U.N. Ignores Its Own Procurement Ban

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How serious is the United Nations about much-touted reform of its scandal ridden, multi-billion-dollar procurement system? To hear senior U.N. officials tell it, very serious.

But that was before FOX News uncovered the case of Corimec S.p.A., an Italian firm that sold the U.N. more than $30 million-worth of goods in 2006 (and many millions more in previous years), and which was suspended from the U.N.'s list of authorized vendors on March 15, 2007 for involvement in one of the highest-profile bribery scandals in the multi-national organization's history.

Little more than a month after the United Nations Procurement Service dropped Corimec from its vendor list, the flagship United Nations Development Programme (UNDP) decided to ignore the ban and spent more than $2.1 million on emergency housing kits from the firm. The reason: UNDP officials declared that as a legally separate U.N. agency, they were not bound to honor the Procurement Service sanction.

The fact that UNDP, a $5 billion development agency, chose to override the vendor suspension is particularly significant, because UNDP is the premier agency through which the U.N. operates on the ground in most of the 160 countries that it services. UNDP is also the lead agency in an experimental program known as “One U.N.” that is ultimately intended, ironically enough, to rationalize the delivery and efficiency of U.N. services around the world.

The UNDP decision to disregard the blacklist inspired by the "serious" (UNDP's term) issue of the bribery of U.N. officials raises a host of questions about the actual status of the effort to clean up corruption within the organization's multi-billion-dollar procurement business, which was described by U.N. investigators in 2006 as wrapped in "systematic abuse," "a pattern of corrupt practices," and "a culture of impunity."

Chief among the questions is whether the U.N.'s left hand cares what the right hand is doing in an increasingly balkanized organization where the secretary-general, who appoints all the top officials, is apparently restrained from controlling their behavior afterwards.

That issue seems particularly acute now that the U.N. — which admits it has been badly tainted by corruption and inefficiency — has seen its overall budget grow at a spectacular clip as its various parts claim a special position in addressing the world’s multiplying problems and demand billions in additional funding to do so.

Confidential UNDP records obtained by FOX News show that UNDP officials began considering the idea of using Corimec barely three weeks after the blacklisting was announced, based on a request from UNDP's Pakistan office. UNDP officials were fully aware of Corimec's suspension, and the reason for it.

At an April 4, 2007 meeting of the organization's Advisory Committee on Procurement (ACP), which must sign off on all purchases of more than $100,000, UNDP initially rejected the idea, largely because of the suspension, and dismissed arguments made in favor of working with the company as "not credible."

Yet on April 23, 2007, after a lengthy exchange of e-mails with UNDP officials in Pakistan, UNDP officials decided at another ACP meeting that despite their agreement that the U.N. "blacklist" was the result of the "serious offense" of bribery, they would override it because — in their view — they were not legally bound by punishment decisions that came from the bureaucracy ruled by Secretary-General Ban Ki-moon.

The minutes of both meetings have been obtained by FOX News.

• For minutes of the meetings, click here.

Having made their decision, the UNDP did not inform either the officials in the United Nations Procurement Service who had ordered the suspension in the first place, or Secretary-General Ban, who had promised to make the U.N. conform to the "highest ethical standard" when he took office in January 2007.

The main reason for UNDP's decision to ignore the procurement sanction was convenience, or "exigency," as officials put it, in the face of continuing UNDP efforts to alleviate a housing crisis caused by Pakistan's disastrous earthquake in October 2005.

Corimec had previously supplied UNDP in Pakistan with some $2.3 million-worth of the same kind of emergency housing units, officials told each other in a series of e-mails also obtained by FOX, and this had required the training of workers in Pakistan. Switching suppliers "will delay the procurement and will require training of the local staff," local officials said. There had also been quality control problems with a shipment from another supplier, the procurement group was told.

• To see the e-mails, click here.

In addition, UNDP field officials downplayed the significance of the offense that sparked the penalty. They relayed Corimec’s contention that the actual bribery offense had taken place in 1993, and that the company had "changed the management and [that] many of its staff who were involved in unethical practices in the past have left."

