U.S. State Department Reveals North Korea’s Misuse of U.N. Development Program Funds and Operations

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Published January 19, 2007

| FoxNews.com

Has North Korean leader Kim Jong Il subverted the United Nations Development Program, the $4 billion agency that is the U.N.’s main development arm, and possibly stolen tens of millions of dollars of hard currency in the process?

According to a top official of the U.S. State Department — using findings made by the U.N.’s own auditors — the answer appears to be a disturbing yes, so far as UNDP programs in North Korea itself are concerned.

And just as disturbingly, the U.N. aid agency bureaucracy has kept the scamming a secret since at least 1999 — while the North Korean dictator and his regime were ramping up their illegal nuclear weapons program and making highly publicized tests of intermediate range ballistic missiles.

Nothing was disclosed even to the UNDP Executive Board, which oversees its operations and is composed of representatives of 36 nations — including the United States and, this year, North Korea itself.

That fact is sure to be a bombshell at the Executive Board’s regular annual meeting, which begins Friday and extends through Jan. 26. Among the main items to be discussed is the $18 million, two-year UNDP budget in North Korea.

Moreover, the period of scandal and secrecy in the UNDP’s North Korean operations coincided in large measure with the tenure of Mark Malloch Brown, most recently Deputy Secretary General of the United Nations itself, as administrator of the UNDP.

Malloch Brown took over the UNDP in July 1999, and stayed in his post even after August 2005, when he also became chief of staff for then-U.N. Secretary-General Kofi Annan, who at the time was reeling under the effects of the Oil for Food scandal.

In March 2006, Malloch Brown took over as Deputy Secretary General from Louise Frechette, who suddenly left the U.N. ahead of schedule, after her own role in Oil for Food became widely known and criticized. Only then did Malloch Brown give up his UNDP fiefdom.

Malloch Brown left the U.N. along with Annan at the end of last year and has since been harshly critical of the Bush Administration and its former ambassador to the U.N., John Bolton, for their demands for greater U.N. transparency and reform.

From at least 1999 to at least 2004, it appears the UNDP, and the U.N. itself, had no idea what Kim Jong Il did with the aid agency’s money, ostensibly intended for aid programs ranging from development of energy programs and small and medium sized businesses, and for environmental protection.

But the UNDP had plenty of warnings from auditors it had contracted to look at the program during that period, and who signaled loudly that something was badly awry.

In a letter sent to the UNDP on Jan. 16, Mark Wallace, the U.S. State Department ambassador at the U.N. for management and reform, wrote that the auditors’ testimony shows it is “impossible” for the U.N. aid agency to verify whether its funds “have actually been used for bona fide development purposes or if the DPRK [North Korea] has converted such funds for its own illicit purposes.”

Click here to read U.S. Ambassador Mark Wallace's letter to the UNDP. (pdf)

Ironically enough, neither Wallace nor the U.S. government has been allowed to obtain copies of the audits, which are deemed “management tools” by UNDP bureaucrats and therefore not even available to governments that pay for the organization.

Their contents came to light only after Wallace and the U.S. demanded an opportunity to view the audits at UNDP headquarters, and took careful notes based on the documents. Wallace reiterated the contents in his letter, addressed to Ad Melkert, the UNDP’s No. 2 official.

The difficulties in finding out what the UNDP was doing in North Korea were apparently something that U.S. diplomats and UNDP auditors shared.

Wallace relates in his letter that whenever the auditors, contracted from the consulting firm KPMG, tried to discover what was going wrong, they were either limited in what they were allowed to investigate, or they were forced to accept “sham” audits done by the North Koreans themselves.

The picture painted by the auditors, according to Wallace, shows a U.N. agency that “operated in blatant violation of U.N. rules.”

The UNDP allowed members of Kim’s regime to “dominate” local UNDP staff, who were apparently first selected by the North Korean government itself, the auditors said, and added that Kim’s operatives even ran “core” financial and managerial functions directly.

The regime also demanded cash payments from the aid agency in violation of U.N. rules, and kept UNDP officials from visiting many of the sites where development projects were supposed to be underway.

On at least three occasions, in 1999, 2001 and 2004, the KPMG auditors filed reports that brought troubling aspects of the situation to the attention of UNDP headquarters, recommending “timely corrective action.” There is no evidence that any such action took place.

Just exactly how much money the UNDP funneled into North Korea in all those years is not revealed in Wallace’s letter. But he notes that in 1999 there were 29 ongoing UNDP projects in North Korea, with a total budget of $27.86 million. Two-thirds of the programs were so-called “National Execution programs” run by North Korea directly, using UNDP money. The other third was ostensibly run by UNDP itself.

But that may not have made a difference. The auditors complained that even UNDP-run programs paid for everything in cash, which is against UNDP policy, at prices set by the Kim regime, and to suppliers that the regime designated. There were not even any purchase orders involved. The regime provided no audits of the programs under its own direct control.

In his letter to Melkert, Wallace called for a “full independent and outside forensic audit” of UNDP’s programs in North Korea, going back to at least 1998.

Only “the bright light of real oversight” would allow the UNDP’s overseers to decide whether any or all of the programs should be continued, he said.

UPDATES:

In the wake of this FOX News story, Republicans in Congress have started to take up the issue. Florida Rep. Ileana Ros-Lehtinen, ranking Republican member of the House Foreign Affairs Committee, called on the UNDP Friday to end its project funding in North Korea. She further called on newly inaugurated U.N. Secretary-General Ban Ki-Moon to hold accountable officials who had allowed the North Korean regime to control UNDP programming. "This is yet another example of the abuses made possible by the lack of accountability within the U.N. system," Ros-Lehtinen said.

A representative speaking for Ban Ki-Moon announced Friday that in response to the allegations regarding North Korea and the UNDP, the secretary-general has called for "an urgent, systemwide and external inquiry into all activities done around the globe done by the U.N. funds and programs."

George Russell is Executive Editor of FOX News Channel.

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http://www.foxnews.com/story/2007/01/19/us-state-department-reveals-north-korearsquos-misuse-un-development-program