[Senate Hearing 110-544]
[From the U.S. Government Publishing Office]
S. Hrg. 110-544
UNITED NATIONS DEVELOPMENT PROGRAM:
A CASE STUDY OF NORTH KOREA
=======================================================================
HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
----------
JANUARY 24, 2008
----------
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
UNITED NATIONS DEVELOPMENT PROGRAM: A CASE STUDY OF NORTH KOREA
S. Hrg. 110-544
UNITED NATIONS DEVELOPMENT PROGRAM:
A CASE STUDY OF NORTH KOREA
=======================================================================
HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JANUARY 24, 2008
__________
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
----------
U.S. GOVERNMENT PRINTING OFFICE
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Washington, DC 20402-0001
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
MARK PRYOR, Arkansas NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
------
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
CARL LEVIN, Michigan, Chairman
THOMAS R. CARPER, Delaware NORM COLEMAN, Minnesota
MARK L. PRYOR, Arkansas TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
Elise J. Bean, Staff Director and Chief Counsel
Zachary I. Schram, Counsel
Mark L. Greenblatt, Staff Director and Chief Counsel to the Minority
Michael P. Flowers, Counsel to the Minority
Melissa Stalder, Associate Counsel to the Minority
Mary D. Robertson, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Levin................................................ 1
Senator Coleman.............................................. 8
Senator Coburn............................................... 17
WITNESSES
Thursday, January 24, 2008
Hon. Zalmay Khalilzad, U.S. Ambassador to the United Nations, New
York, New York................................................. 18
Hon. Mark D. Wallace, U.S. Ambassador for United Nations
Management and Reform, New York, New York...................... 21
Thomas Melito, Director, International Affairs and Trade, U.S.
Government Accountability Office, Washington, DC............... 36
Frederick Tipson, Director, Liaison Office, United Nations
Development Programme, Washington, DC, accompanied by David
Lockwood, Deputy Director, Regional Bureau for Asia and the
Pacific, United Nations Development Programme, New York, New
York, and David Morrison, Director of Communications, United
Nations Development Programme, New York, New York.............. 43
Robert Benson, Director, United Nations Ethics Office, New York,
New York....................................................... 45
Alphabetical List of Witnesses
Benson, Robert:
Testimony.................................................... 45
Prepared statement........................................... 107
Khalilzad, Hon. Zalmay:
Testimony.................................................... 18
Prepared statement........................................... 63
Lockwood, David:
Testimony.................................................... 43
Briefing statement with attachments.......................... 87
Melito, Thomas:
Testimony.................................................... 36
Prepared statement........................................... 68
Morrison, David:
Testimony.................................................... 43
Briefing statement with attachments.......................... 87
Tipson, Frederick:
Testimony.................................................... 43
Briefing statement with attachments.......................... 87
Wallace, Hon. Mark D.:
Testimony.................................................... 21
EXHIBITS
1a G2007 Report of the Board of Auditors........................ 111
1b G2004 UNDP Internal Audit.................................... 139
2a GLetter from Robert Benson, Director of UN Ethics Office,
dated August 17, 2007, to Kemal Dervis, UNDP Administrator,
regarding Ethics Office jurisdiction........................... 196
2b GLetter from Robert Benson, Director of UN Ethics Office,
dated August 17, 2007, to Artjon Shkurtaj, regarding June 5,
2007, request for protection from retaliation.................. 198
3a GSecretary-General's bulletin--Ethics Office--establishment
and terms of reference, dated December 30, 2005, issued by
Secretary-General Kofi Annan................................... 199
3b GSecretary-General's bulletin--United Nations system-wide
application of ethics: separately administered organs and
programmes, dated November 30, 2007, issued by Secretary-
General Ban Ki-moon............................................ 202
4. GUNDP DPRK Organizational Chart, based on chart from a 2004
UNDP audit report, redacted by Permanent Subcommittee on
Investigations................................................. 206
5. GExcerpt from 2004 UNDP Internal Audit Showing Breakdown of
NEX/DEX Modalities, chart from 2004 UNDP audit report.......... 207
6. GUSUN Letter to UNDP, dated January 16, 2007, regarding UNDP
operations in North Korea...................................... 208
7. GState Department email to Senate Staff, dated June 2007,
attaching May 23 Briefing by Ambassador Wallace Regarding UNDP
Activities in North Korea...................................... 212
8. GNorth Korea Transaction Using I.F.T.J., chart prepared by
the Permanent Subcommittee on Investigations, based on excerpt
of report prepared by Ernst & Young............................ 215
9. GBDA Record of IFTJ Application for Wire Transfer to vendor
on behalf of UNDP.............................................. 216
10. GSummary of Transactions from IFTJ to DPRK Embassy Accounts
for Purchases of Buildings Purportedly Related to UNDP
Activity, chart prepared by the Permanent Subcommittee on
Investigations................................................. 217
11. GBDA Record of Nine IFTJ Applications for Wire Transfers to
DPRK Embassy Accounts.......................................... 218
12. GUSUN Letter to UNDP, dated June 7, 2007, regarding Zang Lok
Trading Co..................................................... 227
13. GExcerpts of BDA Record of Wire Transfer from UNDP to Zang
Lok Trading Co., dated April 16, 2002, and May 28, 2004........ 231
14. GBusiness Cards of IFTJ and FTB employees, dated July 24,
2001........................................................... 232
15a GLetter Identifying Employee 3 as an Employee of
International Trade & Finance Joint Co. (Dated July 31, 2003).. 233
15b GExcerpt of Fax Identifying Employee 3 as a Senior Member of
a Delegation from FTB (Dated September 2003)................... 234
16. GLetter from Kemal Dervis, UNDP Administrator, dated January
22, 2007, providing information to UNDP Executive Board
regarding its operations in North Korea........................ 235
17. GLetter from Ambassador Pak Gil Yon, DPRK Permanent
Representative to the United Nations, dated February 13, 2007,
to U.N. Secretary-General Ban Ki-moon, regarding the external
audit of UNDP operations in North Korea........................ 240
18a GJPMorgan Chase wire transfer documents dated 8/21/02, 8/30/
02, and 9/9/02................................................. 241
18b GCharts prepared by the Permanent Subcommittee on
Investigations regarding Bank of America wire transfers........ 244
19. GElsingor SA Packing List for 29 books procured by UNDP for
DPRK, March 2007............................................... 246
20. GResponses to supplemental questions for the record from
Senators Carl Levin and Norm Coleman to The Honorable Zalmay
Khalilzad, United States Ambassador to the United Nations...... 249
21. GResponses to supplemental questions for the record from
Senator Tom Coburn to The Honorable Zalmay Khalilzad, United
States Ambassador to the United Nations........................ 257
22. GResponses to supplemental questions for the record submitted
to Thomas Melito, Director, International Affairs and Trade,
U.S. Government Accountability Office.......................... 268
23. GResponses to supplemental questions for the record submitted
to Frederick Tipson, Director, Liaison Office, United Nations
Development Programme.......................................... 292
24. GResponses to supplemental questions for the record from
Senator Tom Coburn to The Honorable Mark Wallace, United States
Ambassador for United Nations Management and Reform............ 304
Staff Report..................................................... 318
UNITED NATIONS DEVELOPMENT PROGRAM: A CASE STUDY OF NORTH KOREA
----------
THURSDAY, JANUARY 24, 2008
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:05 a.m., in
Room SD-342, Dirksen Senate Office Building, Hon. Carl Levin,
Chairman of the Subcommittee, presiding.
Present: Senators Levin, Coleman, and Coburn.
Staff Present: Elise J. Bean, Staff Director and Chief
Counsel; Mary D. Robertson, Chief Clerk; Zachary I. Schram,
Counsel; Gina Reinhardt, Congressional Fellow; Mark L.
Greenblatt, Staff Director and Chief Counsel to the Minority;
Michael P. Flowers, Counsel to the Minority; Melissa Stalder,
Associate Counsel to the Minority; Adam Hark, Law Clerk;
Jonathan Port, Intern; Adam Pullano, Intern; John Kim, Intern;
Trey Hicks and Katy French (Sen. Coburn); and Jon Scanlon (Sen.
McCaskill).
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Good morning, everybody. In March 2007, the
United Nations Development Program (UNDP), took the
unprecedented step of suspending its operations in the
Democratic People's Republic of Korea--North Korea--and in
April, the UNDP withdrew from the country entirely because
North Korea had declined to allow the UNDP to impose tighter
controls on its activities to increase transparency and
accountability. Today's hearing will examine some of the
management and operational deficiencies in the UNDP operations
in North Korea, as well as concerns about a UNDP audit policy
so restricted in its dissemination that program oversight was
impeded. The Staff Report also reviewed weak whistleblower
protections that may discourage UNDP employees from speaking
out about problems.
The UNDP is one of the world's principal humanitarian
agencies. It conducts development work in 166 countries,
spending $5 billion per year of its own funds and managing
another $4 billion or so from other U.N. entities and donors.
UNDP priorities include reducing poverty, dealing with crises
like floods and earthquakes, and combating health threats. It
operates in some of the world's most challenging countries,
working to advance humanitarian aims even under repressive
regimes. The UNDP is often walking a tightrope and often it
succeeds.
UNDP activities are in America's national interest. The
U.S. Department of State's 2006 Congressional Budget
Justification states that ``the UNDP's programs are closely
aligned with U.S. strategic interests.'' As we speak, for
example, UNDP personnel are risking their lives in support of
U.S. reconstruction efforts in Iraq and Afghanistan. They are
working on the ground to build better government rule in Sudan,
helping rush aid to flood and landslide victims on the island
of Java in Indonesia. To support these and other critical
humanitarian efforts, in 2005 the United States contributed
over $240 million to UNDP operations.
Last year, allegations of mismanagement involving UNDP
operations in North Korea erupted in the press. Some press
accounts reported allegations that the UNDP might have supplied
upward of $100 million in hard currency to North Korea and that
$2.7 million in UNDP money had been transferred to North Korean
embassies abroad, among other allegations. Accusatory letters
were exchanged between the U.S. Mission to the United Nations
and UNDP, straining relations between the two.
While some press reports were overblown, UNDP operations in
North Korea raise legitimate concerns. It is our hope that this
hearing will address the serious and complex issues involved
when important humanitarian work is undermined by local
government restrictions, and at what point humanitarian aid--so
important to a poor country--should be abandoned due to an
uncooperative and repressive regime.
At Senator Coleman's request last year, the Subcommittee
launched this inquiry into UNDP operations in North Korea. Our
staffs interviewed people from the State Department, UNDP,
other U.N. offices, GAO, and others. Our staffs reviewed
extensive documentation, including reports, correspondence, e-
mails, financial spreadsheets, and bank records.
The Subcommittee also obtained copies of three nonpublic
audit reports for the years 1999, 2001, and 2004, which had
been prepared for the UNDP on its North Korean operations.
These reports were obtained from confidential sources because,
under UNDP policy, not even UNDP Executive Board members are
entitled to copies of program audits. We also reviewed a 2007
audit report which UNDP commissioned in response to the
allegations and released to the public. All four audits
provided valuable information, perspective, and context.
In addition, the Subcommittee staff met twice in New York
with senior officials from the North Korean Mission to the
United Nations and had, frankly, a surprisingly open exchange
about the allegations at issue today. In my experience, direct
meetings between North Korean and congressional personnel are
rare, and we would like to acknowledge the North Koreans'
responses to our inquiries. Their information contributed to
our understanding of what transpired.
The information obtained from the Subcommittee
investigation, as well as the staff findings and
recommendations, are laid out in a Staff Report being released
in connection with today's hearing. I will focus here on just a
few of the highlights.
First, it is clear that UNDP operations in North Korea did
not follow standard UNDP policy and practice and were
undermined by management and operational deficiencies. Many of
these deviations from UNDP policy and practice were the result
of demands made by the North Korean Government. For example,
North Korea insisted and, contrary to UNDP policy and practice,
UNDP agreed to hire as its local staff only persons selected by
the North Korean Government. UNDP also agreed to pay their
salaries and expenses with convertible currency, such as U.S.
dollars or euros, rather than use the local currency, which was
the non-convertible North Korean won (currency). Moreover, UNDP
made the payments not to the individuals doing the work, but to
the North Korean Government itself, even after suspecting that
the North Korean Government, in the words of one UNDP official,
was ``skimming'' money from the payments.
The North Korean Government also insisted that the UNDP
conduct its financial transactions using the North Korean
state-owned Foreign Trade Bank, even though UNDP was not
allowed on the bank premises and was forced to use North Korean
personnel to execute the bank paperwork. That arrangement
undermined UNDP fiscal control over its own funds. Still
another problem was that UNDP officials were not allowed to
visit local project sites without prior notice to, and in the
company of, North Korean officials. Those project visits were
not the independent inspections called for by UNDP policy and
practice.
After the U.S. State Department complained to the Executive
Board about UNDP practices in North Korea, UNDP attempted to
install better safeguards on its program there. These
safeguards would have required local payments to be made in the
North Korean won, allowed local staff to be hired directly by
UNDP, and given UNDP greater access to inspect project sites.
But North Korea declined to accept the new conditions, and UNDP
withdrew from the country.
Before that, UNDP had operated in North Korea under these
and other staffing, fiscal, and administrative constraints.
UNDP personnel told the Subcommittee that, despite the
constraints, it was able to accomplish important humanitarian
aims in its North Korean work. It designed agricultural,
health, and economic development projects and verified that
they took place as intended.
When asked about press reports on the transfer of upward of
$100 million in hard currency to North Korea over 10 years,
UNDP indicated that figure was impossible since, over the 10
years, UNDP's total expenditures in North Korea did not exceed
about $33 million. UNDP explained that the $33 million paid for
UNDP's own expenses as well as North Korean development costs.
UNDP estimated that, of the $33.5 million spent, only about
$400,000 was transferred to the North Korean Government account
designated for use on development projects. About $6 million
was spent by the UNDP for local staff salaries, rent, and
office costs, again, over 10 years. While the Subcommittee
staff was unable to confirm these estimates through its own
analysis since key financial records remained in Pyongyang, a
UNDP-commissioned audit is now underway to do just that, and
there appears to be little reason to believe that the figure of
upward of $100 million that appeared in the press will be
sustained.
The UNDP was itself responsible for some of the confusion
surrounding its operations in North Korea. When U.S. diplomatic
personnel asked about its North Korean operations in 2006, the
UNDP initially refused to provide detailed information and
denied access to the relevant audit reports. Later, UNDP
allowed the United States to see the audit reports but
permitted U.S. personnel to review them on a single occasion
without allowing copies to be made. This overly restrictive
audit policy impedes oversight and encourages inaccuracies.
This Subcommittee obtained copies of the UNDP audit reports
and used the information to develop a better understanding of
UNDP operations in North Korea. We have seen no reason for the
audit reports to have been kept secret. Inaccessible U.N. audit
reports are a perennial sore point that continues to strain
U.S.-U.N. relations and casts suspicion, often needlessly, on
U.N. activities.
UNDP Administrator Kemal Dervis has proposed that the UNDP
Executive Board grant access to UNDP audits on a routine basis
to UNDP Executive Board members. His proposal has limitations--
it applies only to future audits, allows only in-person
interviews, and does not allow photocopies--but it is a step
forward. I urge the UNDP Executive Board to allow unfettered
audit access to all UNDP financial and management audits, not
only for board members, but also all U.N. member states and the
public.
Another problem to be examined today involves the UNDP's
treatment of the key employee who spoke out about the problems
in North Korea, Artjon Shkurtaj, former Operations Manager of
the UNDP office in Pyongyang. The UNDP's treatment of Mr.
Shkurtaj is the latest blow to U.N. whistleblower protections,
and it does not inspire confidence in UNDP's willingness to
hear negative reports about its operations.
The UNDP's overly restrictive audit policy and weak
whistleblower protections contributed to the concerns about its
North Korean operations. UNDP was also the victim of misleading
actions by North Korea. The Subcommittee investigation obtained
bank records showing, for example, that over a 6-month period
from April to September 2002, North Korea deposited a total of
$2.7 million of its own funds into a bank account that was
supposed to be used exclusively for UNDP projects. North Korea
then moved its funds from that UNDP-related account to a bank
account in Macau in the name of a Chinese company called
International Finance and Trade Joint Company, which acted as a
conduit for North Korea. IFTJ transferred the funds it received
from North Korea to other accounts around the world controlled
by North Korea, each time referencing the UNDP program in the
accompanying wire transfers even though the funds had nothing
to do with UNDP activity. Why would North Korea deposit its own
funds into a bank account that was supposed to only contain
UNDP funds?
When asked about these transactions by the Subcommittee,
North Korean officials acknowledged the transfers. They said
that the 2002 speech by President Bush in which he said North
Korea was part of an ``axis of evil'' raised fears that North
Korean accounts would be frozen. North Korean officials told
the Subcommittee that the funds they transferred were for
operating diplomatic missions in the United States and Europe.
They said that the North Korean Ministry of Foreign Affairs
used the UNDP-related account as a secure channel for
transferring its own funds, apparently because it was less
likely to incur international scrutiny and be frozen.
North Korea did not alert UNDP to its actions, and UNDP
told the staff that it had no idea, until shown the bank
records by our staff, that North Korea had deposited its own
funds into the bank account set up to receive UNDP funds for
UNDP development projects. UNDP had no access to the account
records, since the account was under the sole control of the
North Korean Government. UNDP also was surprised to learn that
the Foreign Trade Bank had routed some outgoing UNDP funds
through the same IFTJ bank account in Macau, and that two U.N.
payments totaling about $50,000 that had been made by UNDP on
behalf of other U.N. agencies had gone to an entity that the
State Department later linked to North Korea weapons sales. The
Staff Report provides greater detail about these incidents and
recommends new controls to prevent similar problems in the
future, including by enabling UNDP to monitor account activity
of any host country account set up to receive UNDP funds.
