Saturday, January 24, 2009

Chicago Tribune: Did UN agency serve as ATM for North Korea?


The United Nations Development Programme office in Pyongyang, North Korea,sits in a Soviet-style compound. Like clockwork, a North Korean officialwearing a standard-issue dark windbreaker and slacks would come to the dooreach business day.

He would take a manila envelope stuffed with cash–a healthy portion of theUN’s disbursements for aid projects in the country–and leave without everproviding receipts.

According to sources at the UN, this went on for years, resulting in thetransfer of up to $150 million in hard foreign currency to the Kim Jong Ilgovernment at a time when the United States was trying to keep North Koreafrom receiving hard currency as part of its sanctions against the Kim regime.

“At the end, we were being used completely as an ATM machine for theregime,” said oneUN official with extensive knowledge of the program. “Wewere completely a cash cow, the only cash cow in town. The money was going tothe regime whenever they wanted it.”

Earlier this month, the development program, known as UNDP, quietlysuspended operations in North Korea, saying it could not operate underguidelines imposed by its executive board in January that prohibited paymentsin hard currency and forbade the employment of local workers handpicked by theNorth Korean government.

But some diplomats suspect the timing of the suspension was heavilyinfluenced by a looming audit that could have proved embarrassing to the UN.

Documents obtained by the Tribune indicate that as early as last May, topUNDP officials at headquarters in New York were informed in writing ofsignificant problems relating to the agency’s use of hard foreign currency inNorth Korea, and that such use violated UNregulations that local expenses bepaid in local currency. No action was taken for months.

Then, under pressure from the United States, UN Secretary General Ban KiMoon on Jan. 19 ordered an audit of all UN operations in North Korea to becompleted within 90 days, or by mid-April.

The Board of Auditors, the UN body tasked with the audit, made no movementon the audit for 40 days after Ban’s order. It sent out its notificationletter for the beginning of the audit on the same day the development programannounced the closure of its office–March 1.

That timing, combined with past concerns about the UNDP’s transparency, hasraised suspicions that suspending operations would be a way to hamstring theaudit, the results of which may prove damning to the organization.

“The office was closed precisely for that reason,” said another UN officialwith extensive knowledge of the program. “With no operations in place, firstof all, you have no claim to get auditors into the country. Second, it willtake months and months to get documentation out of the office there, totransfer to somewhere else like New York.”

The UN sources who spoke about the development operations in North Korearequested anonymity either for fear of retribution or because of thediplomatic sensitivity of the subject.

The saga of the UNDP in North Korea provides more fuel for critics who havecomplained that the UN is a sprawling bureaucracy with few safeguards andlittle accountability. The Bush administration has been particularly outspokenabout the UN’s need for reform.

The oil-for-food scandal, which erupted in 2004, involved corruption in aprogram designed to provide humanitarian aid for Iraqis, whose country facedeconomic sanctions. Ultimately, it emerged that the program had resulted in$1.8 billion in kickbacks and surcharges paid to Saddam Hussein’s regime.
Ban, a South Korean who took office in January, has sought to presenthimself as a fresh-faced reformer.

Nuclear talks in background

All this occurs against the backdrop of intensifying talks with Pyongyangover its nuclear weapons capacity, the most recent of which took place lastweek in New York. Last month, the U.S. and four other nations signed a dealwith North Korea promising aid in exchange for the shutting down of a nuclearreactor and a series of steps toward disarmament and normalized relations.

A spokesman for the U.S. mission to the UN, Richard Grenell, said the U.S.supports the audit going forward to find out the extent of the problems at theUNDP office in Pyongyang. North Korean officials could not be reached.

Despite the closure of the UNDP office in North Korea, the audit is movingahead. UN officials say they expect the audited documents to show not only thehard currency transfers to representatives of Kim’s government, but also theinability of staff on the ground to confirm that the money was going to itsprograms.
According to sources familiar with UN operations in North Korea, theinternational staff of the development program and other UN agencies were notallowed to leave the compound without a government escort.
They were not allowed to go outside Pyongyang without receiving specialpermission from the military at least a week in advance. They were not allowedto set foot in a bank. And under no circumstances were they allowed to makeunrestricted visits to the projects they were supposed to be funding.

