U.S.: U.N. agency gave millions to N. Korea

UNITED NATIONS -- The United States accused a U.N. agency of funneling millions of dollars in cash aid to North Korean leader Kim Jong Il and questioned if the funds had been used for other activities including nuclear weapons development, U.S. officials said Friday.

U.S. deputy ambassador Mark Wallace charged that the U.N. Development Program in North Korea operated "in blatant violation of U.N. rules" for years. He demanded an immediate outside audit, focusing on concerns that Pyongyang converted development funds "to its own illicit purposes."

The program, known as UNDP, said the use of cash for its operations in North Korea "in difficult circumstances" was approved by its executive board. Following the U.N. imposition of sanctions against North Korea in October for conducting a nuclear test, UNDP said it was taking measures to prevent "unintended consequences" of the program's activities.

UNDP Associate Administrator Ad Melkert disputed allegations that the agency violated U.N. rules, insisting it followed UNDP financial rules. Nonetheless, he said that by March 1, all hard currency payments to the government, national partners, local staff and suppliers would be replaced by payments in North Korean won.

The North Korean won is not a hard currency that can be easily used to buy luxury goods or weapons parts -- but Melkert stressed that the only place to buy the local currency was from the country's central bank.

Neither the U.S. nor UNDP would give a figure of how much money was involved, but Melkert said it wasn't hundreds of millions of dollars. In a Jan. 5 letter to Wallace, he said, from 2001 to 2005, UNDP spent an average of $2.3 million annually on both program and administration, including approximately $100,000 annually on local salaries.

U.N. Secretary-General Ban Ki-moon called for an urgent "external inquiry" into U.N. funds and programs around the globe, U.N. spokeswoman Michele Montas said. Many of the agencies -- like UNDP -- operate semi-independently and have their own boards.

Montas said the external audits will cover all funds and programs including the U.N. Children's Fund, the U.N. refugee agency, the World Food Program and the World Health Organization.

An exchange of letters between Wallace and senior UNDP officials goes back to November and was first reported by The Wall Street Journal.

U.S. officials said they first received indications there might be some irregularities in UNDP's North Korea program in the second half of 2006, and raised concerns that the cash might be misused, possibly for Pyongyang's nuclear program.

A Jan. 4 letter from Wallace to UNDP Administrator Kemal Dervis raised "U.S. concerns that UNDP has transferred hard currency directly to the regime of Kim Jong Il."

Wallace's harshest letter, dated Jan. 16, said that after examining several of the agency's internal audits, the U.S. concluded that UNDP's local staff is dominated by North Korean government employees who have managed the agency's programs and finances in violation of UNDP rules.

He cited three other violations of U.N. rules -- the government's insistence that UNDP pay cash to North Korean government suppliers, and UNDP's failure to oversee projects it funds in the country or to audit its programs.

"The UNDP program has laudable goals of providing assistance to the North Korean peoples," said Wallace, who focuses on U.N. management issues. "Unfortunately, because of the actions of the DPRK (North Korean) government and the complicity of UNDP, at least since 1998, the UNDP DPRK program has been systematically perverted for the benefit of the Kim Jong Il regime -- rather than the people of North Korea."

Acting U.S. Ambassador Alejandro Wolff said the United States is still seeking answers and doesn't know the extent of the problem, or how much money was involved.

"It simply boggles the imagination that they simply dole out cash without controls," he said.

UNDP's Melkert said the agency was operating in North Korea in an environment reminiscent of the Cold War when many communist bloc countries selected staff employed by U.N. agencies, which often operated under severe financial and travel restrictions.

"Around 1999, there were many concerns expressed by internal auditors," Melkert told a news conference. "We've seen a gradual tendency of a diminishing number of issues brought to the attention of management by the (internal) auditors, but some very tough issues remain and those are the issues that we have addressed now."

In addition to ending cash payments, he said, UNDP will discontinue government recruitment of national staff "and we will put the right monitoring and audits in place addressing the issue of national execution."