The UNDP is an important U.S. ally. Its mission coincides
with our interest, as well as our hopes for a more secure and
prosperous world. One key question raised by this investigation
is whether UNDP operations that help the people living under
repressive regimes should always just be ended, as they were in
North Korea, when the government bypasses UNDP controls
designed to ensure transparency and accountability.
I would like to thank all of the parties for their
cooperation with this investigation. UNDP, in particular,
patiently answered many Subcommittee inquiries. The
Subcommittee fully recognizes the privileges and immunities of
the United Nations, and we appreciate the extent of its
voluntary cooperation as well as its allowing the UNDP to brief
the Subcommittee here today.
We live in dangerous times, and so many of the threats we
face--terrorism, climate change, infectious disease--require an
international response. The United Nations, including UNDP, is
in a position to help confront those threats. But transparency
and accountability are essential to ensure that their aims are
advanced. It is why we need unfettered audit reports, strong
whistleblower protections, and the willingness to take a hard
look at U.N. operations worldwide. Again, I commend Senator
Coleman for his initiative in this matter. I thank our staffs
not only for a thorough product but, as always, for working in
a bipartisan way to improve and strengthen the United Nations.
[The prepared statement of Senator Levin follows:]
PREPARED STATEMENT OF SENATOR LEVIN
In March 2007, the United Nations Development Program (UNDP) took
the unprecedented step of suspending its operations in the Democratic
People's Republic of Korea (DPRK), commonly known as North Korea. In
April, the UNDP withdrew from the country entirely, because North Korea
had declined to allow UNDP to impose tighter controls on its activities
to increase transparency and accountability. Today's hearing will
examine some of the management and operational deficiencies in the UNDP
operations in North Korea as well as concerns about a UNDP audit policy
so restricted in its dissemination that program oversight was impeded.
The Staff Report also reviewed weak whistleblower protections that may
discourage UNDP employees from speaking out about problems.
The U.N. Development Programme is one of the world's principal
humanitarian agencies. It conducts development work in 166 countries,
spending $5 billion per year of its own funds and managing another $4
billion or so for other U.N. entities and donors. UNDP priorities
include reducing poverty, dealing with crises like floods and
earthquakes, and combating health threats. It operates in some of the
world's most challenging countries, working to advance humanitarian
aims even under repressive regimes. The UNDP is often walking a
tightrope. Often it succeeds.
UNDP activities are in America's national interest. The U.S.
Department of State's 2006 Congressional Budget Justification states
that ``the UNDP's programs are closely aligned with U.S. strategic
interests.'' As we speak, for example, UNDP personnel are risking their
lives in support of U.S. reconstruction efforts in Iraq and
Afghanistan. They are working on the ground to build better government
rule in Sudan, and helping rush aid to flood and landslide victims on
the island of Java in Indonesia. To support these and other critical
humanitarian efforts, in 2005, the United States contributed over $240
million to UNDP operations.
Last year, allegations of mismanagement involving UNDP operations
in North Korea erupted in the press. Some press accounts reported
allegations that the UNDP might have supplied upward of $100 million in
hard currency to the North Korea and that $2.7 million in UNDP money
had been transferred to North Korean embassies abroad, among other
allegations. Accusatory letters were exchanged between the United
States Mission to the United Nations and UNDP, straining relations
between the two.
While some press reports were overblown, UNDP operations in North
Korea raise legitimate concerns. It is our hope that this hearing will
address the serious and complex issues involved when important
humanitarian work is undermined by local government restrictions, and
at what point humanitarian aid--so important to a poor country--should
be abandoned due to an uncooperative and repressive regime.
At Senator Coleman's request last year, the Subcommittee launched
this inquiry into UNDP operations in North Korea. Our staffs
interviewed people from the State Department, UNDP, other U.N. offices,
GAO, and others. Our staffs reviewed extensive documentation, including
reports, correspondence, emails, financial spreadsheets, and bank
records.
The Subcommittee also obtained copies of three nonpublic audit
reports for the years 1999, 2001, and 2004, which had been prepared for
the UNDP on its North Korean operations. These reports were obtained
from confidential sources because, under UNDP policy, not even UNDP
Executive Board members are entitled to copies of program audits. We
also reviewed a 2007 audit report which UNDP commissioned in response
to the allegations and released to the public. All four audits provided
valuable information, perspective, and context.
In addition, the Subcommittee staff met twice in New York with
senior officials from the North Korean Mission to the United Nations
and had, frankly, a surprisingly open exchange about the allegations at
issue today. In my experience, direct meetings between North Korean and
Congressional personnel are rare, and we would like to acknowledge the
North Koreans' responses to our inquiries. Their information
contributed to our understanding of what transpired.
The information obtained from the Subcommittee investigation, as
well as the staff findings and recommendations, are laid out in a Staff
Report being released in connection with today's hearing. I will focus
here on a few highlights.
First, it is clear that UNDP operations in North Korea did not
follow standard UNDP policy and practice, and were undermined by
management and operational deficiencies. Many of these deviations from
UNDP policy and practice were the result of demands made by the North
Korean government. For example, North Korea insisted and, contrary to
UNDP policy and practice, UNDP agreed to hire as its local staff only
persons selected by the North Korean government. UNDP also agreed to
pay their salaries and expenses with convertible currency, such as U.S.
Dollars or Euros, rather than use the local currency, which was the
non-convertible North Korean Won. Moreover, UNDP made the payments not
to the individuals doing the work, but to the North Korean government
itself, even after suspecting that the regime, in the words of one UNDP
official, was ``skimming'' money from the payments.
The North Korean government also insisted that UNDP conduct its
financial transactions using the North Korean state-owned Foreign Trade
Bank, even though UNDP wasn't allowed on the bank premises and was
forced to use North Korean personnel to execute the bank paperwork.
That arrangement undermined UNDP fiscal control over its funds. Still
another problem was that UNDP officials were not allowed to visit local
project sites without prior notice to, and in the company of, North
Korean officials. Those project visits weren't the independent
inspections called for by UNDP policy and practice.
After the U.S. State Department complained to the Executive Board
about UNDP practices in North Korea, UNDP attempted to install better
safeguards on its program there. These safeguards would have required
local payments to be made in the North Korean Won, allowed local staff
to be hired directly by UNDP, and given UNDP greater access to inspect
project sites. But North Korea declined to accept the new conditions,
and UNDP withdrew from the country.
Before that, UNDP had operated for years in North Korea under these
and other staffing, fiscal, and administrative constraints. UNDP
personnel told the Subcommittee that, despite the constraints, it was
able to accomplish important humanitarian aims in its North Korean
work. It designed agricultural, health, and economic development
projects, and verified that they took place as intended.
When asked about press reports on the transfer of upward of $100
million in hard currency to North Korea over 10 years, UNDP indicated
that figure was impossible since, over the ten years, UNDP's total
expenditures in North Korea did not exceed about $33.5 million. UNDP
explained that the $33.5 million paid for UNDP's own expenses as well
as North Korean development costs. UNDP estimated that, of the $33.5
million spent, only about $400,000 was transferred to the North Korean
government account designated for use on development projects. About $6
million was spent by the UNDP for local staff salaries, rent, and
office costs, again, over 10 years. While the Subcommittee staff was
unable to confirm these estimates through its own analysis, since key
financial records remained in Pyongyang, a UNDP commissioned audit is
now underway to do just that, and there appears to be little reason to
believe that the figure of upward of $100 million that appeared in the
press will be sustained.
The UNDP was itself responsible for some of the confusion
surrounding its operations in North Korea. When U.S. diplomatic
personnel asked about its North Korean operations in 2006, the UNDP
initially refused to provide detailed information and denied access to
the relevant audit reports. Later, UNDP allowed the United States to
see the audit reports but permitted U.S. personnel to review them on a
single occasion without allowing copies to be made. This overly
restrictive audit policy impedes oversight and encourages inaccuracies.
This Subcommittee obtained copies of the UNDP audit reports and
used the information to develop a better understanding of UNDP
operations in North Korea. We have seen no reason for the audit reports
to have been kept secret. Inaccessible U.N. audit reports are a
perennial sore point that continues to strain U.S.-U.N. relations and
casts suspicion, often needlessly, on U.N. activities.
UNDP Administrator Kemal Dervis has proposed that the UNDP
Executive Board grant access to UNDP audits on a routine basis to UNDP
Executive Board members. His proposal has limitations--it applies only
to future audits, allows only in-person reviews, and does not allow
photocopies--but it is a step forward. I urge the UNDP Executive Board
to allow unfettered audit access to all UNDP financial and management
audits, not only for Board members, but also all U.N. member states and
the public.
Another problem to be examined today involves the UNDP's treatment
of the key employee who spoke out about the problems in North Korea,
Artjon Shkurtaj, former Operations Manager of the UNDP office in
Pyongyang. Mr. Shkurtaj blew the whistle on what he believed were
management and operational deficiencies in North Korea. He reported
those problems to his superiors and eventually to Ambassador Wallace at
the U.S. Mission to the United Nations. Rather than support him, UNDP
decided not to renew his contract.
Given the pending Independent Investigative Review now examining
his case, this is not the occasion to consider all of Mr. Shkurtaj's
allegations or the details of his treatment by UNDP. It is appropriate,
however, to express concern about UNDP whistleblower protections in
general. After his contract ended, Mr. Shkurtaj filed a complaint with
the recently created U.N. Ethics Office alleging UNDP retaliation. In
an August 2007 letter, the U.N. Ethics Office wrote that Mr. Shkurtaj
had established ``a prima facie case of retaliation,'' but concluded
that the Office lacked jurisdiction to resolve his case. The letter
noted that an Ethics Office review would have been in the ``best
interests of the United Nations,'' but UNDP had declined the Office's
request to voluntarily submit the Shkurtaj matter for review. Later,
UNDP set up an ad hoc review team that is now considering Mr.
Shkurtaj's claim of retaliation.
UNDP's refusal to submit the Shkurtaj matter to the Ethics Office
for review undermined the status and authority of that Office and
undermined confidence that U.N. personnel can blow the whistle on
waste, fraud, or abuse without fear of retribution. The Secretary
General has since directed all U.N. agencies to establish their own
ethics offices and created an Ethics Committee to encourage U.N.-wide
ethics rules. We will be discussing that effort today. The bottom line,
however, is that UNDP's treatment of Mr. Shkurtaj is the latest blow to
U.N. whistleblower protections, and it doesn't inspire confidence in
UNDP's willingness to hear negative reports about its operations.
The UNDP's overly restrictive audit policy and weak whistleblower
protections contributed to the concerns about its North Korean
operations. UNDP was also the victim of misleading actions by North
Korea. The Subcommittee investigation obtained bank records showing,
for example, that over a six month period from April to September 2002,
North Korea deposited a total of $2.7 million of its own funds into a
bank account that was supposed to be used exclusively for UNDP
projects. North Korea then moved its funds from that UNDP-related
account to a bank account in Macau in the name of a Chinese company
called International Finance and Trade Joint Company, which has acted
as a conduit for North Korea. IFTJ transferred the funds it received
from North Korea to other accounts around the world controlled by North
Korea, each time referencing the UNDP program in the accompanying wire
transfers even though the funds had nothing to do with UNDP activity.
Why would North Korea deposit its own funds into a bank account that
was supposed to only contain UNDP funds?
When asked about these transactions by the Subcommittee, North
Korean officials acknowledged the transfers. They said that the 2002
speech by President Bush in which he said North Korea was part of an
``axis of evil,'' raised fears that North Korean accounts would be
frozen. North Korean officials told the Subcommittee that the funds
they transferred were for operating diplomatic missions in the United
States and Europe. They said that the North Korean Ministry of Foreign
Affairs used the UNDP-related account as a secure channel for
transferring its own funds, apparently because it was less likely to
incur international scrutiny and be frozen.
North Korea did not alert UNDP to its actions, and UNDP told the
Subcommittee that it had no idea, until shown the bank records by our
staff, that North Korea had deposited its own funds into the bank
account set up to receive UNDP funds for UNDP development projects.
UNDP had no access to the account records, since the account was under
the sole control of the North Korean government. UNDP also was
surprised to learn that the Foreign Trade Bank had routed some outgoing
UNDP funds through the same IFTJ bank account in Macao, and that two
U.N. payments totaling about $50,000, that had been made by UNDP on
behalf of other U.N. agencies, had gone to an entity that the State
Department later linked to North Korea weapons sales. The Staff Report
provides greater detail about these incidents and recommends new
controls to prevent similar problems in the future, including by
enabling UNDP to monitor account activity of any host country account
set up to receive UNDP funds.
The UNDP is an important U.S. ally. Its mission coincides with our
national interest, as well as our hopes for a more secure and
prosperous world. One key question raised by this investigation is
whether UNDP operations that help the people living under repressive
regimes should always just be ended, as they were in North Korea, when
the government bypasses UNDP controls designed to ensure transparency
and accountability.
I would like to thank all of the parties for their cooperation with
this investigation. UNDP, in particular, patiently answered many
Subcommittee inquiries. The Subcommittee fully recognizes the
privileges and immunities of the United Nations, and we appreciate the
extent of its voluntary cooperation as well as its allowing the UNDP to
brief the Subcommittee today.
We live in dangerous times. So many of the threats we face--
terrorism, climate change, infectious disease--require an international
response. The United Nations, including UNDP, is in a position to help
confront those threats. But transparency and accountability are
essential to ensure their aims are advanced. It's why we need
unfettered audit reports, strong whistleblower protections, and the
willingness to take a hard look at U.N. operations worldwide. Again, I
commend Senator Coleman for his initiative in this matter and I thank
our staff not only for a thorough product, but, as always, for working
in a bipartisan way to improve and strengthen the United Nations.
Senator Coleman.
OPENING STATEMENT OF SENATOR COLEMAN
Senator Coleman. Thank you, Mr. Chairman.
As Chairman Levin noted, today's hearing examines
management and transparency problems in the operations of the
United Nations Development Program (UNDP) in North Korea. At
the outset, I want to express my sincere appreciation to
Senator Levin and his staff for their support in this
investigation. This bipartisan effort highlights the
Subcommittee's most enduring and valuable contribution to
American governance: The recognition that some matters are of
such gravity that they transcend partisan politics and require
apolitical, sober examination. This would not have been
possible without your cooperation and leadership, Mr. Chairman,
and I thank you.
Senator Levin. Thank you.
Senator Coleman. One of those issues that should transcend
partisanship is our obligation to ensure that when American
taxpayer dollars are used to fund any program, domestic or
international, there is adequate transparency and
accountability to avoid fraud, abuse, or mismanagement. Today,
we examine the UNDP.
I would note at the outset that an effective United Nations
is important to America's national security interests. When the
U.N. operates transparently, efficiently and with
accountability, it can make great progress on the most
intractable problems facing the world. The UNDP, which is the
largest development agency in the United Nations System, is a
central part of that effort. Its mission is noble: Building
democratic societies, reducing poverty, assisting in crisis
recovery, protecting the environment, and curbing the AIDS
epidemic around the world. Noble work, indeed.
However, if U.N. agencies like UNDP can be manipulated by
belligerent regimes, Congress must re-examine the terms under
which it funds the U.N.'s efforts. The evidence uncovered by
the Subcommittee's investigation brings this obligation sharply
into focus.
Over the course of the Subcommittee's inquiry, we have
reviewed thousands of pages of documents, interviewed officials
from the Departments of State, Commerce and Treasury, as well
as current and former U.N. and UNDP personnel. I want to echo
Senator Levin's gratitude to the UNDP for their willingness to
be interviewed for dozens of hours. Subcommittee staff also
sought out and met with representatives of the North Korean
Government, who corroborated much of the evidence collected by
the Subcommittee.
As the Chairman has noted, our investigation gathered
evidence establishing the following facts:
First, there were a range of deficiencies in UNDP's
managerial and transparency controls that left it vulnerable to
manipulation by the North Korean regime.
Second, the North Korean Government engaged in deceptive
financial transactions to move more than $2.7 million all
around the world under the pretense of U.N. activities.
Third, more than $50,000 was transferred directly from UNDP
to an entity that, according to a State Department letter, has
ties to efforts by the North Korean regime to engage in
weapons-related activities.
Each of these areas is discussed in greater detail in a
Subcommittee Staff Report issued in conjunction with today's
hearing.
As we review the evidence and examine UNDP operations, we
should note that the United States pays much of the U.N.'s
annual bills. We contribute hundreds of millions of American
taxpayer dollars to UNDP every year. For example, American
taxpayer dollars funded UNDP to the tune of $247 million in
2005 alone. To be clear, that is on top of the over $1 billion
the United States contributes to the U.N. Secretariat every
year. We should keep these expenditures in mind as we explore
the evidence. Let me turn to that evidence now.
The Subcommittee reviewed several management practices in
UNDP's North Korea office and found that the North Korea
operation suffered from certain significant deficiencies. These
weaknesses related to a number of crucial activities, ranging
from cash management to staffing. For instance, the North
Korean Government forced UNDP to fill sensitive positions with
North Korean officials chosen by the regime. As one UNDP
official acknowledged, those employees were ``effectively
agents of the [North Korean] Government.'' In addition, UNDP
was pressured by the North Koreans to make payments in hard
currency--like U.S. dollars or euros--which the regime was
desperate to obtain. Finally, the regime imposed severe
restrictions that hindered UNDP's ability to monitor the very
projects that it was funding.
