By FREDERIC J. FROMMER The Associated Press Wednesday, January 23, 2008; 8:37 PM WASHINGTON -- A United Nations anti-poverty program in North Korea paid $50,000 to a company with ties to North Korean weapons sales and left itself open to exploitation by the communist-led country, according to a Senate investigation released Wednesday.
The report by the Senate Permanent Subcommittee on Investigations takes issue with the operation of the U.N. Development Program in North Korea, which was suspended last year. The report alleges that the UNDP made itself open to abuse by, among other things, paying the salaries of local staff directly to the government without verifying how they were disbursed, even though the agency suspected that the government was "skimming" money from the payments.
Citing wire transfers and other financial documents, the report also said that North Korea used a bank account reserved for UNDP funds to move $2.72 million of its own money out of the country. According to the report, North Korean government officials told Senate investigators these transfers were made soon after President Bush declared the country part of an "axis of evil."
Officials of the communist country told the investigators the transfers were made through the UNDP account to avoid international scrutiny and possible sanctions that they believed were imminent, the report said.
The findings were scheduled to be discussed at a Senate hearing on Thursday.
Phone and e-mail messages left with the North Korean Mission to the U.N. were not returned Wednesday.
The Bush administration said it's too early to remove North Korea from a U.S. terrorism blacklist, a major demand by Pyongyang in international nuclear disarmament negotiations.
Some of the problems identified in the report were covered by a U.N. audit last year, which found that the UNDP paid North Korean staff and suppliers in hard currency without approval and hired only government-approved staff in violation of U.N. procedures.
"But we went beyond that," said Minnesota Sen. Norm Coleman, the committee's top Republican.
"The North Koreans had set up what I call a money-laundering system," he said, referring to the $2.72 million in transfers. "By using the U.N. seal of approval, clearly the hope was that it wouldn't attract any attention."
UNDP officials, Coleman said, "let themselves be manipulated by a rogue nation."
Coleman also highlighted the $50,000 in funds paid to Zang Lok Trading Co. on behalf of other U.N. agencies. The report includes a letter from the U.S. mission to the U.N., sent to the UNDP last year, which says that "Zang Lok has ties to a North Korean entity that has been designated under United States laws as the main North Korean financial agent for sales of conventional arms, ballistic missiles and goods related to the assembly and manufacture of such weapons."
The report said that UNDP officials told the subcommittee it didn't know, nor had any way of knowing, whether Zang Lok is connected to North Korean weapons sales.
In a statement issued Wednesday in response to the report, the UNDP said it paid Zang Lok on behalf of two other U.N. agencies for computer equipment, which were received in "good order." The UNDP added that it ceased doing business with Zang Lok after being notified by the U.S. government about its ties to a "designated entity."
As to the $2.72 million in funds that were transferred, the agency said: "UNDP is not happy that its name may have been used inappropriately by the North Korean government in connection with deceptive financial transactions. It has formally raised this matter with the North Korean government."
The statement also notes that the Senate report does not conclude that these transfers could have been prevented had the UNDP been more vigilant.
"UNDP is also pleased to note that contrary to persistent allegations it has faced, the report finds that the $2.72 million in question was not UNDP's money," the agency said.
The UNDP suspended its operations in North Korea last year because the reclusive nation failed to meet conditions set following allegations by the U.S. that U.N. aid money was being diverted to Kim Jong Il's regime. Among the conditions: that the UNDP no longer pay North Korean staff in hard currency and no longer employ North Koreans loaned from government agencies.
David Morrison, a UNDP spokesman, said in an e-mail that the agency has faced "persistent and detailed allegations about funding diversion and misconduct in its former operations in North Korea. We collaborated fully with the subcommittee's investigation, and are gratified that the staff report contains no suggestion that these allegations can be substantiated."
Subcommittee staffers confirmed that they received substantial cooperation, but noted a passage in the report that said they were not given unfettered access to the UNDP financial system or original records or receipts. Because of that limited scope, they said, the report neither confirms nor refutes allegations made by the U.S.
A year ago, the United States accused the UNDP of funneling millions of dollars in hard currency to North Korea with little assurance that Kim Jong Il used the money to help his people, instead of diverting it to "illicit purposes" including developing nuclear weapons.
The report noted that development projects in North Korea present daunting challenges but concluded, "the North Korean government took advantage of the altruism that drives UNDP programs."
(This version CORRECTS the reference to the North Korean Mission.)
By Colum Lynch Washington Post Staff Writer Thursday, January 24, 2008; Page A16 UNITED NATIONS, Jan. 23 -- In the months after President Bush's 2002 speech branding Iran, Iraq and North Korea as an "axis of evil," North Korean officials channeled at least $2.7 million through a bank account normally used to process United Nations development projects because of fears that the United States would block its ability to transfer money outside the country, according to a Senate subcommittee report.
The report supports U.S. assertions that the North Korean government routinely manipulated the U.N. Development Program to move cash around the world. But it stopped short of confirming reports that millions of dollars in U.N. funds were diverted to purchase properties in Europe and Canada.
"The North Korean government made a concerted effort to conceal the movement of its funds out of North Korea and into western financial institutions," according to the report by the Senate Permanent Subcommittee on Investigations. "North Korean officials explained to the subcommittee that they expected sanctions against their country would be tightened and were concerned their wire transfers would be barred."
The report, prepared by the staff of the subcommittee, found that UNDP's operations were plagued by "management and operational deficiencies" that rendered the agency "vulnerable to manipulation by North Korea." Its release comes on the eve of a Senate hearing Thursday on the UNDP's past North Korea operations.
The Senate report asserts that between April and September 2002, North Korea made nine wire transfers totaling $2.7 million from a U.N.-affiliated account at Pyongyang's Foreign Trade Bank to the Macau-based Banco Delta Asia. The funds were deposited in an account controlled by a Chinese company, International Finance Trade Joint Company, and then transferred to North Korean diplomatic missions in the United States and Europe.
U.S. officials said the Senate report confirmed their most serious concerns about a breakdown in UNDP's controls that aided the North Korean dictatorship in abusing international efforts to improve the lives of its people. But UNDP insisted that Wednesday's report "contains nothing" to substantiate persistent allegations that it transferred tens of millions of dollars to North Korea or that its funds were diverted to a clandestine North Korean nuclear or missile program.
"We are gratified that the staff report contains no suggestion that these allegations can be substantiated," said UNDP spokesman David Morrison.
The U.N. development agency, which employs more than 7,000 workers in 166 countries, had operated in North Korea since 1981. It shut down its North Korean operations in March 2007 after U.S. and Japanese criticisms about its practice of hiring government-appointed employees and paying their salaries directly to the North Korean government.
The Senate report said there was no way to verify whether the government skimmed a portion of salaries. It asserted that UNDP appears to have "unwittingly" transferred about $50,000 to a company that the United States has linked to a North Korean entity responsible for the sale of conventional arms and ballistic missiles.
