Probe: UN Program Open to NKorean Abuses

By FREDERIC J. FROMMER – 3 hours ago

WASHINGTON (AP) — A United Nations anti-poverty program in North Korea paid $50,000 to a company with ties to North Korean weapons sales and left itself open to exploitation by the communist-led country, according to a Senate investigation released Wednesday.

The report by the Senate Permanent Subcommittee on Investigations takes issue with the operation of the U.N. Development Program in North Korea, which was suspended last year. The report alleges that the UNDP made itself open to abuse by, among other things, paying the salaries of local staff directly to the government without verifying how they were disbursed, even though the agency suspected that the government was "skimming" money from the payments.

Citing wire transfers and other financial documents, the report also said that North Korea used a bank account reserved for UNDP funds to move $2.72 million of its own money out of the country. According to the report, North Korean government officials told Senate investigators these transfers were made soon after President Bush declared the country part of an "axis of evil."

Officials of the communist country told the investigators the transfers were made through the UNDP account to avoid international scrutiny and possible sanctions that they believed were imminent, the report said.

The findings were scheduled to be discussed at a Senate hearing on Thursday.

Phone and e-mail messages left with the North Korean Mission to the U.N. were not returned Wednesday.

The Bush administration said it's too early to remove North Korea from a U.S. terrorism blacklist, a major demand by Pyongyang in international nuclear disarmament negotiations.

Some of the problems identified in the report were covered by a U.N. audit last year, which found that the UNDP paid North Korean staff and suppliers in hard currency without approval and hired only government-approved staff in violation of U.N. procedures.

"But we went beyond that," said Minnesota Sen. Norm Coleman, the committee's top Republican.

"The North Koreans had set up what I call a money-laundering system," he said, referring to the $2.72 million in transfers. "By using the U.N. seal of approval, clearly the hope was that it wouldn't attract any attention."

UNDP officials, Coleman said, "let themselves be manipulated by a rogue nation."

Coleman also highlighted the $50,000 in funds paid to Zang Lok Trading Co. on behalf of other U.N. agencies. The report includes a letter from the U.S. mission to the U.N., sent to the UNDP last year, which says that "Zang Lok has ties to a North Korean entity that has been designated under United States laws as the main North Korean financial agent for sales of conventional arms, ballistic missiles and goods related to the assembly and manufacture of such weapons."

The report said that UNDP officials told the subcommittee it didn't know, nor had any way of knowing, whether Zang Lok is connected to North Korean weapons sales.

In a statement issued Wednesday in response to the report, the UNDP said it paid Zang Lok on behalf of two other U.N. agencies for computer equipment, which were received in "good order." The UNDP added that it ceased doing business with Zang Lok after being notified by the U.S. government about its ties to a "designated entity."

As to the $2.72 million in funds that were transferred, the agency said: "UNDP is not happy that its name may have been used inappropriately by the North Korean government in connection with deceptive financial transactions. It has formally raised this matter with the North Korean government."

The statement also notes that the Senate report does not conclude that these transfers could have been prevented had the UNDP been more vigilant.

"UNDP is also pleased to note that contrary to persistent allegations it has faced, the report finds that the $2.72 million in question was not UNDP's money," the agency said.

The UNDP suspended its operations in North Korea last year because the reclusive nation failed to meet conditions set following allegations by the U.S. that U.N. aid money was being diverted to Kim Jong Il's regime. Among the conditions: that the UNDP no longer pay North Korean staff in hard currency and no longer employ North Koreans loaned from government agencies.

David Morrison, a UNDP spokesman, said in an e-mail that the agency has faced "persistent and detailed allegations about funding diversion and misconduct in its former operations in North Korea. We collaborated fully with the subcommittee's investigation, and are gratified that the staff report contains no suggestion that these allegations can be substantiated."

Subcommittee staffers confirmed that they received substantial cooperation, but noted a passage in the report that said they were not given unfettered access to the UNDP financial system or original records or receipts. Because of that limited scope, they said, the report neither confirms nor refutes allegations made by the U.S.

A year ago, the United States accused the UNDP of funneling millions of dollars in hard currency to North Korea with little assurance that Kim Jong Il used the money to help his people, instead of diverting it to "illicit purposes" including developing nuclear weapons.

The report noted that development projects in North Korea present daunting challenges but concluded, "the North Korean government took advantage of the altruism that drives UNDP programs."

(This version CORRECTS the reference to the North Korean Mission.)