Many of these practices we identified were inconsistent
with UNDP policy and best practices. Some of these problems
resulted from one central failure: UNDP never adopted formal,
definitive protocols in its North Korean operations. Instead,
it relied on a series of ad hoc arrangements cobbled together
to accommodate North Korean sensitivities. UNDP agreed to
forego formal agreements because the North Koreans resisted
signing them, and UNDP believed it could operate without them.
However, the Subcommittee's investigation indicates that
operating under these fluid arrangements with a totalitarian
regime like North Korea left UNDP vulnerable to manipulation.
Let's not forget that this is a brutal, oppressive regime that
was starved for hard currency and willing to do whatever it
takes to get it. And UNDP was well aware of that. Yet UNDP
largely acquiesced to North Korea's demands in order to keep
its development projects going.
These certainly are noble goals, but I fear that UNDP's
good intentions led to a well-intentioned culture of laxity. In
short, UNDP's desire to assist the North Korean people
apparently overrode their need to take necessary precautions.
In effect, UNDP operated in a Chernobyl-like environment with a
hazmat suit made of mesh. Ostensibly it was covered, but in
reality it was vulnerable.
Many of the Subcommittee's findings result from an analysis
of UNDP's internal audits. Significantly, these audits were
never intended to see the light of day. The Chairman has noted
the great concerns we have here in this body with the inability
of member states of this country to be able to review those
audits. Even though the United States is among a handful of
countries that provide the bulk of funding for UNDP, the U.S.
Government is forbidden from reading UNDP audits. Member
states, especially large donors like the United States, should
have access to U.N. audits. Both donors and recipients of aid
money have a stake in ensuring that U.N. Funds and Programs are
managed in an efficient, transparent manner. The U.N.'s refusal
to share audits with its donors gives the impression that the
U.N. has a ``Keep your wallets open, and your mouths shut''
stance toward the rest of the world. That stance is
antithetical to the concepts of transparency and
accountability. Indeed, UNDP rightly preaches transparency and
accountability to the developing nations that it is assisting.
It seems that UNDP should practice what it preaches.
After speaking with UNDP's Administrator, Kemal Dervis,
about this very issue this week, I am confident that UNDP will
take some strides to improve their audit release policy. If
UNDP fails to make substantial changes in policy, however,
Congress should seriously consider changing the way we donate
American tax dollars to the UNDP and any other U.N. agencies
that do not share their audits with donors and member states.
Let me talk a little bit about whistleblower protection. No
operation can achieve transparency and accountability when its
employees cannot report wrongdoing without fear of retaliation.
A recent UNDP story makes that abundantly clear. A central
figure in this inquiry, which the Chairman has noted, is Artjon
Shkurtaj, the former Operations Manager in UNDP's North Korean
offices. It was Mr. Shkurtaj who first reported concerns with
UNDP's North Korea program, and without his willingness to
speak up and identify potential problems inside UNDP, none of
these issues would have come to light. After he spoke out about
the questionable practices, Mr. Shkurtaj was effectively
terminated by the UNDP. His contract was not continued. He has
alleged that this was retaliation for speaking out, that he was
blacklisted because he blew the whistle.
While the Subcommittee will not address that particular
matter today, his story exposed a gaping hole in the U.N.
ethics regime. When the U.N. created the Ethics Office in the
wake of the Oil-for-Food scandal, it appeared to be a step in
the right direction. This highly touted reform, however, was
largely eviscerated in its first real test--Mr. Shkurtaj's
complaint against UNDP. In response to Mr. Shkurtaj's claim,
UNDP argued that the Ethics Office covered only the U.N.
Secretariat and not U.N. Funds and Programs like UNDP. The
Ethics Office determined that Mr. Shkurtaj did, in fact, make a
prima facie case of retaliation, but ultimately it agreed with
UNDP, concluding that it did not have jurisdiction over
anything but the Secretariat. That ruling undermined the
whistleblower protection policies for thousands of employees in
the U.N.'s Funds and Programs. In short, that decision gutted
the U.N.'s signature management reform.
It goes without saying that a strong whistleblower
protection policy will strengthen an organization in the long
run. That is why I sponsored legislation that conditions UNDP
funding on fair and effective whistleblower protection
policies. The Secretary-General recently issued a bulletin to
broaden the U.N.'s ethics rules and expand the whistleblower
protections. That is certainly encouraging. The proof, however,
is in the pudding, and I look forward to hearing from our
witnesses and briefers from the U.N. about whether these newly
announced measures are adequate and are in place.
Beyond the management and oversight deficiencies, the
Subcommittee has obtained evidence establishing that the North
Korean Government engaged in deceptive financial transactions
under the guise of United Nations activity. In particular, the
Subcommittee obtained wire transfers and other banking records
that document nine transfers, in which the North Korean
Government moved a total of $2.72 million from its accounts to
accounts in Western banks. The banking records indicate that
the North Koreans routed the transactions through a front
company in Macau and suggested that the transfers were for the
``purchase of buildings'' in Canada, the United Kingdom, and
France. What is most troubling of all, however, is that the
North Korean regime invoked the name of the United Nations to
give the transfers some legitimacy.
The Subcommittee has confirmed with UNDP and the North
Korean Government that these transactions had absolutely
nothing to do with U.N. activities. While it is unclear how the
funds were ultimately used, these transactions illustrate how
this rogue regime was able to move large amounts of funds out
of North Korea and into the West's financial system, dropping
the U.N. name as a cover story.
UNDP officials have advised this Subcommittee that they
found these transactions deeply disturbing. They stated that
they did not know of the transactions, and that none of its
projects would entail the purchase of buildings in North
America or Europe. While the funds do not appear and we do not
know whether this is, in fact, UNDP money, the key is not the
origin of the money in this particular instance but, rather,
that there are loopholes in the system. UNDP itself has
admitted that none of its controls could have caught this
apparent misuse of its name by the North Korean regime.
These transactions represent a cause for alarm. The reason
for the elaborate measures used to shield these transfers--such
as the use of the front company, the bogus connection to the
United Nations, the use of buildings or property purchases to
justify large transfers--is clear: North Korea was trying to
shield its financial maneuvers from scrutiny and give Kim Jong
Il greater access to international financial institutions.
In fact, the North Koreans told us that quite clearly. As
the Chairman has noted, the North Koreans informed the
Subcommittee that, following President Bush's State of the
Union Address in 2002, in which he included North Korea in the
``axis of evil,'' that they feared that their assets would be
frozen. So the regime sought secure paths to funnel its money
to more secure accounts. The account related to the U.N.
activity presented a safe route.
The ostensible connection to U.N. activities is perhaps the
most troubling aspect of these discoveries. Officials from
executive agencies have advised the Subcommittee that
transactions involving U.N. entities would likely receive less
scrutiny from bank regulators and bank compliance units who may
simply assume that such transfers are in furtherance of U.N.-
related activity. In effect, North Korea's bogus description of
these transfers as related to UNDP activity is the financial
equivalent of painting a Red Cross symbol on a Bradley fighting
vehicle.
The significance is clear. Recently, the U.S. Government
has been making overtures to the North Korean regime. Officials
from the Federal Government recently met with North Korean
officials to advise them on how they could re-enter the
international financial system. Moreover, Congress may be asked
to alter the laws currently prohibiting certain transactions
from being conducted with North Korean entities; it is equally
likely that Congress will be asked to increase funds for North
Korean humanitarian, developmental, and nuclear monitoring
projects. As Congress contemplates these moves, it would be
irresponsible not to seek assurances that such matters are
being addressed.
At the same time, UNDP must determine whether their name is
being used elsewhere in connection with questionable
activities. By definition, UNDP operates in countries that are
in dire need of development assistance. In some instances, they
are dealing with the worst, most untrustworthy regimes on the
planet. It is deeply disturbing that there are no controls in
place to prevent such manipulation of UNDP's presence. UNDP
should take steps to ensure that its name and resources are not
used as cover for non-U.N. activities. The United States should
seek assurances from UNDP that its name, offices, and resources
are not being used by outlaw or corrupt states to facilitate
their financial shenanigans.
Unfortunately, these are not the only types of troubling
transactions that the Subcommittee has uncovered. The
Subcommittee has established that UNDP made payments totaling
more than $50,000 to an entity that, according to a letter from
a State Department official, has ``ties to a North Korean
entity that that has been designated [by the U.S. Government]
as the main North Korean financial agent'' for sales of weapons
and missiles. The payments at issue are described more
completely in a classified annex to the Subcommittee Staff
Report, and for reasons of national security, we are precluded
from further disclosure concerning those matters in an open
hearing. Suffice it to say, however, that these transactions
raise disturbing questions.
UNDP has responded that they made these payments on behalf
of UNESCO, another U.N. agency operating in North Korea. While
we have no evidence to the contrary, it is beside the point:
Under no circumstances should U.N. funds be transferred to an
entity connected with nefarious activity. U.N. agencies should
adopt more aggressive measures to ensure that the vendor is not
associated with illicit conduct.
The matters to be examined here today and in the Staff
Report make clear both Congress's obligation to have accurate
and complete information on the agencies it funds with U.S.
taxpayer money, as well as the obligation of executive agencies
to exercise appropriate oversight over multilateral bodies such
as the United Nations. The evidence also demonstrates that UNDP
should adopt stronger safeguards when operating in totalitarian
regimes to ensure that it will not be vulnerable to
manipulation by the host country.
I appreciate UNDP's hard work. They operate in the most
difficult political and social environments on the globe and
seek to improve the lives of the world's most downtrodden
people. I share those objectives, and I am encouraged by the
constructive dialogue that we have maintained with UNDP
throughout this process. I look forward to continuing that
constructive dialogue with the UNDP representatives, as well as
our other witnesses today.
Thank you, Mr. Chairman.
[The prepared statement of Senator Coleman follows:]
PREPARED STATEMENT OF SENATOR COLEMAN
As Chairman Levin noted, today's hearing examines management and
transparency problems in the operations of the United Nations
Development Program (UNDP) in North Korea. At the outset, I want to
express my sincere appreciation to Senator Levin and his staff for
their support in this investigation. This bipartisan effort highlights
the Subcommittee's most enduring and valuable contribution to American
governance: the recognition that some matters are of such gravity that
they transcend partisan politics and require apolitical, sober
examination. This would not have been possible without your cooperation
and leadership, Mr. Chairman, and I thank you.
One of those issues that should transcend partisanship is our
obligation to ensure that American tax-dollars are not being used to
harm American interests. Now, more than ever, the United States must
balance two competing interests: its core duty to protect the American
people from its enemies, on the one hand, and its moral obligation to
lead the effort to improve the lives of the downtrodden in the under-
developed world, on the other. These efforts need not conflict. In
fact, in many situations, the goals work hand-in-hand--by helping the
downtrodden, we simultaneously undermine their oppressors and empower
them to transform their own countries into free--and non-threatening--
members of the international community.
The United Nations is one of America's most important partners in
this endeavor. When the U.N. operates transparently, efficiently and
with accountability, it can make great progress on the most intractable
problems facing the world. The United Nations Development Program,
which is the largest development agency in the United Nations system,
is a central part of that effort. Its mission is noble: building
democratic societies, reducing poverty, assisting in crisis recovery,
protecting the environment, and curbing the AIDS epidemic around the
globe. Noble work, indeed.
However, if U.N. agencies like UNDP can be manipulated by
belligerent regimes, Congress must re-examine the terms under which it
funds the U.N.'s efforts. The evidence uncovered by the Subcommittee's
investigation brings this obligation into sharp focus.
Over the course of the Subcommittee's inquiry, we have reviewed
thousands of pages of documents, interviewed officials from the
Departments of State, Commerce and Treasury, as well as current and
former U.N. and UNDP personnel. I want to echo Senator Levin's
gratitude to the UNDP for their willingness to be interviewed for
dozens of hours. Subcommittee staff also sought out and met with
representatives of the North Korean government, who corroborated much
of the evidence collected by the Subcommittee.
Our investigation gathered evidence establishing the following
facts:
First, there were a range of deficiencies in UNDP's
managerial and transparency controls that left it vulnerable to
manipulation by the North Korean regime.
Second, the North Korean government engaged in deceptive
financial transactions to move more than $2.7 million all around the
world under the pretense of U.N. activities.
Third, more than $50,000 was transferred directly from
UNDP to an entity that, according to a State Department letter, has
``ties'' to efforts by the North Korean regime to engage in weapons-
related activities.Each of these areas is discussed in great detail in
a Subcommittee staff report issued in conjunction with today's hearing.
As we review the evidence and examine UNDP operations, we should
note that the United States pays much of the U.N.'s annual bills. We
contribute hundreds of millions of American tax-dollars to UNDP every
year--for example, American taxpayers funded UNDP to the tune of 247
million dollars in 2005 alone. To be clear, that is on top of the $1
billion the U.S. contributes to the U.N. Secretariat every year. We
should keep these expenditures in mind as we explore the evidence.
Let's turn to that evidence now.
Managerial and Transparency Failures
The Subcommittee reviewed several management practices in UNDP's
North Korea office and found that the North Korea operation suffered
from certain significant deficiencies. These weaknesses related to a
number of crucial activities, ranging from cash management to staffing.
For instance, the North Korean government forced UNDP to fill sensitive
positions with North Korean officials chosen by the regime. As one UNDP
official acknowledged, those employees were ``effectively agents of the
[North Korean] government.'' In addition, UNDP was pressured by the
North Koreans to make payments in hard currency--like U.S. dollars and
Euros--which the regime was desperate to obtain. Finally, the regime
imposed severe restrictions that hindered UNDP's ability to monitor the
very projects that it was funding.
Many of the practices we identified were inconsistent with UNDP
policy and best practices. Some of these problems resulted from one
central failure: UNDP never adopted formal, definitive protocols in its
North Korea operations. Instead, it relied on a series of ad hoc
arrangements cobbled together to accommodate North Korean
sensitivities. UNDP agreed to forgo formal agreements because the North
Koreans resisted signing them, and UNDP believed it could operate
without them.
However, the Subcommittee's investigation indicates that operating
under these fluid arrangements with a totalitarian regime like North
Korea left UNDP vulnerable to manipulation. Let's not forget that this
is a brutal, oppressive regime that was starved for hard currency and
willing to do whatever it takes to get it. And UNDP was well aware of
that. Yet, UNDP largely acquiesced to North Korea's demands in order to
keep its development projects going.
These are certainly noble goals, but I fear that UNDP's good
intentions led to a well-intentioned culture of laxity. In short,
UNDP's desire to assist the North Korean people apparently overrode
their need to take necessary precautions. In effect, UNDP operated in a
Chernobyl environment with a Haz-mat suit made of mesh--ostensibly it
was covered, but in reality it was vulnerable.
Many of the Subcommittee's findings result from an analysis of
UNDP's internal audits. Significantly, these internal audits were never
intended to see the light of day. Even though the United States is
among a handful of countries that provide the bulk of funding for UNDP,
the U.S. Government is forbidden from reading UNDP's audits. Member-
states, especially large donors like the US, should have access to the
U.N.'s audits. Both donors and recipients of aid money have a stake in
ensuring that funds and programs are managed in an efficient,
transparent manner. The U.N.'s refusal to share audits with its donors
gives the impression that the U.N. has a ``Keep your wallets open, and
your mouths shut'' stance toward the rest of the world. That stance is
antithetical to the concepts of transparency and accountability.
Indeed, UNDP rightly preaches transparency and accountability to the
developing nations that it is assisting--it seems that UNDP should
practice what it preaches.
After speaking with UNDP's Administrator, Kemal Dervis, about this
very issue earlier this week, I am confident that UNDP will take some
strides to improve their audit-release policy. If UNDP fails to make a
substantial change in policy, however, Congress should seriously
consider changing the way we donate American tax-dollars to the UNDP
and any other U.N. agencies that do not share their audits with donors
and member states.
Retaliation and the U.N.'s Whistleblower Protection Policies
No operation can achieve transparency and accountability when its
employees cannot report wrongdoing without fear of retaliation. A
recent UNDP story makes that abundantly clear. A central figure in this
inquiry is Mr. Artjon Shkurtaj, the former Operations Manager in UNDP's
North Korean offices. It was Mr. Shkurtaj who first reported concerns
with UNDP's North Korea program, and without his willingness to speak
up and identify potential problems inside UNDP, none of these issues
would have come to light. After he spoke out about the questionable
practices, Mr. Shkurtaj was effectively terminated by the UNDP. He has
alleged that this was retaliation for speaking out--that he was
blacklisted because he blew the whistle.
While the Subcommittee will not address that particular matter
today, his story exposed a gaping hole in the U.N. ethics regime. When
the U.N. created the Ethics Office in the wake of the Oil-For-Food
scandal, it appeared to be a step in the right direction. This highly-
touted reform, however, was largely eviscerated in its first real
test--Mr. Shkurtaj's complaint against UNDP. In response to Mr.
Shkurtaj's claim, UNDP argued that the Ethics Office covered only the
U.N. Secretariat and not funds and programs like UNDP. The Ethics
Office determined that Mr. Shkurtaj did, in fact, make a prima facie
case of retaliation--but ultimately it agreed with UNDP, concluding
that it did not have jurisdiction over anything but the Secretariat.
That ruling undermined the whistleblower protection policies for
thousands of employees in the U.N.'s funds and programs. In short, that
decision gutted the U.N.'s signature management reform.
It goes without saying that a strong whistleblower protection
policy will strengthen an organization in the long run. That is why I
sponsored legislation that conditions UNDP funding on fair and
effective whistleblower protection policies. The Secretary-General
recently issued a bulletin to broaden the U.N.'s ethics rules and
expand the whistleblower protections. That is certainly encouraging.
The proof, however, is in the pudding, and I look forward to hearing
from our witnesses and briefers from the U.N. about whether these
newly-announced measures are adequate.