In the e-mails obtained by FOX News, no further proof was offered for those contentions. (Corimec did not respond to a number of e-mail questions sent by FOX News.)

Finally, UNDP legal officials noted that under U.N. Secretariat rules, suspended companies are allowed to apply for reinstatement on the U.N. vendor list, and in recommending approval of the purchase also recommended that Corimec start seeking that approval.

That was apparently enough for UNDP procurement officials, who had rejected the convenience argument at their previous April 4 meeting as "not credible." Their April 23 approval notice contained a proviso that "vendor also shall be asked to take up their case with [U.N. anti-corruption investigators] for seeking clearance to conduct business with UN system."

As recorded in the minutes, the UNDP suggestion that Corimec seek forgiveness did not mention the fact — outlined in U.N. rules and regulations — that suspended companies remain on the blacklist for at least six months before seeking return to acceptable status. That period would not expire until more than four months after UNDP had completed its latest purchase.

The minutes of the UNDP procurement meetings contain no discussion of whether the continued use of Corimec might send a negative signal about U.N. attitudes toward corrupt behavior, especially in a case where a U.N. official had been suborned. And at no point in the minutes of the meetings did UNDP officials discuss informing the U.N. Secretariat of what they were doing.

When questioned by FOX News, a spokesman for U.N. Secretary-General Ban emphatically reinforced that point. Despite the sensitivity of the corruption issue, at no time, either before or after the decision to ignore the U.N. ban on Corimec, the spokesman said, did UNDP officials notify the secretary-general’s office of the decision, a fact confirmed by another spokesman in that office.

Nor was the United Nations Procurement Service, which issued the ban, informed of the purchase decision. UNDP spokesman David Morrison, however, said that UNDP "verbally informed UNPS of the possible procurement at a meeting in the last week of March."

That was around the time a request to use Corimec came to UNDP headquarters — before the April 4 meeting, where the idea was rejected largely on the ground of the bribery suspension. It was also long before that rejection was reversed. Morrison added that "the decision to proceed was entirely UNDP's."

Corimec was originally suspended by the United Nations Procurement Service as a result of the bribe-taking career of Alexander Yakovlev, a Russian-born procurement officer whose secret Caribbean bank account was discovered by FOX News in 2005. That discovery led to his resignation and subsequent arrest. Yakovlev pled guilty in a U.S. federal court to money laundering and corruption charges and has since been cooperating with U.S. federal investigators prior to sentencing.

Yakovlev’s discovery came after more than a decade of soliciting and accepting bribes and steering contracts through rigged bids and manipulating technical criteria that dates back to 1993, and easily involved hundreds of millions of dollars. It led to the 2006 United Nations report that complained of the organization’s "culture of impunity."

According to U.N. investigators, Corimec was involved in one of the earliest cases of Yakovlev’s bribe-taking, along with a related firm, Cogim S.p.A. In subsequent years, Corimec did exceedingly well as a U.N. supplier. In 2004, the firm won contracts worth $18.3 million; in 2005, $34 million, and even in 2006, after Yakovlev's arrest, another $30 million.

The firm's involvement in bribe-taking was mentioned in a report by U.N. investigators in 2005. Its suspension in March 2007 came months after other firms named in the report were suspended or outright banned from further dealings with U.N. procurement.

Since Yakovlev was caught, the U.N. has made a number of high-profile efforts to clean up its procurement act, including formation of a Procurement Task Force of special investigators to examine corruption cases that the organization previously overlooked or ignored, plus a spate of new ones.

Late last year, the task force issued an omnibus report that uncovered fraud, waste and abuse in $619 million-worth of contracts, out of a sample of $1.4 billion. But that inspection covered little more than a quarter of the $5.5 billion-worth of U.N. contracts in its peacekeeping division alone. And the task force has faced heavy opposition, especially from developing countries, as a result of its work. Its one-year funding was renewed for this year only at the last minute, and only after an intense political battle in which the investigators were backed by the United States.

What the Corimec case underlines is that the U.N.'s effort to impose a rule of law on its contracting business, which is loudly supported in public by Secretary-General Ban, still has only a beachhead within the Secretariat itself, and much less than that within the sprawling array of U.N. funds, programs and agencies that make up the bulk of the U.N. "system," which is far bigger and spends many times more money than the $4.17 billion U.N. "core" biennial budget.

