U.N.: Behind the Scandal in Pyongyang

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Published March 23, 2007

| FoxNews.com

The mood was nervous around the United Nations Development Program (UNDP) conference table on a chilly Thursday, Dec. 8, 2005, in the North Korean capital of Pyongyang.

The officials were huddled in a UNDP villa in the United Nations compound, located in the secrecy-shrouded diplomatic Munsudong district of Pyongyang (known to some North Korean diplomats as "the greenhouse"). The U.N. managers felt that they were under siege — as, in a sense, they were. (Sources familiar with U.N. activities in North Korea supplied the bulk of the information about the meeting in this article.)

The small group around the table was made up of the operations managers of the United Nations agencies operating in North Korea: UNDP, the World Food Programme (WFP); the United Nations International Children's Fund (UNICEF); the United Nations Population Fund (UNFPA) and the World Health Organization (WHO). Altogether, the group was responsible for administration, finance, human resources and security for their respective organizations, which were spending roughly $150 million on their own operations, and on numerous development and relief projects around Kim Jong Il's communist kingdom. The reason they were meeting was a deep concern on their part that all their activities might be illegal — a concern that has since turned into a full-blown scandal.

The officials had gotten together, after months of tense discussions among themselves, to make a collective appeal to the bosses of their agencies in North Korea, and ultimately to the heads of their worldwide organizations, and to the U.N. Secretary General (at the time, Kofi Annan) himself. By taking such a strong step, several of them were worried that they were about to damage their careers.

They were also worried about the possible presence of concealed North Korean spy devices in the room. And they were deeply distrustful of many of their local staff, whose credentials to work for the U.N. were unknown, and who had been imposed on them unilaterally by the Kim Jong Il regime.

But the U.N. officials were even more worried that failing to act would leave them and the U.N. deeply damaged by a continued pattern of unauthorized payments, in cash and in hard international currency, to the dictatorial North Korean government. And personally, they were worried that a future U.N. audit might cast a harsh spotlight on the highly irregular ways that their agencies, led by UNDP, were acting in North Korea, and might accuse all of them of acting illegally.

Every day, for example, agents from the regime's General Bureau for Diplomatic Services — a section of the North Korean Ministry of Foreign Affairs that deals with, and spies on, foreign diplomats — would arrive at the U.N. compound and collect envelopes of cash, handed over by the U.N. to pay local salaries, utilities and maintenance fees. No receipts were ever given.

The same applied to money ostensibly used for U.N. agency projects around the country — projects that the staff were not free to visit at will, if ever. (The Munsudong compound is a highly restricted area, with armed patrols at its perimeter. The U.N. officials could only live in designated quarters located a few hundred yards from their office.)

• Click here to see a satellite image of the U.N. compound in Pyongyang (pdf format).

There were mild differences between the agencies, but the overall pattern of hard currency cash payments remained the same.

• Click here to see a spreadsheet of U.N. disbursement practices in North Korea (pdf format).

The mysteriously appointed local staff, who included critically important finance managers and communications specialists, were another matter of urgent concern. Many had received expensive U.N. training — only to be pulled out of U.N. employment after a few months on the job and assigned to other, unknown Korean government offices.

The U.N. operations officials were also uneasily aware that locally-appointed North Korean staff had access to sensitive U.N. files and communications, without supervisors' knowledge.

Even U.N.-designated cars and their North Korean drivers were operating outside U.N. control. Sometimes they were available and sometimes not; the officials were not even aware of what happened to their cars in the evening.

But the most disturbing fact under discussion in the Munsudong meeting was the absence of normal legal agreements with the North Korean government that would either justify or rein in the chaotic and mysterious operations of the agencies, which in the officials' experience did not conform with the U.N.'s operations anywhere else.

The most important of those agreements, known in UNDP jargon as an Operational Basic Agreement (OBA), had apparently vanished from U.N. files both in Pyongyang and in New York, sometime in 2001. That was a year or more after the U.N. agencies suddenly began making the unorthodox cash payments in Pyongyang, according to U.N. sources.