Deceptive Financial Practices by the North Korean Government
Beyond the management and oversight deficiencies, the Subcommittee
has obtained evidence establishing that the North Korean government
engaged in deceptive financial transactions under the guise of United
Nations activity. In particular, the Subcommittee obtained wire
transfers and other banking records that document nine transfers, in
which the North Korean government moved a total of $2.72 million from
its accounts in Pyongyang to its accounts in Western banks. The banking
records indicate that the North Koreans routed the transactions through
a front company in Macau and suggested that the transfers were for the
``purchase of building[s]'' in Canada, the United Kingdom and France.
What is most troubling of all, however, is that the North Korean regime
invoked the name of the U.N. to give the transfers some legitimacy.
The Subcommittee has confirmed with UNDP and the North Korean
government that these transactions had absolutely nothing to do with
any U.N. activities. While it is unclear how the funds were ultimately
used, these transactions illustrate how this rogue regime was able to
move large amounts of funds out of North Korea and into the West's
financial system, dropping the U.N. name as a cover story.
UNDP officials have advised this Subcommittee that they found these
transactions deeply disturbing. They stated that they did not know of
the transactions, and that none of its projects would entail the
purchase of buildings in North America or Europe. While the funds do
not appear to have included UNDP money, the key is not that the origin
of the money in this particular instance, but rather that there are
loopholes in the system--UNDP itself has admitted that none of its
controls could have caught this apparent misuse of its name by the
North Korean regime.
These transactions represent a cause for alarm. The reason for the
elaborate measures used to shield these transfers--such as the use of
the front company, the bogus connection to the U.N., the use of
buildings or property purchases to justify large transfers--is clear:
North Korea was trying to shield its financial maneuvers from scrutiny
and give Kim Jong Il greater access to international financial
institutions.
In fact, the North Koreans told us that quite clearly. North Korean
officials informed the Subcommittee that, following President Bush's
State of the Union Address in 2002, in which he included North Korea in
the ``Axis of Evil,'' their government feared that its assets would be
frozen. So, the regime sought secure paths to funnel its money to more
secure accounts. The account related to the U.N. activity presented a
safe route.
The ostensible connection to U.N. activities is perhaps the most
troubling aspect of these discoveries. Officials from executive
agencies have advised the Subcommittee that transactions involving U.N.
entities would likely receive less scrutiny from bank regulators and
bank compliance units who may simply assume that such transfers are in
furtherance of U.N.-related activity. In effect, North Korea's bogus
description of these transfers as related to UNDP activity is the
financial equivalent of painting a Red Cross symbol on a Bradley
Fighting Vehicle.
The significance is clear. Recently, the U.S. Government has been
making overtures to the North Korean regime. Officials from the federal
government recently met with North Korean financial officials to advise
them on how they could re-enter the international financial system.
Moreover, Congress may be asked to alter the laws currently prohibiting
certain transactions from being conducted with North Korean entities;
it is equally likely that Congress will be asked to increase funds for
North Korean humanitarian, developmental and nuclear monitoring
projects. As Congress contemplates these moves, it would be
irresponsible not to seek assurances that such matters are being
addressed.
At the same time, UNDP must determine whether their name is being
used elsewhere in connection with questionable activities. By
definition, UNDP operates in countries that are in dire need of
development assistance. They are dealing with the worst, most
untrustworthy regimes on the planet. It is deeply disturbing that there
are no controls in place to prevent such manipulation of UNDP's
presence. UNDP should take steps to ensure that its name and resources
are not used as cover for non-UN activities. The United States should
seek assurances from UNDP that its name, offices and resources are not
being used by outlaw or corrupt states to facilitate their financial
shenanigans.
Weapons Proliferation Transfers
Unfortunately, these are not the only type of troubling
transactions that the Subcommittee has uncovered. The Subcommittee has
established that UNDP made payments totaling more than $50,000 to an
entity that, according to a letter from a State Department official,
has ``ties to a North Korean entity that that has been designated [by
the U.S. Government] as the main North Korean financial agent'' for
sales of weapons and missiles. The payments at issue are described more
completely in a classified annex to the Subcommittee staff report and,
for reasons of national security, we are precluded from further
disclosure concerning those matters in an open hearing. Suffice it to
say, however, that these transactions raise disturbing questions.
UNDP has responded that it made these payments on behalf of UNESCO,
another U.N. agency operating in North Korea. While we have no evidence
to the contrary, it is beside the point: under no circumstances should
U.N. funds be transferred to an entity connected with nefarious
activity. U.N. agencies should adopt more aggressive measures to ensure
that the vendor is not associated with illicit conduct.
The matters to be examined here today and in the staff report make
clear both Congress's obligation to have accurate and complete
information on the agencies it funds with U.S. taxpayer money, as well
as the obligation of executive agencies to exercise appropriate
oversight over multilateral bodies such as the United Nations. The
evidence also demonstrates that UNDP should adopt stronger safeguards
when operating in totalitarian regimes to ensure that it will not be
vulnerable to manipulation by the host country.
Let me be clear: I appreciate UNDP's hard work--they operate in the
most difficult political and social environments on the globe and seek
to improve the lives of the world's most downtrodden people. I share
those objectives and I am encouraged by the constructive dialogue we
have maintained with UNDP throughout this process. I look forward to
continuing that constructive discussion with the UNDP representatives,
as well as our other witnesses today.
Senator Levin. Thank you, Senator Coleman.
Senator Coburn, do you have an opening statement.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Just a few short comments. First of all,
thank you for the work of this Subcommittee in addressing this
issue. As you know, I have been highly critical for the past 3
years of the lack of transparency at the United Nations, not
just at UNDP but at the complete United Nations. And I also
passed an amendment that passed the Senate 92-1 that said our
funds ought to be contingent on transparency at the United
Nations. Now, that was gutted in conference, and so that is not
our policy. But I can assure you I plan to bring that back up
each and every time we consider appropriations and
authorizations for the United Nations.
There can be no accountability anywhere in the world where
there is not transparency. UNDP has no transparency. It does
not even allow the members sitting on its Executive Board to
see the audits, let alone the Congress to see the audits. And
so what we find is a very troubling position that the American
taxpayer finds itself in: Sending money, a quarter of a billion
dollars this last year, plus another $5.3 billion that we
contribute, over 21 percent of the United Nations, of which we
know 40 percent of it is fraudulent and wasted. We know that.
And yet nobody wants to solve the problem. And whether it is
for taxpayers here or those people we are intending to help
throughout the world, without transparency we will accomplish
nothing of permanent value. And when people question the
integrity and the ethics of the process, no matter what our
message is, it goes unheard.
And so I am going to redouble my effort in terms of
requiring transparency, both through procedural positions on
the floor and amendments, and I want to thank the staff of this
Subcommittee for their diligent work. And so we cannot continue
doing what we are doing. It cannot continue. The American
people, as they find out about this, are sick. We are paying
money to help the North Koreans sell missiles? I mean, that is
in essence--when you boil it all down, that is what we are
doing.
And so it has got to stop, and I look forward to the
testimony of our witnesses. I thank both the Ambassador to the
U.N. and Ambassador Wallace for their work and their efforts,
and I look forward to the questioning.
Senator Levin. Thank you, Senator Coburn.
Now let me welcome our first panel to this morning's
hearing. We are delighted to have with us Zalmay Khalilzad, the
U.S. Ambassador to the United Nations, and Mark Wallace, the
U.S. Ambassador for U.N. Management and Reform. We very much
appreciate you both being with us this morning. We welcome you
to the Subcommittee.
As you are aware, pursuant to Rule VI, all witnesses who
testify before this Subcommittee are required to be sworn in.
So at this time I would ask you both to please stand and raise
your right hand. Do you swear that the testimony that you will
give before this Subcommittee will be the truth, the whole
truth, and nothing but the truth, so help you, God?
Ambassador Khalilzad. I do.
Ambassador Wallace. I do.
Senator Levin. We are going to be using a timing system
today. We would appreciate it if you could give your oral
testimony in 5 minutes. Your entire testimony, of course, will
be made part of the record. About a minute before the 5 minutes
is up, there will be a red light--the red light comes at 5
minutes, but the light will change from green to yellow about a
minute before the red light comes on.
Ambassador Khalilzad, why don't you go first. Again, let me
give you a special welcome. It is always great to see you,
whether it is here or in more difficult areas of the world--at
least I think they are more difficult than the Subcommittee.
But it is great to see you again.
TESTIMONY OF HON. ZALMAY KHALILZAD,\1\ U.S. AMBASSADOR TO THE
UNITED NATIONS, NEW YORK, NEW YORK
Ambassador Khalilzad. Thank you. Mr. Chairman, Senator
Coleman, and Senator Coburn, it is an honor to appear before
this Subcommittee. I want to thank you for your leadership in
looking into the issue of the North Korean and UNDP
interaction. It is a very worthwhile investigation. Thank you
also for the opportunity to discuss our efforts to promote
transparency and accountability within the United Nations
generally.
---------------------------------------------------------------------------
\1\ The prepared statement of Ambassador Khalilzad appears in the
Appendix on page 63.
---------------------------------------------------------------------------
The United States, as one of the founders of this
institution, designed the U.N. to maintain international peace
and security, promote economic and social advancement, and
reaffirm faith in fundamental human rights. Though we all know
its limitations, the U.N., including UNDP, serves our
interests.
I have personally seen in Afghanistan and Iraq the
significant contributions the United Nations can make when it
has the right mandate and the right leadership in the field.
The United States has a great interest in ensuring that the
United Nations succeeds as an institution.
When I testified before the Senate Foreign Relations
Committee on March 15 last year, as the President's nominee to
serve as the U.S. Permanent Representative to the United
Nations, I said that one of my principal goals in New York
would be to promote effective, efficient, transparent,
accountable, and ethical management of the United Nations.
Since my arrival at the U.S. Mission last spring, my staff and
I have been striving to fulfill this objective, focusing on a
number of key U.N. management reforms in order to make the U.N.
more effective and to ensure that the U.S. taxpayers receive
value for the money we pay in assessed and voluntary
contributions.
In my opening remarks today, I would like to cite four
recent achievements related to reform that apply to the U.N. in
general:
First, establishment of the Independent Audit Advisory
Committee. In November of last year, the General Assembly
elected five individuals to serve as the first members of this
committee, including David Walker of the United States, who is
both the Comptroller General of the United States and current
head of the U.S. Government Accountability Office.
Second, the extension of the U.N. Ethics Code to apply
overall to the U.N. System, including the U.N. Funds and
Programs.
Third, continuation of the work of the United Nations
Procurement Task Force which to date has identified ten
significant instances of fraud and corruption involving tainted
contracts worth $610 million.
And, fourth, Mr. Chairman, the establishment of a new
framework for mandate review.
Despite these four achievements, we still have a long way
to go to achieve the U.N. reform that we want in terms of
accountability and transparency. For example, significant work
remains to be done in order to achieve substantive progress in
the area of mandate review.
We also have a considerable stake in advancing needed
reforms with respect to U.N. Funds and Programs. The United
States provides some $3 billion a year to U.N. Funds and
Programs and Specialized Agencies. These programs do important
and valuable work, as you said, Mr. Chairman and Senator
Coleman, throughout the world. Therefore, we want to ensure
that the resources devoted to them are delivered efficiently,
effectively, and with oversight and accountability to the
world's neediest people and that they are used for their
intended purposes.
To pursue these objectives in practical ways, the U.S.-U.N.
Mission has launched an initiative that we call UNTAI, the U.N.
Transparency and Accountability Initiative. Since May 2007, the
U.S.-U.N. has made progress in some of eight UNTAI reforms
outlined in my written testimony, such as the extension of
jurisdiction of the U.N. Ethics Office over the U.N. Funds and
Programs, as well as a new policy providing for the
availability of prospective internal audit reports to member
states. We will remain diligent, Mr. Chairman, in pursuing and
pushing for the implementation of the entire package of reforms
and will continue to press for the availability of past audits.
I would like to turn to the issue concerning North Korea.
The mission of the United States in the United Nations raised a
number of concerns with regard to this program sometime ago.
The UNDP in North Korea established its mission in 1979. The
purpose was to ``support and supplement the national efforts of
the DPRK at solving the most important problems of their
economic development and to promote social progress and better
standards of life.'' This effort reflected the international
community's concern for the immense suffering of the people of
North Korea. The program was shut down, as you said, Mr.
Chairman, in March 2007 because the DPRK refused to accept the
application of U.N. rules and regulations that apply across
UNDP and that were agreed to by the UNDP Executive Board in
January 2007.
In June 2006, the United States raised the issue of the
irregularities of UNDP's operations in North Korea with UNDP
officials. Specifically, our concerns related to whether the
UNDP acted in North Korea in violation of U.N. policies and
rules by, first, making payments in hard foreign currency;
second, utilizing staff seconded from the North Korean
Government in core functions; and, three, failing to make
adequate project site visits. The purpose of this important
triad of financial controls was to ensure that development
money directed to North Korea would serve its intended
beneficiaries--the North Korean people.
On May 31, 2007, a Board of Auditors preliminary inquiry,
initiated by the Secretary-General and the UNDP Executive
Board, validated USUN concerns in those areas. In this period,
the U.S. Government received further information that indicated
the possible misuse of funds in the DPRK programs. USUN shared
their concerns about this new information and inquired about
these matters with UNDP officials. We also proceeded to engage
with the UNDP at the technical level to resolve our concerns,
providing representative samples of the information we had
received.
Mr. Chairman, the USUN and UNDP could not come to closure
on the facts of what had happened. Therefore, USUN sought an
independent investigation of UNDP operations in the DPRK. At
the end of September, UNDP established the External Independent
Investigative Review Panel, led by Mr. Nemeth, the former Prime
Minister of Hungary, to review UNDP operations in the DPRK. We
have met with Mr. Nemeth and his staff on several occasions and
have emphasized our strong commitment to providing all possible
assistance in order to facilitate the work of the Review Panel.
Our understanding is that Mr. Nemeth will complete his
investigation in March 2008. We look forward to his report.
Mr. Chairman, Senator Coleman, Senator Coburn, these are
critical issues that affect not only the situation in North
Korea but also, as you have all stated, the trust and
confidence of Americans and other donors to the UNDP, as well
as those in the less developed world who share an interest in
an effective and efficient UNDP and the vitally important goal
that aid--humanitarian or development aid--is delivered to its
intended recipients, the world's neediest people.
Mr. Chairman, I thank you and Senator Coleman and Senator
Coburn and the Subcommittee for your interest in this matter. I
look forward to reviewing in detail the report of the
Subcommittee. I want to state a firm commitment to you that my
goal is to work with UNDP and the U.N. at large to make it as
effective and as efficient as possible to serve the intent for
which it was created and the purposes for which the Americans
contribute their hard-earned money to that organization.
Thank you very much, Mr. Chairman.
Senator Levin. Ambassador Wallace, do you have a statement?
TESTIMONY OF HON. MARK D. WALLACE, U.S. AMBASSADOR FOR UNITED
NATIONS MANAGEMENT AND REFORM, NEW YORK, NEW YORK
Ambassador Wallace. I would like to thank the Chairman,
Senator Coleman, and Senator Coburn. Obviously, Ambassador
Khalilzad and I are a team at the USUN Mission, and his
statement speaks for both of us, and I look forward to
answering any questions that you have.
I would like to thank you all and your staff for,
obviously, the hard work put into this report on a subject
matter that is obviously important to us at the mission. Thank
you.
Senator Levin. Thank you so much.
Ambassador Khalilzad, a number of problems here have been
shown to exist with the U.N. program. Despite those problems,
do you believe that the program is worth supporting?
Ambassador Khalilzad. I do, Mr. Chairman.
Senator Levin. And why?
Ambassador Khalilzad. Because, as you have stated, these
programs within UNDP do serve the purposes of providing
humanitarian assistance or economic development for needy
people around the world. I have seen them work with us in areas
of great importance to us, the two places where I have had
direct experience--Afghanistan and Iraq, both very important
for our national security interests and for the future of the
broader Middle East, an area of the most importance
geopolitically for us at the present time.
So I think they do work well with us. But for them to do
what they need to do, there has to be appropriate oversight,
and there has to be care taken that the monies go to the
purposes for which they have been dedicated.
Clearly, in the case of North Korea, there were problems,
and we were the ones that brought those problems to the
attention of the UNDP, and we are working with them to address
those. But I believe that this is a very worthwhile program in
terms of America's national interests.
Senator Levin. By the way, let's have an 8-minute first
round. I should have announced that.
There are a number of issues I want to focus on. One is the
allegation about the $2.7 million which were transferred by the
North Korean Government to its embassies. Both Senator Coleman
and I spent some time in our opening statement describing that,
and I think you are probably familiar with it. There are a
number of issues that are involved in that, its use, misuse of
the imprimatur of the U.N. in an account to make it appear as
though somehow or other that transfer involved the U.N. And I
am wondering if you would agree, Ambassador Khalilzad, with
what our staff has found, that the $2.7 million were North
Korean funds and not U.N. funds. That is our staff finding. Do
you agree with that finding?
Ambassador Khalilzad. I have no reason to judge otherwise.
It is clear--and that is one of the concerns we have had, that
the UNDP account in DPRK's Foreign Trade Bank was not
supervised and attended to appropriately. And that is the kind
of information and allegation we had. And one of the things
that I am grateful that you have looked at, and hopefully, Mr.
Nemeth would also deal with, is the oversight, the issue of
oversight. I think as you judged overall there were some
problems with regard to the oversight by the UNDP management of
the account.
Senator Levin. All right. Now, it is understandable why
people might believe that those funds were U.N. funds, because
of the way they were characterized in the wire transfers.
