Wall Street Journal Editorial: Turtle Bay Tale

Credit Kim Jong Il with the world's weirdest public diplomacy. The North Korean dictator famously had his nuclear negotiators inform their U.S. counterparts a few years ago that Pyongyang was conducting a secret uranium-enrichment program in violation of the 1994 disarmament agreement. Now he has instructed his diplomats to confirm that, yes, the totalitarian state used the United Nations to transfer $2.72 million to its diplomatic missions in violation of U.N. rules and international financial regulations.

This nugget is contained in an illuminating report out today from the Senate Permanent Subcommittee on Investigations. These are the same folks who shed a welcome light on the U.N. Oil for Food scandal a few years ago. The bipartisan team has spent much of the past year investigating the United Nations Development Program in North Korea.

The report is another vindication of the concerns raised publicly by the U.S. of widespread corruption in UNDP operations in North Korea. The report confirms irregularities in staffing, inspections and the use of foreign currency. But it also paints a bigger picture of how North Korea manipulated the UNDP for its own financial ends -- and how the U.N. agency let it happen.

Between April and September of 2002, North Korea used a UNDP account at the Foreign Trade Bank in Pyongyang to transfer $2.72 million of its own money to its embassies in Paris, Stockholm and London and to its U.N. mission in New York ostensibly to buy real estate. The bank account was the perfect cover; the U.N. imprimatur meant that it would attract minimal scrutiny from financial regulators.

The money was transferred via conduits in the Chinese enclave of Macau, and here a familiar name crops up: Banco Delta Asia (BDA), named by the U.S. Treasury in 2005 as of "primary money laundering concern." Another intermediary was a Macau-based "trading" firm called International Finance and Trade Joint Company, which was in fact a front for the Foreign Trade Bank, which was in turn a front for the North Korean government. Ernst & Young, which conducted a review of BDA at the request of the Macau government, concluded that the Foreign Trade Bank and IFTJ remitted millions of dollars and euros between their accounts at BDA. The transfers carried the "highest risk of money laundering," Ernst & Young said.

Why did the North Koreans go to such lengths to get the money abroad? The subcommittee asked North Korea, which replied in a meeting with Senate investigators last week. "After seeking instructions from their government in Pyongyang," the report says, North Korean diplomats explained that the transactions took place shortly after President Bush's "axis of evil" speech and their government expected that sanctions against North Korea would be tightened. The Ministry of Foreign Affairs identified the UNDP account as a "more secure channel to fund their embassies abroad." Indeed.

The subcommittee also discovered violations involving U.N. funds. Specifically, it found that the UNDP transferred money on behalf of Unesco and the World Intellectual Property Organization to a "trading" company in Macau with ties to a North Korean company engaged in weapons sales. The sums were small -- about $52,000 -- but the implications are large. There's no way of knowing how many such transactions occurred -- which is to say, there's no way of knowing how much U.N. money went to fund North Korean weapons activity.

The Senate report recommends numerous UNDP reforms, including making audits public and providing whistleblower protection to employees who, as Artjon Shkurtaj did in the case of North Korea, raise concerns about the agency's work. The U.S. gave UNDP $100 million last year in "voluntary" contributions. Yet more than a year after the exposure of UNDP corruption in North Korea, these basic reforms still haven't been made.

The State Department would have us believe that North Korea has repudiated its criminal past -- witness a counterterrorism official's statement this week that North Korea may have met the conditions for removal from the U.S. list of state sponsors of terror. Yet the extent of the North's criminal activities is still far from known. And, as the Senate investigation suggests, it's apparently worse than anyone thought.