The only version of the OBA available to U.N officials in Pyongyang and Manhattan was a draft version, dated February 10, 1981.

• Click here to see the draft version of the Operational Basic Agreement (pdf format).

That version clearly states, among other things, that all payments to the North Korean government "will be made in local currency on the basis of monthly invoices."

The U.N. officials at the Munsudong session wanted the uncomfortable and disturbing situation in North Korea to end. By the time they finished their four-hour meeting, they had agreed to ask the U.N.'s most senior officials in North Korea to sign off on changes in procedure that would return the North Korean operations to something approaching normal.

• Click here to see the minutes of the Dec. 8, 2005 meeting (pdf format).

On January 24, 2006, after a winter hiatus, the group sent its proposals to their bosses, known collectively as the U.N. Country Team, including the U.N. Resident Coordinator, who is the U.N. Secretary General's personal representative in town. (The Coordinator was named Timo Pakkala, who doubled as the top UNDP official, or Resident Representative, in Pyongyang. Pakkala still holds both jobs.)

Among other things, the reformers suggested that the U.N. revert to paying its bills in local currency, as required in the organization's rules and regulations. They also suggested that cash payments be eliminated, and that the U.N. regain control over local hiring.

• Click here to see the Jan. 24, 2006 message from the Operations Management Team to the UNCT (pdf format).

The response was a long silence. The U.N. Country Team did not take up the issues raised by the subordinate managers until April 13, 2006 — a delay of three months. And the next response was opposition. As minutes of that meeting, obtained by FOX News, show, a number of U.N. agencies worried about the "impact it might have in the relations with the government as well as to local staff well-being." Other agency heads found the issues "rather not of their immediate concern" even though their own operations chiefs had signed off on the suggested changes.

Some agencies went further. While recognizing "the fact" that their financial rules and regulations demanded payment in local currency, "they feel that this issue is very sensitive and could endanger their relation with the government, even in the absence of a written explicit agreement" — a reference to the missing Operational Basic Agreement.

The final recommendation:of the U.N. agency heads was to "endorse the current practice of issuing payments in hard currency (US$/Euro) based on special conditions in the country."

• Click here to see the minutes of the April 13, 2006 UNCT meeting (pdf format).

The previously unpublished minutes of the U.N. Country Team in North Korea go a considerable way toward supporting accusations made against the UNDP by U.S. envoy to the U.N. Mark Wallace in January. Among other things, Wallace cited secret UNDP audits to accuse the organization of making cash payments to the Kim Jong Il regime in violation of UNDP rules; allowing North Korean government employees to "dominate" local staff; and allowing North Korean government workers to perform "financial and program managerial core functions" in another violation of organization rules. Wallace also accused UNDP of hiding evidence of the violations since 1999.

• Click here to read Ambassador Mark Wallace's letter to the United Nations Development Program (pdf format).

The minutes of the U.N. Country Team meeting on April 13, with their acknowledgement of "the fact' that financial rules and regulations demanded payment in local currency, also seem to rebut portions of a formal reply to Wallace given by UNDP's No. 2 official in New York, Ad Melkert. In a letter dated January 12, 2007, Melkert asserted that "there is no formal requirement to pay local expenditures exclusively in the local currency, although country offices are encouraged to utilize local currencies as circumstances permit."

• Click here to read UNDP Associate Administrator Ad Melkert's reply to Ambassador Wallace (pdf format).

In the same letter, however, Melkert declared that UNDP would give up the use of hard currency cash payments to North Korea effective March 1 and suspend nomination of its local staff by the Kim Jong Il government. A short time later, UNDP announced that the North Korean government had objected to the change of practice, and the agency would pull most of its international staff out of Pyongyang.

Meantime, the U.N.'s Board of auditors, on direction from newly appointed U.N. Secretary General Ban Ki-Moon, is taking a look at the operations of U.N. agencies in North Korea.

The audit is supposed to conclude in early April.

George Russell is Executive Editor of Fox News.

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http://www.foxnews.com/story/2007/03/23/un-behind-scandal-in-pyongyang