Ambassador Khalilzad. Right.
Senator Levin. That is understandable that that impression
was created.
Ambassador Khalilzad. Right.
Senator Levin. But knowing now what we know, it was our
finding that, in fact, those were North Korean funds, which
were made to appear to a recipient that they had some
connection with the U.N.
Ambassador Wallace, would you agree, knowing what you know
now, that those were North Korean funds, that $2.7 million?
Ambassador Wallace. Senator, I appreciate the inquiry, and
I appreciate the close analysis that you gave to this matter. I
think the answer is that we do not know, and I would assert,
with due respect to the Subcommittee and the staff who did work
very hard, I do not think any of us know.
Senator Levin. All right.
Ambassador Wallace. Here is the reason why. We know two
facts that have been found by UNDP's internal audits. We know
they have been found by the U.N. Board of Auditors and now this
Subcommittee. They are that we know that UNDP really operated
in the absence of financial controls in North Korea and that
they paid in cash currency. The second part of that is that we
know and have found that the North Korean Government used this
program in a way for less than desirable uses.
Given those two facts, we have documents in front of us
that you all have seen that indicate the transfers were made in
some way with the imprimatur of the U.N. saying that it was
U.N. money, if you will. So if you have two entities, one that
did not follow its rules, one that admittedly was engaging in
abuses of the U.N. system, and you have documents that suggest
that the money was U.N. money, I think it would be somewhat
inappropriate to give a free pass and say we do not know that
is U.N. money, particularly since cash is fungible, sir.
Senator Levin. All right.
Ambassador Wallace. If cash is paid into that system and it
is cash and cash is going out, you do not know where it came
from. So I think we do not know.
Senator Levin. I understand. Our staff has concluded that.
You say you do not know. Would you agree at least that you
cannot say that those were U.N. funds?
Ambassador Wallace. Sir, I believe that cash is fungible
and----
Senator Levin. Do you believe they were U.N. funds?
Ambassador Wallace. I don't know, sir.
Senator Levin. You cannot represent then to this
Subcommittee that these were U.N. funds.
Ambassador Wallace. I could not represent to this
Subcommittee that I know for certain that those were U.N.
funds.
Senator Levin. Now, in the briefing last May 23, you did
represent that they were U.N. funds. Is that correct? And I
understand why, I understand the documents and all the rest.
But is it accurate to say that last May 23 you did tell the
Senators that, in fact, these were U.N. funds?
Ambassador Wallace. I took the documents at face value,
Senator, and I did not have the benefit of a briefing with the
North Korean mission, and you----
Senator Levin. For whatever reason, that was your statement
at the time.
Ambassador Wallace. Yes, Senator.
Senator Levin. You no longer would make that statement
because now you don't know. Is that fair?
Ambassador Wallace. I would say I don't know where the
funds came from.
Senator Levin. All right. Now, on another matter--and I
understand the reason for these confusions, and if we had
decent audits and if the North Korean Government were
transparent, this would not have happened, presumably. I just
want to clarify, however, because these allegations and
statements got to the press, that in that particular case that
they were North Korean funds--excuse me, that they were U.N.
funds. Our staff has found that they were North Korean funds.
You, Ambassador, are now saying--I understand why--that you
cannot say one way or the other. But that is different from
what you briefed Senators back last May when you flat out
alleged that these were U.N. funds, for reasons that you have
given, and we understand those reasons. I am just trying to
clarify the record, including the public record, because a lot
of statements have been made publicly here.
Now, the statement has also been made that $7 million were
paid into the North Korean UNDP account. It appears now--this
is an account called NCCUNDP. This is an account designated to
receive UNDP development funds. Do we know now or do you
believe, Ambassador Wallace, that $7 million of U.N. funds were
deposited in that account? Based on what you now know, not what
you were able to ascertain last May but what you now know.
Ambassador Wallace. Senator, we have a limited picture of
documents that are ostensibly official UNDP documents that
appear to show transfers and misuses of UNDP funds. We continue
to have representations and evidence that suggest monies were
paid directly to the North Korean Government. I believe, based
upon the findings of its internal audit reports of the Board of
Auditors and this Senate Subcommittee, that payments were made
in cash directly to North Korean Government officials.
So I would submit to you, Senator, we don't know how much
money was paid.
Senator Levin. Talking about that bank account, that North
Korean bank account entitled NCCUNDP, do you believe now that
$7 million was transferred to that account by the U.N.?
Ambassador Wallace. It would appear that all the transfers
went through that account, Senator. So whatever the monies that
were deposited into North Korea--and I think that is another
item that we don't know, and the numbers were ranging very
broad. So I would submit to you, Senator, that whatever monies
were paid into North Korea somehow went through that bank
account.
Senator Levin. All right. So is it still your belief--I am
asking you for your belief--that $7 million of UNDP funds were
transferred to a government entity called the National
Coordination Committee for UNDP, NCC? Is that still your
belief?
Ambassador Wallace. It is my belief that it may be even
more. Whatever the total amount of funds I believe are somehow
tainted or went through that account, and one of the questions
that I think that is an open issue, frankly, is the total
amount of money that was actually paid by UNDP and other
agencies in that country. Whatever that total amount of money
was I believe went through the FTB in some fashion.
Senator Levin. All right. The answer then is yes, you
believe that at least $7 million was transferred to that
account by the UNDP. Is that correct? Based on what you now
know, you believe it.
Ambassador Wallace. As I said, Senator, I would testify
again, whatever amounts of money--and I think that they are
greater than that amount of money--went through the FTB in some
fashion one way or the other because of their relationship
there. Frankly, we don't have a complete picture, so we are
all, I think, speculating here. To the extent that we had the
ability to forensically look at their bank accounts and
otherwise, I think we could be certain. What I do find
disturbing is that after looking at internal audits, the Board
of Auditors, a Senate PSI investigation, and the U.S. Mission
to the U.N., I don't think any of us can say with certainty the
amount of money that UNDP delivered North Korea, either on
behalf of itself or the variety of U.N. agencies that it paid
for.
Senator Levin. I am just asking your belief, and you
believe that at least $7 million was put by UNDP into that
account. That is your belief, your current belief. I am asking
you a simple question. At least that much you believe was
transferred by UNDP to that account.
Ambassador Wallace. Well, when you say ``transferred,''
Senator, I believe there were payments in cash that went into
that account. I believe that there were transfers to that
account. I believe we don't know the total amounts.
Senator Levin. Finally, Ambassador Khalilzad, do you
believe that the UNDP operations in North Korea were corrupt or
tainted by widespread corruption?
Ambassador Khalilzad. I have seen no evidence, and the
people, including Ambassador Wallace, who have worked with who
have looked at this, none of them have brought to me evidence
that the management headquarters was involved in corruption or
corrupt practices or profited from their supervision of the
program in North Korea.
What it looks to me like--and I am giving you a personal
judgment at this point based on what I have seen, and we are
going to wait to read your report in detail, and Mr. Nemeth's--
is that there was lax supervision and not the kind of detailed
management and the kind of accountability and transparency that
should have been performed was not performed. But I don't
believe the management was involved in corrupt practices.
Senator Levin. All right. Would you agree with that,
Ambassador Wallace?
Ambassador Wallace. We have never asserted that anyone
profiteered or took advantage of monies for the personal
account of any UNDP official that we are aware of. We have
obviously focused on the absence of financial controls.
Senator Levin. And would you describe, therefore, those
operations as corrupt or tainted by widespread corruption?
Ambassador Wallace. I would characterize them as mismanaged
and with gross neglect.
Senator Levin. Does that mean you do not agree with the
description of ``corrupt'' or ``characterized by widespread
corruption''?
Ambassador Wallace. We do not believe nor have we seen any
corruption in the sense that a UNDP official profited from
business in North Korea, Senator.
Senator Levin. Thank you. Senator Coleman.
Senator Coleman. Thank you, Mr. Chairman. I just thought I
would clear up this issue of the $2.72 million that moved from
a North Korean account and a bogus account. If staff could put
up some of the documents because I want to make sure we have
stats so we know what we are talking about here. We are talking
about the IFTJC and the other document here.\1\ But just so we
are clear, the Subcommittee's statement about moving $2.7
million, now that is--UNDP maintains that it is not UNDP money.
But I do believe that what the Subcommittee then states in a
footnote is that, ``We were not given unfettered access to the
system. We have not had the opportunity to review original
receipts, so we really do not know where the money came from.
We cannot establish it was UNDP money. We simply don't know.
UNDP says it is not theirs and that they have never seen, in
fact, some of these records.''
---------------------------------------------------------------------------
\1\ See Exhibit 8, which appears in the Appendix on page 215.
---------------------------------------------------------------------------
Ambassador Khalilzad, beyond the North Korea situation,
this issue of management reform and transparency has been a
concern of this Subcommittee for a while. The outcome
document--I think it was in 2005--raised this issue. One of the
issues has to do with program review, and I think in your
statement you talked about progress being made.
To date, there are over 9,000 various U.N. programs. Is
that correct?
Ambassador Khalilzad. Mandated.
Senator Coleman. Mandated. To date, has there been a
program review of a single one of those?
Ambassador Khalilzad. Well, at the present time, as we
speak, the humanitarian mandates are being reviewed by the
Secretariat as part of this agreement that we made 3 or 4
months ago of a framework agreement for mandate reviews. The
9,700-plus mandates are a huge burden on the organization, and
there are mandates that are of no relevance anymore. So,
therefore, this has been a top priority of mine, and we have
made an agreement on how to proceed with the review, and it has
started.
Senator Coleman. My frustration is we have had an agreement
to proceed. I was with the Secretary-General last year with
Senator Biden, and we had an agreement on how to proceed in
Darfur and that we were going to have troops on the ground. And
in spite of agreements to proceed, we have seen no action. And
my concern here is we have an agreement to proceed, and 3 years
after we raised--perhaps 4 years after we raised the issue, we
are still proceeding under an agreement to proceed.
Ambassador Khalilzad. Right.
Senator Coleman. So I just kind of lay that out there and--
--
Ambassador Khalilzad. Well, if I could say something,
Senator Coleman, on your example of Darfur, of course, the
problem is mostly with Bashir, that he is not allowing the U.N.
to do things.
With regard to the mandate, it is mostly the problem within
the U.N. System, so there is more of a burden, I think, with
regard to----
Senator Coleman. I understand, but in both instances--I
remember vividly talking to the Secretary-General, who was very
positive about the agreement with Bashir.
Ambassador Khalilzad. Right.
Senator Coleman. And that was a year ago, and travesty is
still occurring in Darfur. And that is my concern with the U.N.
We have a lot of agreements that require action.
Ambassador Khalilzad. Right.
Senator Coleman. Whistleblower protection is another area.
It is an important area. I would hope after the beginning of
this inquiry that, in fact, we would have whistleblower
protection across the board. The Secretary-General in January
came out and said whistleblower protection should apply to all
the agencies.
Ambassador Khalilzad. Right.
Senator Coleman. We are still debating it, though, with
UNDP. Is that correct?
Ambassador Khalilzad. We are, but I think we made, as you
noted in your statement, progress that the Secretary-General
said it should apply to all U.N. Funds and Programs.
Now, the particular case that you have mentioned with
regard to the person, the whistleblower at UNDP, there has been
a disagreement in terms of the jurisdiction applying by the
Ethics Office of the Secretariat to this case, and this is part
of the Nemeth group that will look at. But we have made
progress, but not sufficient, in our view. We want and we will
work for the coverage of the Secretariat application to all
U.N. Funds and Programs. That is where we are, and we will push
for that.
But we have made progress, and I do not want to oversell
how much progress we have made. We have made some progress, but
there is a long way to go.
Senator Coleman. And I applaud the Secretary-General for
his statement. His policy covers--is this correct, Ambassador
Wallace? His policy would cover contracted employees? UNDP said
that they have had whistleblower protection a long time. Does
their current policy cover contractors?
Ambassador Wallace. I think you raise an issue that is
really a big fundamental issue in the U.N. System. There is a
big difference between staff and contractors. We see the U.N.
on a core resources budget having a finite number of staff but
thousands and thousands of additional people under a contract
that are performing staff-like functions. And there is a big
debate going on whether those people that are performing staff-
like functions should be covered. I believe that if people are
performing staff-like functions, I think they should have the
benefits of being protected like staff.
Senator Coleman. And the case in question, Mr. Shkurtaj was
a contractor. And so if you simply----
Ambassador Wallace. Performing core work.
Ambassador Khalilzad. Core work.
Senator Coleman. Doing core work. He was a manager. He was
overseeing a program. And if you simply terminate his contract,
you would argue there is no retaliation. But that is exactly
what whistleblower protection should be protecting against. And
UNDP comes and says, well, we have had protection. I would
maintain that is insufficient. That is why the Secretary-
General issued the policy. And then to come back and to argue
the policy does not apply to others other than those within the
Secretariat, and then to maintain--and I believe with UNDP they
have about 9,000 staff versus about 20,000 contractors. Am I in
the ball park on that?
Ambassador Wallace. I believe it is even more contractors,
but it is not clear to me, Senator.
Senator Coleman. If staff could put up some of the charts.
We have talked about this International Finance and Trade Joint
Company (IFTJ), and at the same time, we have talked about the
Foreign Trade Bank. Just so that we understand, the Foreign
Trade Bank is an entity of North Korea. Is that correct?
Foreign Trade Bank?
Ambassador Wallace. That is what we understand, Senator.
Senator Coleman. A government entity.
Ambassador Khalilzad. Right.
Senator Coleman. What the Staff Report is showing is that
you have individuals who are employees of the government entity
are also now involved in running this IFTJ. In effect, the IFTJ
is a phony entity. Is that a fair statement?
Ambassador Wallace. Senator, I am not familiar with--I know
what I know about IFTJ. Certainly it is a suspicious entity.
Senator Coleman. OK, but there is no question that the IFTJ
is not an official North Korean Government agency. Is that
correct?
Ambassador Wallace. Ostensibly, yes, sir.
Senator Coleman. Ostensibly, yes. But, in fact, the same
people who run the Foreign Trade Bank are government officials.
Their cards were interchangeable; they go back and forth. And
the IFTJ is the entity through which the $2.72 million was
transited then to embassies in Canada or the U.K. and Europe.
Is that correct?
Ambassador Wallace. That is what the documents reflect,
Senator.
Senator Coleman. I have a little point, one last question
to you, Ambassador Wallace, but it is a little point that, I
have to tell you, gets my goat. I do not know where this is in
the documents, but there is a document and it is labeled
``Elsingore S.A.'' It is a packing list. This is UNDP money
providing for the North Koreans certain member--this is a
development program. Is that correct?
Ambassador Wallace. Yes, Senator.
Senator Coleman. There were books that were purchased with
Development Program money. Is that correct?
Ambassador Wallace. Yes, Senator.
Senator Coleman. There is no question about the
authenticity of the document.
Ambassador Wallace. Yes, Senator.
Senator Coleman. And among the purchases, the books
purchased with Development Program money, is a book labeled
``Second Strike: Arguments About Nuclear War in South Asia'';
``The Secret History of the CIA''; ``Taming American Power'';
three others--I have a score of other books. ``The End of
Iraq,'' Galbraith book; ``Contemporary Nuclear Debates.'' This
is ``Deadly Arsenals,'' ``Reshaping Rogue States.'' I could go
on. A number of ``Second Strike: Arguments About Nuclear War in
South Asia,'' a copy of that.
Am I missing something? Could you let me know, is there any
development purpose that would be accomplished by UNDP funding
this for the North Koreans?
Ambassador Wallace. No, Senator, and I truly hope you don't
ask me to do a book review while I am here.
Senator Coleman. OK. No further questions at this time, Mr.
Chairman.
Senator Levin. Thank you, Senator Coleman. Senator Coburn.
Senator Coburn. Thank you. Let me go back and make a couple
of points. All the Korean funds are fungible, right? They are
all fungible. So whether they came from their drug sales, which
we know they are doing, or whether they came from selling
missiles, or whether they were deposited in this account of
money that we had given them through UNDP, we don't know.
Correct? We don't know the answer to that.
Ambassador Wallace. I think that is correct, Senator, and I
think it is very important because I think we are having a
tendency to be somehow at odds over the amount of monies there.
The reality is we don't really know, I don't believe. We can
only know the statements that are made by UNDP's audits, the
other agencies that they paid in. We know that they paid in
cash. We know that there were transfers. And we know they were
all somehow tainted by this banking system.
So I think that the debate about the total figure, we can
have that debate, and I have lots of facts about----
Senator Coburn. OK. I don't care what----
Ambassador Wallace. I just know it is a lot of money. I
don't know what the----
Senator Coburn. I don't care what the total figure is. I
just want to establish the point is we don't know where the
money--it is a deep, dark black hole and nobody knows where the
money is.
There was an audit done on this, correct?
Ambassador Wallace. There were in 1999, 2001, and 2004
and----
Senator Coburn. And that is not available to us as U.S.
Senators, correct?
Ambassador Wallace. That is correct, sir.
Senator Coburn. And is there a good reason why, when
America contributes 22 percent of the U.N. budget and a smaller
percentage, 10 or 11 percent, of UNDP's total budget, that we
should not be able to see the audit results of programs within
UNDP?
Ambassador Wallace. In fact, it has been one of the top
reforms that I have fought to adopt at the U.N. We need to have
those audits. We can't follow the money----
Senator Coburn. I am not disputing that. I am saying is
there a cogent reason why we should not have that information.
Ambassador Wallace. The only reason offered by UNDP is that
it reveals internal decisionmaking. And my answer to that,
Senator, would be: If there is internal private matters, Social
Security numbers or the like, that is sensitive to the people,
you can redact that information. I think otherwise that
information should be made available to member states and,
frankly, to the Senate, and it should be public, in my opinion.
