North Korea’s government is producing high-quality counterfeit $100 bills and is working with criminal groups in China to sell the fake U.S. money internationally, U.S. officials say.

Some details of the production of what federal officials call “supernotes” were disclosed after arrests last month in several U.S. cities of people linked to a major Asian crime ring trafficking in fake money, arms, drugs and cigarettes.

A senior Bush administration official said one of the 10 indictments in the case contains the first disclosure of the North Korean government’s role in the counterfeiting.

The indictment identifies Chao Tung Wu, a Taiwanese national in custody on charges of dealing in counterfeit bills.

He told an FBI undercover agent that “the government of a foreign country,” identified only as “Country 2,” is “making counterfeit U.S. currency which Wu could sell to the” agent.

Mr. Wu has pleaded not guilty to the charges, said his attorney, Debra Opri, who confirmed that federal investigators have determined that the counterfeit currency came from North Korea.

Miss Opri said Mr. Wu has denied the charges and that he was entrapped in an FBI sting. A trial is scheduled to begin Oct. 18.

A spokesman for the U.S. Secret Service, which investigates counterfeit currency violations, declined to comment on the North Korean government’s link to the case. He said investigations are proceeding.

Balbina Hwang, a researcher at the Heritage Foundation, says the North Korean government has been making and circulating forged $100 bills for more than a decade.

“They produce some of the best quality supernotes,” she says, adding that the North Koreans make $250 million a year from the bills.

The British Broadcasting Corp. reported last year that North Korea is producing supernotes with a high-quality printing press known as Intaglio, similar to presses used by the United States to print its currency. The BBC said it learned of the North Korean role from a defector from Pyongyang.

The counterfeiting profits support the North Korean government’s drug trafficking, money laundering and gambling, Miss Hwang says. On a strategic level, the North Koreans think that circulating supernotes will help destabilize Western economies, she says, noting that the U.S. Treasury redesigned the $100 bill in part because of North Korean counterfeiting.

China is linked to the counterfeiting by North Korean use of Chinese territory and criminal gangs, she says. The Beijing government is probably aware of the official role in North Korean counterfeiting and is not doing enough to stop it.

According to the indictment, Mr. Wu told an undercover FBI agent posing as a buyer of fake bills that he could provide $1 million in high-quality counterfeit $100 bills and arranged for the agent to telegraph a payment of $25,000 to another man, who has been charged in the case in a third country.

Mr. Wu provided the undercover agent with samples of the forged currency that he said were sent through “Country 1.” A senior U.S. official identified “Country 1” as China. Fifteen sample supernotes were dispatched by Federal Express courier, along with a computer chip containing a photograph of the supernotes waiting to be sent from China. On May 5, 6,998 of the supernotes were sent in a shipping container to Long Beach, Calif., and then to the FBI agent in Pomona, Calif.

The indictment states that Mr. Wu told the agent that he gave $30,000 in supernotes to a client who took them to South America. Mr. Wu then told the agent that he was returning to China to get additional forged currency.

Meanwhile, the Bush administration last week designated the Banco Delta Asia SARL in Macau, a Chinese territory, as a “primary money-laundering concern” for its role in helping North Koreans distribute counterfeit currency and engage in illegal activities. The Treasury Department ordered the bank to be cut off from all U.S. financial transactions as a result.

A U.S. electronic intercept from late May 1997 revealed that Sean Garland, president of the Dublin-based Workers’ Party, a communist political party, met Cao Xiaobing, a senior member of the International Liaison Department, Beijing’s official office for supporting foreign communist parties.

The intelligence report, marked “top secret,” stated that Mr. Garland was the managing director of GKG Comms International Ltd., a Dublin company, and noted that Miss Cao and the Irish communist functionary discussed “unidentified business opportunities.” The report said, “Garland is suspected of being involved with counterfeiting U.S. currency, specifically, the supernote, a high-quality counterfeit $100 bill.”