U.S. report finds N.Korean abuses of U.N. agency

Wed Jan 23, 2008 9:04pm EST

WASHINGTON (Reuters) - North Korea used the bank accounts of a U.N. agency for deceptive cash transfers, among a wide range of abuses of that organization's presence in the communist state, a U.S. Senate panel reported on Wednesday.

The United Nations Development Program deviated from its standard practices in the way it hired local North Koreans and paid their salaries, but was not complicit in -- or aware of -- the host government's improper financial transactions, said the U.S. Senate Permanent Subcommittee on Investigations.

The United States had accused UNDP of sloppy accounting, handing over cash to North Korean bodies without proper documentation and hiring staff hand-picked by the communist Pyongyang government.

The UNDP issued a statement saying that none of the major allegations of financial wrongdoing had been substantiated.

The Senate investigation, launched last year, found a number of problems with the UNDP in North Korea, the secretive state which the U.S. administration is trying to persuade to dismantle its nuclear capability.

The agency, which had worked in North Korea since 1981, pulled out of the country last March after North Korea refused to accept changes ordered by its board of directors after some problems were exposed.

A U.N. audit published last June said rule breaches had occurred but did not find systematic major diversion of U.N. funding.

The Senate investigation identified problems with "inappropriate staffing decisions, questionable use of foreign currency instead of local currency, inadequate fiscal controls, restricted program monitoring, financial deception, payments to a suspect entity, inaccessible audits, and insufficient whistleblower protections," said the report.

"The evidence indicates that the North Korean government took advantage of the altruism that drives UNDP programs," said the 44-page report.

STATE SKIMS SALARIES

Among the abuses, North Korea in 2002 used a bank account intended to be used solely for UNDP activities to transfer $2.72 million of its own funds from Pyongyang to North Korean diplomatic missions abroad, the report said.

But it said the transfers, which North Korean officials told Senate investigators were conducted to avert expected U.S. financial sanctions, might not have been prevented even with a more vigilant UNDP.

The UNDP transferred about $50,000 on behalf of other UN agencies to a Chinese firm, Zang Lok Trading Co., that the U.S. State Department later linked to the main North Korean financial agent for sales of weapons and ballistic missiles, it said.

The Senate report found that UNDP contravened its own policies by hiring North Koreans who were vetted by their government and by paying those local staff salaries in hard currency, instead of local currency.

The local salaries were paid directly to the North Korean government -- against policy and despite UNDP suspicions the state was "skimming" money from them, the report found.

The UNDP said the investigation had not proven any of the serious allegations, while the staffing and other problems of operating in North Korea were well known and faced by all diplomatic missions and NGOs in Pyongyang.

"We collaborated fully with the Subcommittee's investigation, and are gratified that the staff report contains no suggestion that these allegations can be substantiated," said UNDP spokesman David Morrison.

"Where operational deficiencies have been identified, UNDP is committed to applying lessons learned to other countries where we face similarly difficult environments," he said.

(Reporting by Paul Eckert; editing by Stuart Grudgings)