Senator Coburn. Senator Levin asked Ambassador Khalilzad
about the potential good that UNDP can do. How do we know if we
do not have metrics and we are not measuring it? How do we know
what UNDP is doing if there is not a metric set out there to
measure and then we don't compare what their goals are against
what they accomplished? How do we know that UNDP is positive in
its effect other than we are spending a lot of money?
Ambassador Khalilzad. Well, to go back to the audit issue,
I completely agree with Ambassador Wallace that we need to have
access to it. Some of the reasons, when we have had the
discussion with them, have had to do with the kinds of things
that Ambassador Wallace talked about, but they also mentioned
that previously there was no decision that they would be made
public and, therefore, information that is in there, countries
would be sensitive to be shared with other countries with
regard to what is happening in their programs. And Ambassador
Wallace has suggested this idea that maybe there would be a way
to overcome that, redaction. So we are pushing for that.
As far as knowing whether we are achieving goals, of
course, when they build a school, we know whether they have
built a school there, development projects that we know that
are taking place. But I think to have the fullest confidence
that they are achieving the goals that they have sought to
achieve, we need to have access to their audit reports. There
is no question about that.
Senator Coburn. Why should there be any effort to hide
where the money goes? I mean, why should----
Ambassador Khalilzad. Absolutely.
Senator Coburn. Why shouldn't the whole world know? I mean,
if what we are doing is humanitarian in our goal and supposedly
ethical in how we accomplish it, why would we not want sunshine
to be on it? So how is it that we can stand and continue--by
the way, the Federal Accountability and Transparency Act is a
Federal law that requires the U.N. to give us where they spend
our money. You all are aware of that. And so I suspect, since
we are not going to get that from the U.N., we are going to see
a large court case come up that will force or tie U.S.
contributions to the realization that the U.N. has to be
compliant in exposing where our money is spent.
Ambassador Wallace, UNDP's own auditors, the U.S. State
Department, and now this Subcommittee report all found that
UNDP had committed serious wrongdoing in terms of its North
Korean programs. You said you did not think they were criminal,
but at the best, it was highly incompetent. Yet the UNDP has
denied each charge and has already begun spinning this
Subcommittee report as exonerating their management of the
programs. And when their own core manager, who was a contract
employee, raised something about it, what did they do? They
canned him. Correct? Are there any insurances that our
contributions right now that are going to go forward this next
year are going to be safe from enriching other rogue and
terrorist states? How do the American people know that if we
give another quarter of a billion dollars to UNDP next year
that it is not going to get wasted or is not going to
supplement somebody's missile sales to somebody else? How do we
know that?
Ambassador Wallace. Senator, I think in certain countries
where there is much more transparency--and frankly, the
countries that are a challenge are the politically difficult
countries around the world. I think in those politically
difficult countries, if we are not adhering to the strictest
U.N. financial regulations, which are on the books, which UNDP
did not follow in North Korea, I could not sit here today and
attest that I knew where the money went. When you are paying in
cash currency, you have government seconded officials doing
core tasks, and you have greatly restricted project sit visits,
you do not even get to see the school or the development
project at issue, I am worried. And that is one of the reasons
why we raised concerns.
So I would submit to you, Senator, that I am definitely
concerned about certain areas where UNDP does business. I think
UNDP is a really important partner to the United States. I
think they could do very good work. But if they are not going
to follow U.N. financial regulations in these tough
environments, I cannot in good faith come to you, sit before
you, and swear to you that I knew where U.S. taxpayer dollars
went.
Senator Coburn. So has the President or the Administration
suggested that we reduce the dollars that are going to UNDP
until we know where the money is going to go?
Ambassador Wallace. I believe, Senator, that our request
was about $100 million last year.
Senator Coburn. OK. I want to make one other point because
it is fairly concerning to me. Ambassador Hill, who is leading
our Six Party Talks, some of the information in this report he
wanted to keep classified even though the Treasury Department
said there was no reason to do that. The Treasury Department
said this information should not be classified since it did not
reveal methods and sources.
So is there any other reason why the State Department
authorized Ambassador Hill to censure the information other
than to protect the reputation of the Six-Party Talks? Is there
a political reason why we are not allowing this information to
be put out there when, in fact, it has no true classified
value? Is there a political reason why we are doing that?
Ambassador Khalilzad. I am not aware of any political
reasons for doing that, Senator.
Senator Coburn. OK. Well, it is very concerning to me that
here we find ourselves with a great intent of the American
taxpayer giving money through the U.N., counting what we do--it
is about $5.6 billion a year. We are by far the largest
contributor in almost every program, and that we have members
of our own government stopping our ability to see transparently
whether or not the American taxpayer is getting value.
I have a lot of other questions. I think I will submit
them, if I may, for the record and ask that I get a written
response to them rather than tie you up now. And I thank the
Chairman.
Senator Levin. They will be made part of the record, and we
will leave the record open for the usual amount of time so that
other questions can be asked.
As a matter of fact, we did end our support of this
program. Is that not correct?
Ambassador Khalilzad. We have. The program has ended.
Senator Levin. And the reason that we did is because they
did not comply with their own rules and regulations. Is that
correct?
Ambassador Khalilzad. When UNDP did, the North Koreans said
no, and, therefore, the program was suspended.
Senator Levin. And so what UNDP did was, under our
insistence, say that you are not following your own rules and
regulations, policies and practices.
Ambassador Khalilzad. Right.
Senator Levin. And so they ended their program as a result
of our insistence.
Ambassador Khalilzad. Absolutely. We played a vital role in
bringing about changes in the UNDP practices, which the North
Koreans rejected to comply with, and, therefore, the program
was suspended.
Senator Levin. Now, if our mission to the U.N. had been
given access immediately to UNDP audits, would that have
eliminated some of the controversy which surrounded the
operations of the UNDP in North Korea?
Ambassador Khalilzad. I believe it would have contributed,
it would have helped, certainly.
Senator Levin. All right. Now, Dr. Dervis' proposal that
the UNDP Executive Board members get ``read only'' access to
future UNDP audits, is that acceptable? Why should we just be
able to read them and not make copies of them?
Ambassador Khalilzad. I think that it is a step in the
right direction compared to where he was, but it is not
sufficient. We disagree with him on not having access, complete
access, and also not getting existing audits that have been
done in the past.
Senator Levin. And have you made that clear to Dr. Dervis?
Ambassador Khalilzad. I have.
Senator Levin. Is the Administration recommending that we
continue support of UNDP even though we do not get copies, and
copies are not made public of those audits?
Ambassador Khalilzad. Yes.
Senator Levin. And why?
Ambassador Khalilzad. Because we believe what we get from
UNDP otherwise is very important for our national interest,
and, therefore, while we want those changes that we talked
about, we want access to the audits, we want other changes. We
believe we have a variety of weapons to use and that
terminating all assistance is not appropriate at this point to
achieve those goals.
Senator Levin. Now, UNDP disavowed the jurisdiction of the
U.N. Ethics Office, and they declined to allow the office to
review the case of Mr. Shkurtaj. Do we agree with that
decision?
Ambassador Khalilzad. We do not agree with that decision of
UNDP.
Senator Levin. And what actions have we taken to overcome
that decision?
Ambassador Khalilzad. We are now--both sides agree, the
Secretariat and UNDP, to have the Nemeth Committee look at how
this gentleman was treated.
Senator Levin. But also the process?
Ambassador Khalilzad. With regard to the process, again,
there is discussion going on among the U.N. Funds and Programs
and the Secretariat with regard to this issue to develop a
common set of approaches that they could all agree to. And we
have made our point clear that we believe that the Secretariat
should have jurisdiction over all U.N. Funds and Programs. But
they are in discussion among themselves.
Senator Levin. Thank you. Senator Coleman.
Senator Coleman. Ambassador, do you know whether as part of
the Six-Party Talks, whether there is an effort for UNDP to go
back into North Korea? Do you know whether that has been on the
table?
Ambassador Khalilzad. I am not aware of that, Senator. I
have received no indication of that kind.
Senator Coleman. Have there been any discussions about
possibilities of increasing humanitarian aid for North Korea?
Ambassador Khalilzad. Not that I have been instructed with
regard to.
Senator Coleman. But if that were to be, then UNDP would be
the agency that would typically administer the aid? Is that
correct?
Ambassador Khalilzad. That is one of the instruments.
Senator Coleman. Could we look just very quickly at the
organizational chart? If that happens, my concern is that what
we saw before, we don't go through it again. The organizational
chart is the UNDP.\1\ That is their structure in North Korea.
The shaded boxes are--when we talk about seconded, that means
that the North Koreans place people there.
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\1\ See Exhibit 4, which appears in the Appendix on page 206.
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Ambassador Khalilzad. Right.
Senator Coleman. So these are North Korean agents that are
working within UNDP, and, in fact, is it correct that they
include folks who were bank signatories on behalf of the North
Koreans? These are things that in seconding we have given the
North Koreans authority, both in terms of the people they
place, authority over things like bank signatories, certifying
office functions, contract and travel authorizations,
maintaining petty cash, maintaining financial aid, these are
all done by North Korean agents working for ostensibly UNDP. Is
that correct, Ambassador Wallace?
Ambassador Wallace. Yes, Senator. It appears that North
Korean seconded officials were operating in core places,
including with signature authority. That is what we have
understood.
Senator Coleman. And we also understand that UNDP
operations themselves were subject to searches by North Korean
security officials, that conversations were monitored. In
effect, there was no privacy that any UNDP functionaries had in
operating in North Korea. Is that correct?
Ambassador Khalilzad. I wouldn't be surprised that those
would be correct given the nature of that system.
Senator Coleman. OK. And, by the way, my staff said it is
not just the shaded. It is a whole range of those that are
marked as official, official, official, and there are a series
of them.
My point is this, that if we go back, if there is
discussion about aid to North Korea as we deal with the Six-
Party Talks, which we all want to be successful, my hope would
be that we would operate with a system of transparency and
accountability. We cannot measure what we have got out of UNDP,
and I want them to succeed. But I do know you have a system in
which the North Koreans basically set the terms, and UNDP has
come back and said that that is the way that other NGOs
operate, that is the way we operate in other countries. Could
you respond as to whether that is a sufficient justification
for what we have found here?
Ambassador Khalilzad. Not a sufficient justification in my
view, but they do point out--and I have been told by some of my
colleagues from the countries who have missions there--that is
how they operate, the way UNDP did. But that is not acceptable
in my view.
Ambassador Wallace. If I could add, Senator, remember what
UNDP does. UNDP is typically the resident representative in the
country----
Senator Coleman. Say that again.
Ambassador Wallace. The resident representative of the
Secretary-General, the top U.N. agency official in-country. And
in Pyongyang, it is our understanding that UNDP made payments
and delivered aid, development aid, on behalf of its own
account, but on behalf of a variety of other agencies. So I do
think that as the top lead official, particularly as they seek
to implement something called the ``one U.N. System,'' where
they are the top official around the world, I think that the
highest standards of financial control, they need to speak to
that. And in my opinion, I think it is imperative that if you
are going to deliver aid, no matter where it is, if you do it
in the absence of financial controls, you are doing it
irresponsibly.
Senator Coleman. Thank you, Mr. Chairman.
Senator Levin. Thank you. Dr. Coburn.
Senator Coburn. Ambassador Khalilzad, just one other
question. You answered Senator Levin and you answered Senator
Coleman that we are getting value from UNDP. How do you know
that?
Ambassador Khalilzad. Well, we have to make a distinction
between the North Korean case, which has had these problems,
but that is not the entirety of----
Senator Coburn. Oh, I understand that. I am just saying,
what statistics, measurements, metrics, or indications tell you
that we are getting value? In other words, that is a judgment
you are making. I am not critical of the judgment. I am just
asking what are the tools you are using to make----
Ambassador Khalilzad. Well, we do have tools, and I will
submit it to you in detail for the record. We know what the
programs are of North Korea. There is appropriate oversight. We
have not raised questions about oversight with regard to quite
a number of other countries where there are UNDP programs.
There are site visits where programs, projects that are carried
out are being observed. So my comment was overall, not with
regard to the North Korea----
Senator Coburn. OK. Does any of that information come from
other sources other than UNDP's self-reporting?
Ambassador Khalilzad. Well, our embassies in some of these
countries also have access to--our AID folks also see those
programs. But in order to be completely responsive with regard
to each country, I could provide----
Senator Coburn. That is fair.
Ambassador Khalilzad. So North Korea should not be seen
that that is the model as to how UNDP operates around the
world.
Senator Coburn. Well, I will assure you from our other
hearings on USAID, they do not do any oversight. So it is hard
to know whether USAID is accurate in their assessments as well.
Ambassador Khalilzad. Well, I mean, there are always
questions about--I have worked in Afghanistan and Iraq, and I
have had some problems----
Senator Coburn. I know you are.
Ambassador Khalilzad [continuing]. Myself knowing even our
own projects as to when they say that school is being built,
that is given to a contractor who has subcontracted, and the
area has security problems. And that is why I got the Corps of
Engineers to come and help me with sort of----
Senator Coburn. I agree, you and I both have been through
this. We know about Afghanistan. That is why we have the SIGIR
in Afghanistan that started in January this year.
Ambassador Khalilzad. Exactly.
Ambassador Wallace. May I add to that, Senator, briefly?
Senator Coburn. Sure.
Ambassador Wallace. I think we should be honest. I do not
believe that we perform adequate oversight of the U.N. Funds
and Programs and Specialized Agencies. That is a tough
admission for a U.S. Ambassador whose portfolio is supposed to
cover that. But I am admitting that to you today, and that is
in no way a criticism of the incredibly fine civil servants
that I have worked with who have been struggling to deal with
these multi-headed U.N. Funds and Programs. But the reality is
that in many cases our oversight entails going to a board
meeting twice a year, you sit in a chair for a couple of hours,
and you hear reports. And this has to do with hundreds of
millions of dollars of U.S. money.
I think that the transparency and accountability mechanisms
of these U.N. Funds and Programs are, frankly, living 30 years
in the past, and that is one of the reasons why we have
promoted the UNTAI initiative. By admitting, Senator, frankly,
that I don't think we do a good enough job and it is something
I think I said a long time ago, I hope that we can do better.
Senator Coburn. Yes, I agree.
Ambassador Wallace. And we have to do better; otherwise, I
cannot answer questions that you are fairly asking me.
Senator Coburn. OK. One final question. You are charged
with oversight, correct?
Ambassador Wallace. Yes.
Senator Coburn. What is the size of your staff?
Ambassador Wallace. My staff is small, but very effective,
Senator. I think that they--I wouldn't trade them for anybody
in the world.
Senator Coburn. Well, this isn't to make a quality judgment
about your staff. The point I want to make is here is all this
area that we don't have any oversight on, and yet we have this
limited group of people who are highly qualified and dedicated,
and we are going to ask you to give us an answer to something
that is impossible for you to do.
Ambassador Wallace. I think I have eight to 10 people on my
staff.
Senator Coburn. So the point, again, comes: Are not the
American people entitled to know where their money is being
spent through U.N. agencies? Are they not entitled to that?
Ambassador Wallace. Not only are they entitled; they should
know it.
Senator Coburn. And so, therefore, what is this Congress,
and what is this Administration going to do about it,
especially with regard to the North Korean UNDP and the other
areas where it may not be effective because we don't know? So
the question has to be before this Congress: Are we going to
put some teeth into our contributions to the U.N. to require
transparency so we know whether or not what we are giving money
to is actually carrying out what we intended to do, which is
the betterment of other people?
Ambassador Wallace. Absolutely. And, Senator, I think the
first step of oversight is being informed, and I think your
interest in audits, for example, our UNTAI initiative, which
really is a mechanism for providing information to us and the
flow of information so that we can provide effective oversight.
You need to be informed before you can make oversight. And that
is why we rolled out our UNTAI initiative. We have had some
beginning successes, but we have a long way to go.
Senator Coburn. Things are going to change when the United
Nations and every agency that works therein understands that
American dollars are predicated on transparency. Your job is
going to get a lot easier, and it is going to require our bolus
to make that as a condition, and then the U.N. is going to have
to change. And if it does not change, we should not keep
sending the money. And I am going to work as hard as I can to
get that transparency, and if they want to keep denying it,
then I am going to work as hard as I can to start sending the
money a different way where we can see how it is spent. Thank
you.
Senator Levin. Thank you, Senator Coburn. We thank you both
for your appearance and your very helpful testimony.
Ambassador Khalilzad. Thank you.
Ambassador Wallace. Thank you.
Senator Coleman. Mr. Chairman, I want to thank the
Ambassadors--Ambassador Khalilzad, we have worked together in
Afghanistan and Iraq--for their tremendous service to this
country.
Ambassador Khalilzad. Thank you.
Senator Coleman. And, Ambassador Wallace, what you have
done. I was remiss in not expressing my deep appreciation for
you and the staff with whom you work and the contributions they
make on a daily basis. So please understand that.
Ambassador Wallace. Thank you, Senator.
Ambassador Khalilzad. Thank you very much.
Senator Levin. Thank you both.
Let's now call our second panel: Thomas Melito, Director of
International Affairs and Trade at the Government
Accountability Office.
Mr. Melito, we appreciate your being with us this morning.
We welcome you to the Subcommittee, and as you well know, all
witnesses who testify before the Subcommittee are required to
be sworn in, and so I would ask you to stand and raise your
right hand. Do you swear that all the testimony you are about
to give before this Subcommittee will be the truth, the whole
truth, and nothing but the truth, so help you, God?
Mr. Melito. I do.