These rules mirror the restrictive conditions set by the U.S. government ondiplomats from North Korea who must stay within 25 miles of New York City.

The UNDP, whose mission is to help the country develop economically, wasone of several UN agencies operating in North Korea, including UNICEF and theWorld Health Organization. The United Nations is one of few channels forforeign aid in the secretive, authoritarian country.

Computer mystery

One of the UNDP projects, sources said, involved the purchase of 300computers for Kim Il Sung University. The computers supposedly arrived inPyongyang, but the international staff was not allowed to see the equipment ithad donated.

Finally, after a month and a half of pressuring their North Koreanhandlers, staffers were led to a room in which two computers sat. They weretold the others were packed in boxes, which they were not allowed to open.

And while the UNDP’s programs–which have included projects such as “HumanResource Upgrading to Support Air Traffic Services” and “Strengthening of theInstitute for Garment Technology”–cost anywhere from $3 million to$8 milliona year total, the development program also acted as the administrative officerfor all the UN agencies and wrote checks for tens of millions of dollars worthof programming every year.
The UNDP’s financial officer and its treasurer in Pyongyang, who issuedthose checks, were both North Korean.

Standard practice?

UN officials privately describe a vivid scene playing out at the agency’scompound each day.
A driver in a UN-issued Toyota Corolla would pull out of the compound’sgate, taking UNchecks to the bank. A short time later the driver, a NorthKorean employed by UNDP, would return with manila envelopes stuffed with tensof thousands of dollars in hard currency.

Then the windbreaker-clad North Korean official would show up and take thecash away.
UNDP spokesman David Morrison said the use of hard currency and the hiringof staff through local governments was standard practice in authoritariancountries like North Korea. Morrison said his understanding was that theagency had never had problems with site visits, and that in 2005 its staff hadvisited 10 of its 11 monitorable projects.

The agency was complying with the audit, Morrison said, “in order to takeaway even the perception that anything was untoward.”

But others believe the development program has no choice but to cooperatewith the audit.

In January, a letter written to the head of UNDP by Mark Wallace, the U.S.ambassador to the UN for management and reform, was leaked to the U.S. media.The letter, which drew on Wallace’s review of internal audits dating back to1998, accused the program of having been “systematically perverted for thebenefit of the Kim Jong Il regime.”

These claims by the United States, supported by Japan, the two biggestdonors to UNDP, pressured the secretary general to quickly order the audit.

“If there were simply the use of hard currency, or simply no site visits,that’s one thing,” said a UN diplomat familiar with the issue. “But when youcombine the fact that large cash payments were made directly to officials ofKim’s government with the fact there were no site visits to verify how thecash was being used, that’s a great cause of concern.”

The first phase of the audit is scheduled to begin Monday in New York. Itremains unclear whether the auditors will attempt to visit North Korea. It ispossible that even if the UNDPoffice were still open, Pyongyang would nothave granted them visas.

Even with its limited scope, the audit could yield significant revelationsabout how the agency worked in a dictatorial, tightly controlled society.

“There wasn’t a snowball’s chance in hell that they’d allow us to see whatthey did with all the cash they received,” said a member of the diplomaticcommunity in New York. “ButUNDP headquarters and the country office should beable to tell us what kinds of checks they were making, were they paid in cash,what, who, where the money was going to.”

The Board of Auditors had no comment for this article, but Morrison, theUNDP spokesman, said the organization was making arrangements to safeguarddocuments by transferring them to one of the other UN agencies in Pyongyang.He said that those necessary for the initial stages of the audit would becopied and carried to New York in electronic form by theUNDP chief in Pyongyang, who is due to leave North Korea within days.

But some suggest the mid-April deadline does not leave enough time toproduce a thorough review.
“I don’t think this is an audit you can whip through in 30 days; this maytake some time,” John Bolton, the U.S. ambassador to the UN until the end oflast year and a staunch critic of the world body, said when contacted by theTribune for a reaction to the newspaper’s reporting of the cash payments. “ButI think for the reputation and integrity of the UN system, it’s critical thatit proceed without delay.”

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