Friday, June 13, 2008

US Government Statement on Review of UNDP's Operations in North Korea

June 12, 2008


Office of Press and Public Diplomacy
United States Mission to the United Nations
140 East 45th Street
New York, N.Y. 10017

U.S. Statement on the Report of the External Independent Investigative Review Panel: UN Development Program Activities in North Korea 1999-2007, June 12, 2008


The United States welcomes the Panel's Report and remains concerned by a number of its findings and the on-going need for corrective action. The United States has been working with UNDP management for over a year now to address systemic weaknesses through our UN Transparency and Accountability Initiative (UNTAI). In the coming months, we will follow up with UNDP management to address the Panel's findings and recommendations. We expect our collective effort to result in an appropriate transparency and accountability system for the organization that can help turn the page on this episode.

During the 1999-2007 period covered by the Panel's review, the United States provided over $1.5 billion to support UNDP and its activities worldwide. As one of the largest donors to UNDP and a member of its Executive Board, the United States has a responsibility to ensure the organization meets the standards of accountability and trust expected of public institutions. We must ensure that funding provided to UNDP is used in the most effective way possible and for its intended purpose -- to help the world's poor. In this spirit we offer the following observations.

The Report, which is voluminous, confirms many previous concerns raised by Member States and the findings of both the UN Board of Auditors (BOA) and the U.S. Senate Permanent Subcommittee on Investigations (PSI) that there were broad management deficiencies across the entire UNDP/DPRK Country Program regarding payment modalities, staffing practices and project monitoring.

Specifically, we note that the Report confirms that payments were made in bearer instruments, such as cash or 'cash-checks.' As a result of this practice, this Report, like the previous BOA Report, was unable to determine whether check payments made by UNDP to persons and entities were received by the intended beneficiaries. In fact, the Report confirms that "core functions," such as Finance Officer, were performed by local North Korean personnel seconded from the DPRK government. The Report also confirms that UNDP project visits were circumscribed by the DPRK government through required advance "clearance or authorization." Further, the Report confirmed that there were broader management deficiencies relating to project monitoring and implementation across the entire UNDP DPRK Country Program.

As the U.S. Senate PSI Report indicated, these problems might have been addressed earlier had internal audits done by UNDP been made available to Members of the UNDP Executive Board. We therefore welcome the Panel's recommendation that UNDP make its internal audits available to Member States. We are working with UNDP and other Funds and Programs to ensure this becomes a normal practice across the UN system.

We note that the figures provided in the Report are inexact regarding the transfer of funds to the DPRK or DPRK-controlled entities by UNDP and by other UN agencies acting on UNDP's behalf. The figures cover a wide range of possible amounts. Nonetheless, the report does appear to confirm much larger figures than reported earlier by UNDP.

In reviewing available UNDP project budget documents, the Panel was unable to determine in 74% cases "whether the ultimate beneficiary is consistent with the payee name indicated in the financial system," reflecting lax fiduciary practices. Moreover, the Panel was unable to conclusively determine if diversion occurred.

The Panel noted that there is no evidence that UNDP officials knew that the DPRK government misused accounts that had been set up to receive UNDP funds to transfer North Korean monies abroad to avoid possible sanctions or to entities associated with secret weapons programs - nevertheless, we are deeply troubled by this misuse. The Report observes that UNDP did not sufficiently align its management controls to the "challenging environment" in which it found itself operating. Accordingly, the Report recommends "that an evaluation of UNDP-DPRK controls be performed" to strengthen these controls.

The Panel Report revealed an absence of understanding and required sensitivity to U.S. export control laws with respect to "dual use" items. As a result, a large number of sensitive items controlled by the U.S. for "national security and anti-terrorism reasons" were exported and/or retransferred by UNDP to North Korea without licenses.

The Panel noted that UNDP staff had long been aware of the use of counterfeit notes in North Korea. Previous UNDP staff in Pyongyang recognized that "counterfeiting was a significant issue at that time," and took measures to limit UNDP's vulnerability. However, "from the fall of 1999 to 2007, there was no apparent discussion among the Country Office staff about taking proactive measures." UNDP headquarters also ignored warning signs regarding counterfeit U.S. currency, which the U.S. Government brought to the attention of UNDP in the summer of 2006. The Panel noted that the head of UNDP Pyongyang office learned about the counterfeit U.S. currency stored in his office safe in October 2006, but waited until February 2007 to inform UNDP headquarters. The Panel also noted inconsistent accounts of this issue from the UNDP Comptroller.

Finally, the Report found that the whistleblower was justified in raising issues about UNDP's practices in the DPRK and that "he reported conduct and facts about UNDP operations in the DPRK that required resolution and may well have been in violation of UNDP policies as well as applicable agreements with the DPRK." It appears that the whistleblower did not have an opportunity to comment on the Panel's report before it was released.

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