Senator Levin. I think you know the ground rules, so we
would ask you to proceed.
TESTIMONY OF THOMAS MELITO,\1\ DIRECTOR, INTERNATIONAL AFFAIRS
AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON,
DC
Mr. Melito. Thank you. Chairman Levin and Ranking Member
Coleman, I am pleased to be here today to discuss U.N.
operations in the context of three key issues that we reported
on in 2007: First, the progress of management reform efforts at
the U.N. Secretariat; second, weaknesses in oversight and
accountability in selected U.N. organizations; and, third,
constraints upon U.N. activities in Burma.
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\1\ The prepared statement of Mr. Melito appears in the Appendix on
page 68.
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Events over the past several decades indicate that there is
continuing need to reform and modernize the U.N. in areas
including management, oversight, and accountability. While U.N.
worldwide operations have expanded in complexity and
significance, longstanding problems in U.N. management have
contributed to scandals in the Oil-for-Food Program and
procurement operations. In addition, the United States has been
critical of Burma's military regime, which has hindered the
ability of some U.N. organizations to address Burma's most
pressing problems.
In our report on U.N. management reform efforts, we noted
that progress has varied in ethics, oversight, and procurement,
and several factors have slowed the pace of progress. The U.N.
Ethics Office has worked to improve ethics by developing
standards, enforcing financial disclosure requirements, and
implementing a whistleblower protection policy. However,
weaknesses in the U.N.'s internal justice system may constrain
the impact of the whistleblower protection policy.
The U.N. has made some progress in improving oversight by
creating an Independent Audit Advisory Committee and improving
the capacity of the U.N.'s internal oversight office to carry
out internal audits and investigations. However, U.N. funding
arrangements continue to constrain the independence of this
unit and its ability to audit high-risk areas.
Progress in procurement reform efforts has been mixed. The
U.N. has strengthened its training program for procurement
staff but has not formally established an independent bid
protest system.
Finally, the pace of U.N. management reforms has been
slowed by several factors, including disagreements among member
states on the importance of management reform efforts, a lack
of comprehensive implementation plans, and competing U.N.
priorities. These factors limit the capacity of member
countries to address management reform issues.
In our report on oversight and accountability of six U.N.
organizations, we addressed the extent to which these
organizations' internal audit offices have implemented
professional standards and whether governing bodies are
provided with information about the results of U.N. oversight
practices. Although the six U.N. internal audit offices have
made progress in implementing international auditing standards,
they have not fully implemented key components of the
standards. We found that five of the six organizations have
established whistleblower protection policies; however, UNDP
was still developing such a policy, and none of the six
organizations required their staff to disclose their financial
interests.
In addition, some of the audit offices had not fully
implemented a quality assurance process, such as having
external peer review. Several of the organizations also did not
have professional investigators to probe allegations of
wrongdoing. We also reported that the governing bodies
responsible for oversight of the six organizations lacked full
access to internal audit reports, limiting their ability to
identify critical systemic weaknesses.
In our report on Burma, we identified U.N. efforts to
address Burma's humanitarian and development problems and
describe the impact of the regime's recent actions upon them.
We found that Burma's military regime has blocked or
significantly impeded efforts to address human rights concerns
and to help people living in areas affected by ethnic conflict.
The regime frustrated ILO's efforts to monitor forced labor for
4 years before signing an agreement in February 2007. It
restricted efforts by UNHCR to assist populations living in
areas affected by ethnic conflict and blocked efforts by the
International Committee of the Red Cross to monitor prison
conditions in conflict situations. The regime has also, to a
lesser degree, impeded U.N. food, development, and health
programs by restricting their ability to operate freely within
the country. Nonetheless, several officials told us they are
still able to achieve meaningful results in our efforts to
mitigate some of Burma's humanitarian problems.
In conclusion, the U.N. is increasingly called upon to
undertake important and complex activities worldwide. As the
U.N.'s role and budget expand, so do concerns about weaknesses
in accountability, transparency, and oversight. Addressing
these weaknesses will require concerted and sustained actions
by member states and U.N. management.
Mr. Chairman, I would be pleased to answer any questions
you may have at this time.
Senator Levin. Thank you, Mr. Melito.
As we have heard this morning, the U.N.'s general practice
has been to keep its audit reports confidential, seen only by
management, has often denied access to U.N. member states, and
this Subcommittee and many others have for years urged greater
access to U.N. audit reports, not just for U.N. member states
but for the public, and obviously for the Congress.
The UNDP case history in North Korea proves the point.
Denying ready access to the audit reports hurt UNDP-U.S.
relations, caused confusion over the facts, and for no real
gain. We were able to obtain copies of the UNDP audit reports
from other sources. Those reports did not cause problems. They
helped us understand and analyze the facts.
So let me ask you, what has been your experience with
getting access to U.N. audit reports? Have you had access?
Mr. Melito. Last year, we reviewed the auditing practices
of three U.N. Funds and Programs and three Specialized
Agencies, and that included UNDP. And in the course of our
work, we were denied access to the internal audit reports. We
were able to discuss generalities about the audit processing,
but we were unable to look at individual reports. We
recommended that one of the reforms that U.N. Funds and
Programs and Specialized Agencies should implement is to make
audit reports available to member states.
Senator Levin. Were you given reasons for why you were
denied audit reports?
Mr. Melito. It was policy and practice.
Senator Levin. But did they give you the policy? Did they
tell you what the policy is, or did they just say it is policy?
Mr. Melito. Well, they must answer to their Executive
Board, and without having been given permission to make this
change, I don't think such a change was possible. But, that
said, I think these are the kind of things which would help
oversight and help transparency.
Senator Levin. Have you seen U.N. audit reports?
Mr. Melito. Oh, yes.
Senator Levin. And what is the quality of those reports?
Mr. Melito. Starting in 2005, the reports of OIOS, which is
the audit unit of the Secretariat, have become available to
member states. As with many things, they vary in quality, but
there are some very good reports being done. I think the
quality of the reports probably would improve over time if they
were made publicly available.
Senator Levin. Before he left office, U.N. Secretary Kofi
Annan established a U.N. Ethics Office, and it was set up in
early 2007, and it got its first Director in May 2007, and I
believe the GAO has been an observer of that effort. Was it
your understanding that the U.N. Ethics Office was intended to
issue ethics policy for the entire U.N. community covering not
only the U.N. Secretariat but all U.N. Funds and Programs?
Mr. Melito. We understood that there was ambiguity on this
matter from early on. We know that the U.S. position was that
the coverage should include U.N. Funds and Programs, but we
also know that there are a number of areas where the authority
of the Secretariat to the U.N. Funds and Programs is unclear.
And it is my understanding that the Office of Legal Affairs at
the Secretariat made it clear early on that General Assembly
resolution did not cover the U.N. Funds and Programs.
So we just report the facts. We could not make a
determination because that was mostly a legal determination on
the structure of the U.N.
Senator Levin. Well, when the U.N. Ethics Office made a
determination in August in response to the Shkurtaj complaint
that it has jurisdiction over only the U.N. Secretariat and not
U.N. Funds and Programs like the UNDP, did that surprise you?
Mr. Melito. Actually, it did not, because that is
consistent with some of the other decisions that have been made
about where the authority of the Secretariat ends.
Senator Levin. In November, Secretary-General Ban directed
that all U.N. Funds and Programs establish their own Ethics
Offices. First of all, how many U.N. Funds and Programs are
there at the U.N.? And what percentage met the January 1, 2008,
deadline for setting up their internal Ethics Offices?
Mr. Melito. I can get back to you on the number of U.N.
Funds and Programs. I do know for the three U.N. Funds and
Programs we looked at last year, the two criteria that were
relevant were that you have an Ethics Office and that you also
have a whistleblower protection policy. And UNDP has an Ethics
Office but did not have a whistleblower protection policy. The
other two U.N. Funds and Programs had whistleblower protection
policies but did not have an Ethics Office. So at the time of
our study in June, none of the three would have met the
criteria.
Senator Levin. When the U.N. Ethics Office made its
decision in August, it said that even though it did not have
jurisdiction over the UNDP, it urged the UNDP voluntarily to
submit the Shkurtaj case to it for review. The UNDP declined to
do that. It would seem to me that the UNDP, when they did that,
undermined the status and authority of the U.N. Ethics Office
for no particular reason. Then it set up an ad hoc review
committee to adjudicate the Shkurtaj case.
Do you have an analysis or an opinion as to why the UNDP
declined to submit that case to the U.N. Ethics Office for
review?
Mr. Melito. I can only speculate, but it goes back to the
issues of governance and the role--the different lines of
authority between the Secretariat and the U.N. Funds and
Programs. But I think you should pursue that with UNDP
yourself.
Senator Levin. Thanks. Senator Coleman.
Senator Coleman. Thank you.
I want to touch, Mr. Melito, on mandate review. You heard
the testimony of the Ambassador that progress is being made. In
your report, you make a statement: ``Despite some limited
initial actions, the U.N. review mandate has not advanced due
in part to lack of support by many member states.'' Is that a
fair statement? Do you still stand by that?
Mr. Melito. Yes, we do.
Senator Coleman. And so there are over 9,000 mandated
programs, things known as mandate review----
Mr. Melito. Actually, I think there is some confusion on
the actual total number. I think they have settled on 6,900
mandates that are older than 5 years. I don't think they have a
total that includes the ones that are younger than 5 years.
Senator Coleman. OK. So there are at least 6,900 that old.
And out of those 6,900, to date how many have effectively been
reviewed and eliminated?
Mr. Melito. I don't know if any have been eliminated. I
think there are 74 that were--the words they use--``set
aside,'' and I am not exactly sure what the operational meaning
of that means. But those are ones that have already been
completed. Many of these mandates were mandates that set up
various organizations within the U.N.
Senator Coleman. And when you say lack of support by member
states, can you give me a little more information about that?
Mr. Melito. There is a lot of suspicion about what the
ultimate purpose of mandate review is and a lot of
disagreements on how it should be carried out and, if there are
any freed-up staff resources or budget resources, how they
should be used. And I think the lack of agreement and consensus
on those elements has held the review up.
Senator Coleman. Isn't it a fair statement to say that in
many cases these are jobs programs for many folks?
Mr. Melito. There are a number of mandates which have
reporting requirements, annual reports, and there are people
staffed on those annual reports.
Senator Coleman. With regard to access, the question raised
by the Chairman and that all of us have raised--the Chairman
has pushed very forcefully--is about the importance of audit
access to member states, the importance of access to this body,
transparency. You also raised the issue about access--internal
access. You make a point of saying that U.N. member states have
a lack of access by internal governing bodies. Can you explain
that?
Mr. Melito. This is actually part of the audit reports.
Each of these organizations have their own internal oversight
unit, and the oversight units tend to be part of the
organization, which is not uncommon or necessarily incorrect.
But the question then becomes how do you give the units some
independence, some ability to go where the units need to go,
and then have their information reach the levels where it needs
to reach, which is, in the case of the U.N., the Executive
Board, which is comprised of the member states. And we actually
have two recommendations which tried to improve this. The first
one we have been talking about already today, which was to make
the audit reports themselves available directly, let the member
states decide.
But there is also another realization, another reality,
which is that a lot of the audit reports are arcane, they are
dealing with technical issues, so it may be difficult for very
busy, limited staff to actually really understand the
significance of them. So we think it is important that they
also have an independent audit committee composed of
professionals who don't answer to senior management, who work
with the audit office, look at their work plans, look at the
quality of the audits, make sure they are sufficiently
resourced, and that group independently reports to the
Executive Board on how the audit office is doing.
Senator Coleman. So the concerns then are both access in
terms of transparency, but also the internal process of the
audits themselves and how they are processed and the
independence of the auditors.
Mr. Melito. The independence of auditors and also whether
they have sufficient resources to do their work.
Senator Coleman. Then the last area of inquiry has to do
with the whistleblower protection. In UNDP's statement, they
say in their statement to this Subcommittee that they have had
policies and procedures in place to protect employees from
retaliation, some of which pre-dated the policies initiated by
the Secretary-General in 2005. In your statement, you indicate
that UNDP was developing a policy on whistleblower protection
policies. It appears that your findings--are they in
contradiction to UNDP's statements? Can you help resolve this?
Mr. Melito. UNDP had a general policy toward treatment of
staff, but they did not have a specific whistleblower policy
protection process which outlines processes and steps and
rights and responsibilities and such. That was what was
missing, and that is vital to actually having a credible
whistleblower protection system.
Senator Coleman. And when you talk about staff, I want to
make sure we understand the definition of staff. In earlier
testimony in the first panel, it was indicated that you have
staff employees and you have contractors. But the reality is
that these contractors, like Mr. Shkurtaj, for instance, he was
the operations manager. He was not an outside contractor or
consultant. He was the operations manager performing a core
staff function. Are those contractors--and the definition of
UNDP talks about it has procedures in place to protect
employees from retaliation. Are contractors covered by those
procedures?
Mr. Melito. The U.N. has multiple categories for
employment, and actually relatively--less than half of them are
permanent employees. But the rest of them have contracts of
varying lengths, and I do think there are some categories which
are covered, but I am not certain--this is actually an area we
have not studied.
Senator Coleman. But, clearly, there is not full coverage,
and Mr. Shkurtaj's case is clearly not covered.
Mr. Melito. Well, it is confusing in that case because was
it his contracting status what mattered or was it the lack of
whistleblower protection that mattered. So I think there are
possibly two reasons.
Senator Coleman. We have called it a contract. All you have
to do is not renew the contract.
Mr. Melito. I understand that.
Senator Coleman. Which goes to the heart of why you want
whistleblower protection.
Mr. Melito. Yes.
Senator Coleman. And if they are not ``employees,''
particularly when they are performing core functions, you are
able to exclude a whole group of folks from the purpose of
whistleblower protection. We want individuals who have concerns
to be able to raise their hand, come forward, and not worry
about losing their job or in this case losing their contract.
Does the Secretary-General's program of whistleblower
protection, does this provide adequate coverage for the broad
range of folks who are working for the United Nations?
Mr. Melito. As I said earlier, there are staff in different
categories, and I am hesitant to say definitively one way or
another, but I do believe that staff who have long-term
contracts may be covered. But I would defer to Mr. Benson on
that matter.
Senator Coleman. All right. I will probably submit that and
some additional questions. I would like to get a response to
that.
Mr. Melito. OK.
Senator Coleman. Thank you very much for your good work,
Mr. Melito.
Mr. Chairman, thank you.
Senator Levin. Thank you, Senator Coleman.
Thank you so much, Mr. Melito. We appreciate it and
appreciate your good work generally at the GAO. Thank all your
colleagues there for all the good they do, will you?
Mr. Melito. I will.
Senator Levin. We will now move to our third panel. We now
welcome the final panel of witnesses from the United Nations,
who will brief the Subcommittee on UNDP issues. As mentioned
earlier, we thank the United Nations for the extent of its
voluntary cooperation with this inquiry. We are very pleased
this morning to have with us Frederick Tipson, who is the
Director of the U.N. Development Programme's Liaison Office;
David Lockwood, who is the Deputy Director of the Regional
Bureau for Asia and the Pacific for the United Nations
Development Programme; David Morrison, Director of
Communications for the U.N. Development Programme; and Robert
Benson, the Director of the U.N. Ethics Office.
The Subcommittee recognizes the privileges and immunities
of the United Nations, and, therefore, this panel will not be
sworn in. Again, gentlemen, we appreciate very much your being
with us this morning, for the cooperation you have shown with
our staff and with us, and we welcome you to the Subcommittee.
I think you were here when you heard our announcement about
the timing system and about when the lights flash on and off.
We understand, Mr. Tipson, that you will be presenting a brief
statement for the UNDP, and so we will have you go first,
following by Mr. Benson, who will be presenting the briefing
statement of the U.N. Ethics Office, and then after these two
statements, I gather it is your understanding that we would
then proceed to questions. Is that acceptable? Mr. Tipson,
please proceed.
TESTIMONY OF FREDERICK TIPSON,\1\ DIRECTOR, LIAISON OFFICE,
UNITED NATIONS DEVELOPMENT PROGRAMME, WASHINGTON, DC,
ACCOMPANIED BY DAVID LOCKWOOD, DEPUTY DIRECTOR, REGIONAL BUREAU
FOR ASIA AND THE PACIFIC, UNITED NATIONS DEVELOPMENT PROGRAMME,
NEW YORK, NEW YORK, AND DAVID MORRISON, DIRECTOR OF
COMMUNICATIONS, UNITED NATIONS DEVELOPMENT PROGRAMME, NEW YORK,
NEW YORK
Mr. Tipson. Thank you, Mr. Chairman. Thank you very much.
As representatives of the U.N. Development Programme (UNDP), we
appreciate the opportunity to address the issues raised by this
Subcommittee. As employees of an international organization, we
must appear informally and on a voluntary basis within the
limits of the immunities recognized by the U.S. Government, and
we appreciate the Subcommittee's willingness to accommodate
these considerations. Yet we also appear here willingly, with
the objective of satisfying this Subcommittee that the funds
provided to UNDP by the U.S. Government are applied effectively
to the purposes intended.
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\1\ The briefing statement of Mr. Tipson, Mr. Lockwood and Mr.
Morrison appears in the Appendix on page 87.
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I am Fred Tipson, Director of the Washington Office. You
have already introduced me and my colleagues. I am going to
limit my remarks to three main points.
First, we appreciate very much the professional manner in
which your staff has reviewed UNDP operations in North Korea.
We take the findings in this Staff Report very seriously and
will consider as an organization how best to address each of
the recommendations it contains.