It is more than ironic that UNDP and its subsidiary, the Inter-Agency Procurement Services Organization (IAPSO), which say they are not bound by procurement penalty decisions made within the U.N. Secretariat, are key members of a new U.N. organization intended to increase efficiency through, among other things, "harmonization of procurement practices." The top management body is known as the Inter-Agency Procurement Working Group, established in June 2007— two months after UNDP decided to ignore the Corimec suspension ruling.

IAPSO also functions as the secretariat for the United Nations Global Marketplace, a newly created online supplier registry and contracting site that is intended as a central clearing house for procurement information.

The home page of the marketplace site (www.ungm.org) clearly states that "United Nations agencies participating in the UN Global Marketplace strictly enforce a policy of zero tolerance concerning unethical, unprofessional or fraudulent acts of UN contractors. Accordingly, any registered company that is found to have undertaken unethical, unprofessional or fraudulent activities will be suspended or forbidden from continuing business relations with the United Nations."

A list of 20 U.N. agencies is attached to the warning. It includes both UNDP and IAPSO, as well as the United Nations Procurement Service.

UNDP's position regarding suspended United Nations vendors closely tracks with its position regarding protections for U.N. whistleblowers, which has already provoked strong controversy within the U.N. and elsewhere.

In August 2007, the United Nations Ethics Commissioner Robert Benson — whose office was established in the wake of the same procurement scandals that led to Corimec’s suspension — asked UNDP to allow him to investigate a "prima facie case of retaliation" against a UNDP whistleblower, Artjon Shkurtaj, who had called attention to irregularities in the organizations funneling hard currency to the North Korean regime of Kim Jong-Il, and the use of Korean government employees as UNDP staff in sensitive positions. Shkurtaj was subsequently fired.

Benson intended to create the first major U.N. precedent for system-wide whistleblower protection under new ethics rules, inspired in significant measure by procurement corruption scandals.

But UNDP took the position — which Benson acknowledged — that the U.N. whistleblower code did not apply outside the Secretariat, and rejected his appeal that investigation of the case would be "for the good of the United Nations." Secretary-General Ban himself ended up accepting UNDP’s view, prompting protests from groups that helped to create the original legislation.

In the Corimec case, too, Ban has accepted the view that punishments meted out for corrupt activity by his Secretariat need not be followed by UNDP or other agencies, because they are legally separate. But in elaborate diplomatese, a spokesman from Ban's office not only emphasized UNDP's lack of communication regarding its decision, but underlined Ban’s "strong feeling" that the U.N. should have a common policy toward transgressors.

"While the [United Nations Procurement Service] has no statutory authority over UNDP's procurement," the spokesman said, whenever that service imposes sanctions on a vendor, "an e-mail is sent out to the agencies and the information is posted" on a UNPS website. "This procedure was followed in the case of Corimec."

The spokesman added that "the secretary-general is very keen to continue to strengthen the work of UNPS as well as the work of the Procurement Task Force."

He also noted that the U.N. Procurement Service "has put forward a proposal to adopt a common position across the U.N. system regarding 'suspect' vendors. That proposal is currently being reviewed and studied."

That declaration, of course, amounts to an admission that something more like disarray exists in current U.N. procurement, and also that Secretary-General Ban has not yet been able to extend his rule of law across a system whose top officials he appoints.

In fact, in August 2007, the U.N. itself decided to begin the process of welcoming Corimec back into the vendor fold, largely to increase the number of vendors able to provide portable housing for its ballooning number of peacekeeping missions.

After considerable negotiation, Corimec last November signed an agreement on principles of compliance, and is scheduled next month to submit its own “Ethics and anti-Corruption Programme” for consideration by the U.N. Procurement Service and other U.N. bodies, including the ethics office.

After that, the suspension of Corimec might be lifted from what has been, apparently, the only place in the U.N. where the suspension for corrupt behavior applied.

George Russell is executive editor of FOX News Channel.