“Seoul and Washington have conducted a joint investigation since police booked those who attempted to circulate supernotes in South Korea in November last year. We’ve kept a close eye on the North’s forgery since it is likely to affect both inter-Korean ties and relations between Washington and Pyongyang,” the source said.

“When members of the U.N. Security Council agree to impose tougher sanctions on North Korea over its second nuclear test, the North will be slapped with strengthened financial restrictions.”

Busan police arrested four people Nov. 10 last year for smuggling in 990,400 dollars worth of fake supernotes and asked Interpol to cooperate in arresting a key figure in the scheme living in China.

Since then, the Secret Service under the U.S. Treasury Department has conducted a joint investigation with South Korean police to track global rings who make counterfeit currency.

The four arrested said they smuggled the forged currency to take advantage of the strong dollar, but refused to name international brokers assumed to be connected to the North and distribution networks, according to Busan police.

A diplomatic source said, “The Bush administration lifted financial sanctions on North Korea based on the North’s tacit promise to stop counterfeiting U.S. bills. The North, however, has not stopped its counterfeiting.”

“The Obama administration is devising measures as tough as those under the Bush administration to stop the illegal activity.”

As part of anti-forgery measures, South Korean and U.S. intelligence officials in Seoul yesterday agreed to impose economic sanctions by preventing the production and circulation of supernotes. To do so, both sides will strengthen monitoring in countries where supernotes are in circulation and focus attention on preventing materials for supernote production from entering North Korea.

The Washington Times yesterday quoted a report by a country as saying O Kuk Ryol, vice chairman of North Korea’s powerful National Defense Commission, and his family are taking the lead in the production and circulation of supernotes.

A government official in Seoul said, “Since O is leading the preparation for the power transfer from North Korean leader Kim Jong Il to his youngest son Jong Un, we are closely looking for a connection between the North’s hereditary power succession and its recent military provocations.”