in genuine U.S. currency."

Just before the Secret Service moved in and arrested Hen, the three men discussed future deals involving between $25 million and $100 million in counterfeit U.S. currency, according to the affidavit.

Nine months later and more than 5,700 miles to the east, Nana Jabelashvili, a resident of Tbilisi, Georgia's capital, was stopped by police as she crossed a Georgian police checkpoint on the road between Gori and Tskhinvali, the capital of South Ossetia. Police found $350,300 in counterfeit bills in Jabelashvili's vehicle and later learned that she was a courier for a Georgian emigre who now lives in Israel, according to Levan Gurgenidze, head of the Georgian Interior Ministry's organized crime unit. The emigre fled Georgia the day after Jabelashvili's arrest, Gurgenidze said in an interview.

When Secret Service agents examined some of the bills seized from Jabelashvili, they found that they were linked to the same family of bills seized in the Hen case in Baltimore, according to a U.S. law enforcement source. Gurgenidze said the source of the bills was a counterfeiting operation run out of a building on Lenin Street in Tskhinvali.

In November 2005, federal prosecutors dropped charges against Hen, then 65, after he became seriously ill and the court agreed to allow him to return to Israel to die.

Jabelashvili was sentenced to 12 years in prison in Georgia in January of this year, officials here said.

Suspicions are growing, meanwhile, that some South Ossetian officials are not just ignoring counterfeiting but are involving themselves in it directly.

In January of this year, Eter Kachmazova, a senior bureaucrat in the South Ossetian Trade Ministry, held a series of meetings with a Georgian undercover officer posing as a Ukrainian businessman. The meetings, at a restaurant in Gori, which is about 30 minutes by car from Tskhinvali, and at the Sheraton Hotel in Tbilisi, were videotaped and recorded by the Georgians, who later broadcast excerpts on state television.

Kachmazova "said she could produce as many fake dollars as the buyers could handle, up to millions," Gurgenidze said. "The Ukrainian, our guy, said he wanted $1.5 million, and she agreed for $25 on every $100."

On Jan. 31, Kachmazova agreed to supply the first $100,000, taking it across checkpoints in lots of $10,000 in case she was stopped and searched. After she arrived with the second bundle of $10,000, police arrested her. Kachmazova is being held at a pretrial detention center in Gori.

"They immediately relocated the press on Lenin Street after she was arrested," Gurgenidze said. "But they are still printing money in there."