At the same time, in light of the serious allegations about
UNDP's operations that have appeared over the past year, it is
really essential that we take note that this report does not
substantiate any of the following claims: UNDP did not transfer
hundreds of millions of dollars to the North Korean Government
over the last 10 years. UNDP's funds did not go for North
Korean purchases of real estate, nuclear technology, or missile
programs. And UNDP did not use cash in North Korea which could
otherwise have been diverted or embezzled in circumvention of
financial controls. It is important as we address the other
issues of concern to this Subcommittee that we emphasize this
point at the outset, given the visibility of those allegations
in the media.
Second, our objective as an organization must be to satisfy
the standards of our major government supporters, including the
U.S. Congress in particular, that UNDP is sufficiently
transparent and accountable to provide you with confidence in
our operations wherever in the world they are. If you are not
satisfied with our performance in that regard, then we cannot
be satisfied, and we must engage in the continuing process of
review and improvement. And I appreciate the recognition that
that is an objective on both sides. I hope that our efforts to
cooperate with this investigation have demonstrated our high
level of commitment in that regard.
In fact, as the attachment to our statement makes clear,
UNDP is often cited as a model among global organizations for
its openness in reporting, and we pride ourselves on the
substantial progress we have made in becoming a flexible,
performance-driven, and financially sound organization.
Nevertheless, we recognize that on two of the most important
issues you have raised--access to internal audits and
whistleblower protections--there are basic concerns, and we can
address both of those here today.
On access to internal audits, I want to assure you that the
head of UNDP, Kemal Dervis, has actually taken a leading role
within the U.N. System to advocate a policy of greater access,
and he is currently pursuing such a policy with our Executive
Board. We can respond to further questions on that issue
shortly.
I know you are also concerned about whether UNDP offers
adequate protections to whistleblowers. I want to assure you
that UNDP strongly encourages the reporting of wrongdoing and
does offer protections on those who step forward to report it.
But I also want to assure you that in this area as well, Mr.
Dervis has worked to support a more collaborative framework on
ethics standards and procedures across the U.N. System, and we
particularly look forward to working with Mr. Benson's office
to assure a strengthened outcome.
Third, UNDP does operate in the most difficult locations in
the world, as both of you Senators have acknowledged. We have
attached a short overview of the major programs we conduct in a
set of the most challenging countries of particular interest to
the United States, including Afghanistan and Iraq. To do so, we
must apply considerable resourcefulness and discipline to
assure that our funds and resources go to serve the needs of
the people and not the narrower interests of particular leaders
or elites. North Korea is certainly a case in point. The
Subcommittee's report has it right. By all accounts, operating
development projects in North Korea presented management and
administrative challenges of the most extreme nature. I am
quoting the report here: ``By definition, UNDP operates in
challenging environments and has crafted, for the most part,
sound rules and procedures to ensure that UNDP development
funds benefit the people of the host nation.''
But the report and Ambassador Khalilzad's testimony focus
on three areas where our practices in North Korea diverge from
our general policies in other countries. These involve
practices required by the North Korean Government as a
condition of operating there. These include the use of
convertible currency rather than local currency, the hiring of
local staff indirectly through the government, and the
requirements regarding government oversight of visits to
project sites.
Two points should be emphasized. First, there is nothing
hidden about these practices. All three have been well known
and permitted by all governments, including the United States,
for nearly 30 years. They continue to be the conditions under
which all other international organizations, all foreign
embassies, and all NGOs operate in North Korea. They were not
unique to UNDP and, in fact, are based on operational practices
that were widespread in countries such as China and Vietnam
until relatively recently. UNDP is alone amongst organizations
in North Korea to have moved to change their practices, and
North Korean resistance to these changes was a factor in our
decision to suspend our program there last spring. But we know
you have further questions about these issues, we were not
comfortable having to operate in that situation, and we will do
our best to address the considerations involved in those
issues.
In closing, let me just offer a personal perspective on
these matters. I worked for 5 years as counsel to the Senate
Foreign Relations Committee. I know firsthand the
responsibilities you feel to assure that the international
organizations supported by U.S. contributions can be relied on
to do the important work they are committed to doing. It is my
full-time job to facilitate the transparency and accountability
of UNDP to the U.S. Government and to the Congress, and to you
Senators in particular, and I hope you agree that our
responsiveness to your investigation makes clear how seriously
we take this responsibility.
I thank you.
Senator Levin. Thank you, Mr. Tipson. Mr. Benson.
TESTIMONY OF ROBERT BENSON,\1\ DIRECTOR, UNITED NATIONS ETHICS
OFFICE, NEW YORK, NEW YORK
Mr. Benson. Thank you. Senators, this is the first
opportunity I have had to appear before a U.S. Senate
Subcommittee, and I welcome the opportunity. I have been
required to appear in order to brief this Subcommittee on the
jurisdiction of the Ethics Office and the adequacy of
whistleblower protection within the U.N. System. We also have
been requested to provide a written briefing statement, which
we have done.
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\1\ The prepared statement of Mr. Benson appears in the Appendix on
page 107.
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In accordance with the U.N. policy regarding U.N. officials
required to appear before legislative bodies of member states,
the Secretary-General has approved my attendance in order to
provide information to this Subcommittee, provided, as is
indicated, it is achieved by means of a briefing session
conducted on an informal basis.
The Ethics Office of the United Nations Secretariat was
established and became operational on January 1, 2006,
discharging its mandate as set out in the applicable Secretary-
General bulletin. On May 1, 2007, as you have indicated, I was
appointed as the United Nations' first Director of Ethics.
However, prior to that time, I had come to the United Nations
with 17 years of public sector experience working at the
Federal level in Canada and the last 3 years working for an
independent Office of the Ethics Commissioner, which was an
entity of the Parliament of Canada. Myself personally, I am a
lawyer by training, and through my career I have worked in the
Judge Advocate General's branch of the Canadian Armed Forces. I
worked in the Federal Department of Justice where my client
group at that time, my clients, were the Royal Canadian Mounted
Police and the Security Service. And then at some point in time
I changed career paths and went into being a senior manager
within the Canadian Government and finally ended up my career
working in the Ethics Commissioner's office in the Parliament
of Canada. That ends my opening statement.
Senator Levin. Thank you so much, Mr. Benson.
The U.S. Mission to the U.N. made requests for audit access
relative to the North Korea issue, and it was not given what it
asked for. Our U.N. representatives were denied the kind of
access that they requested, and I am just wondering why.
Mr. Tipson. Mr. Chairman, just to clarify, I want to make
clear that we understand--we are here in part to understand,
not simply to respond and defend.
Senator Levin. OK.
Mr. Tipson. And we understand the importance of the
objective of facilitating access to member states to the
audits. As I have just indicated, we are leading the charge in
trying to get that policy adopted, not only in UNDP but in
other parts of the United Nations. It is a policy that has to
be approved by our Executive Board. We have a board of 36
countries, and so it is not a matter of simply taking a pen and
changing the policy overnight. I can tell you that this very
week our leader is in the process of trying to propose that
policy be adopted.
Senator Levin. Are you privy to the reasons for the policy?
Mr. Tipson. Well, I am going to defer to one of my
colleagues who has much more experience dealing with audits,
but let me just say on the basis of experience in the private
sector for the last 23 years that audits are a key way in which
boards keep track of the honesty of what they are getting from
all the parts of the organization. But one of the things that
audits need to accomplish is to verify the validity of the
systems that the organization uses to report the numbers, the
funds, what happens to the money in those organizations. And
the concern with the way Ambassador Wallace characterized the
situation is that if the U.S. Government cannot rely on the
representation of UNDP with respect to key financial issues,
they simply will not take what we say as being reliable
information unless there is somehow an independent audit of
that information. Then it is a very difficult way to have a
relationship, and it is really very rare that governments take
that position or that becomes the style with which we have to
exchange information.
As your staff will tell you, we have taken them through in
sometimes exhaustive detail what our systems do and how they
are structured to accomplish them. And the audits that have
occurred would have shown up if those systems were not
reliable, if that were indeed the case.
I know that does not fully respond to the question you
asked, and I will ask my colleague to try to get into the
question of why there is a tendency to want to limit access to
audits.
Senator Levin. OK. Mr. Morrison.
Mr. Morrison. Thank you. As Mr. Tipson just said, to
respond to the question why is UNDP hesitant, traditionally the
hesitancy has come from the understanding at UNDP, and I think
in other parts of the U.N. Funds and Programs as well, that the
internal audits are management tools that then feed into an
external audit process which is available to member states, and
that is, my understanding is that is how the member states set
up the system so it is actually two-tiered, with the internal
audits being just for UNDP management and the external audits
being widely available to member states. The external auditors
have full access to the internal audit.
In terms of why they are considered management tools, and I
think the question that has been asked throughout the morning,
why does the Secretariat make their audits--or other
organizations, not just the Secretariat, make their audits
fully available, and the U.N. Funds and Programs up to this
point have had a more restrictive regime, UNDP's view on this--
and, again, it is listening to its member states--is that we
are a field-based organization. We run operations in 166
countries. Our primary partner in those countries is the
national government. We run programs in some cases which
national governments consider very sensitive. I am thinking of
gender programs that we run in some countries or democratic
governance programs that we run in some countries. The strong
sense that we are getting from our Executive Board, and
particularly the program countries in which we work, is that
they are reluctant to have what is, in effect, very frank
comments on their own programs made publicly available.
I think as you know, Kemal Dervis has a proposal in front
of the Executive Board this week that they are debating today
and tomorrow to try to square the circle of the very legitimate
demands for increased oversight with those feelings from the
program countries.
Senator Levin. Has there ever been a resolution at the U.N.
to change the policy relative to audits that was voted on by
the General Assembly?
Mr. Morrison. My understanding is that as part of or
subsequent to the Oil-for-Food affair, the General Assembly
did, in fact, require the Secretariat to make its audits
public.
Senator Levin. Just the Secretariat, but not the U.N. Funds
and Programs, and----
Mr. Morrison. No, not the U.N. Funds and Programs. In such
matters, we are governed by our Executive Board.
Senator Levin. Not by the General Assembly.
Mr. Morrison. That is my understanding.
Senator Levin. And has anyone on the Executive Board,
including the United States, ever made a motion that those
internal audits be made public?
Mr. Morrison. There is no question that the United States
and several other countries, primarily on the donor side, have
moved very strongly to increase access to internal audits.
There has been equally strong feelings on the other side,
primarily but not exclusively the program countries, the
recipient countries, that do not want to have such a broad
access regime. So the proposal before the Executive Board today
and tomorrow, which I think both Senator Coleman and yourself,
Mr. Chairman, have characterized as a step in the right
direction, although not going far enough--because I think
Senator Coleman listed three or four additional steps that you
would like to see. In any event, that is the proposal that our
Administrator has put before our governing council, and we very
much hope that it carries. And I know that he spoke personally
with both of you on that.
Senator Levin. In your opening statement, Mr. Tipson, you
said that the UNDP did not transfer tens of millions of dollars
to the North Korean Government. How many dollars were
transferred?
Mr. Tipson. In our written statement, we have tried to
summarize the various accounts, the various summaries of funds
that went--with respect to the NCC for the UNDP account, which
has been the subject of such controversy, the total amount of
money that we transferred to that account over the 10-year
period covered in that chart is, I think, $376,000. It was
not--and we can discuss how development projects are done in
North Korea that indicate why that is not a larger channel of
funding that goes through that account.
Senator Levin. Well, now, you heard Ambassador Wallace say
that the UNDP sent perhaps much more than $7 million in cash to
the UNDP-related account. Did you hear him?
Mr. Tipson. Yes.
Senator Levin. Do you have a reaction to that?
Mr. Tipson. Well, again, our records are pretty clear on
what went into that account, and it is a matter of the
reliability of our systems, which we take great pride in,
frankly, in knowing how much money went into that account. It
is not possible that the money that is being discussed, either
$2.7 million or $7 million, or higher amounts that have been
discussed, were money that came from the UNDP.
Senator Levin. Into that specific account?
Mr. Tipson. That is right.
Senator Levin. OK. Thank you. Senator Coleman.
Senator Coleman. Thank you, Mr. Chairman, and I appreciate,
gentlemen, the opportunity for this briefing, and I look
forward to this as a conversation that we would like a little
help on figuring out where do we go to make sure that in other
countries the imprimatur of the U.N. is not being used for
shell organizations, money laundering, and transferring cash.
I want to get back to this issue about the amount of
dollars, and part of the confusion is the internal auditors--I
was looking at the Subcommittee report. It talks about the
difference, by the way, between--not that sharp, but NEX and
DEX. There are some programs that you give the money directly
to the North Koreans, and others that you provide the money--
you do it yourself. And so the testimony is that most of the
programs in North Korea you were doing, so you were not turning
over cash to the North Koreans. Is that correct?
Mr. Tipson. Can I have my colleague David Lockwood answer?
Senator Coleman. Mr. Lockwood.
Mr. Lockwood. That is absolutely correct, Senator. The norm
across the world is that most programs are executed with
governments who have full responsibility for their----
Senator Coleman. And is that NEX or DEX? Which one is it?
Mr. Lockwood. That is called NEX.
Senator Coleman. NEX.
Mr. Lockwood. National execution.
Senator Coleman. National execution.
Mr. Lockwood. In the case of North Korea, they also
preferred that route, but at our insistence, large amounts of
the money were, in fact, directly executed by UNDP so that we
could have direct controls in place.
Senator Coleman. But the problem we have is if you looked
at your internal auditing, you have it broken up as 48
percent--I have the chart, 48 percent is going to NEX and 40
percent DEX.
Mr. Lockwood. That is correct, Senator.
Senator Coleman. In the chart.
Mr. Lockwood. The chart is correct.
Senator Coleman. So the auditors were not aware of the
internal arrangements?
Mr. Lockwood. I think the auditors were aware of the
internal arrangements, and the distinction, of course, is that
within what is formally nationally executed, the government in
turn has asked UNDP, at our insistence, to execute a large
proportion--the largest proportion of that ourselves, which we
also called direct execution.
Mr. Tipson. Indeed, there is a sentence right here,
Senator: ``The office is providing 100 percent support services
to NEX projects.'' In other words, we executed on their behalf,
even though it was called national execution.
Senator Coleman. But when you say executed, are you talking
about executing by employees in North Korea, by the program in
North Korea? Is that correct?
Mr. Tipson. The overall employee base.
Senator Coleman. And one of our concerns here--and, again,
you said simply a way of operating--the North Koreans, they
were North Korean agents. They picked the employees. They ran
the programs. Is that a fair statement?
Mr. Tipson. Senator, it is fundamental to the way we work
in development that it is a matter of capacity building. It is
the locals we are trying to create the capabilities to do
development.
Senator Coleman. But there is a difference between the
government supplying government agents--I am not talking about
development. There are other programs in which you actually
hire locals, and you are hiring people. But the difference
between those folks and the government saying this is who is
going to sit in that position, they are agents of the
government, that is not development. That is the government
simply saying here is who you are going to hire and here is who
is going to run the program.
Mr. Tipson. But the test then would be whether the work
gets done. The objective is to accomplish development projects,
and Mr. Morrison, of course, is the one with the experience in
North Korea. But the test is whether those employees are
actually doing the work they are paid for.
Senator Coleman. But, again, the conversation, to say that
is capacity building when a government tells you these are the
people you are hiring, I don't think that--I am a former mayor.
That is not capacity building. It is a conversation, not a
debate.
Mr. Tipson. It is.
Senator Coleman. I am wondering if we can go to the chart
with the application of payment order,\1\ JP Morgan Chase Bank
of New York. One of the things that the Subcommittee found, the
North Koreans have admitted, is that they have created this
International Finance and Trade Joint Company, which is a shell
company, to use the transfer of dollars from North Korea to
embassies in New York and other places around--Paris, whatever.
And I understand in our conversations you were not aware of
this arrangement. Is that a fair statement?
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\1\ See Exhibit 8, which appears in the Appendix on page 215.
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Mr. Lockwood. We were not aware at all of this arrangement.
Senator Coleman. And, in fact, it went forward. Were you
aware of the International Finance and Trade Joint Company?
Mr. Lockwood. I think we can all say we were not aware of
that company.
Senator Coleman. Are there some procedural things that
could be put in place that--I am thinking of co-signing checks
or doing something that would put you in a better place, other
U.N. agencies in a better place for their seal--this is the
Good Housekeeping Seal. Money is being transferred by financial
institutions. It says B/I, National Coordinating Committee for
UNDP, message, payment for purchase of building in Canada. It
looks like a pretty basic transaction. We know the buildings
were not purchased. We don't know where the money went. But is
there a system that you have thought about that would help make
sure that your good name--your Good Housekeeping Seal is not
abused by countries like North Korea or other places in the
world?
Mr. Tipson. One of the recommendations that your staff
makes in this report is that it be accomplished by changing the
structure of how these accounts are managed and giving
development agencies like UNDP co-signing authority so that
actually the money is jointly controlled by the development
agency. That is something we are going to have to consider as a
structural change. I will say that is a significant challenge
for all development agencies to get countries to agree that
that is the right approach to take. But I think it is one that
we are going to have to consider very carefully.
There are really two problems here. One is the money and
the other is the name. And I think we are able to protect
ourselves from the abuse of the money by making sure we know
how much goes in and how much does not go in.
As far as the name goes, it is very difficult to prevent
any government from using our name on any account they want to
use, and that would not even be solved by the structural
approach proposed by the staff, although it would accomplish
other objectives.
Senator Coleman. Just one other chart, perhaps. This is
Sindok Trading. This apparently is a legitimate transaction of
UNDP, so about $229,000, almost $330,000. And the name of the
applicant on this one is the International Finance and Trade
Joint Company. So you have the shell company being used to
transit a legitimate transaction.
Is there in place any process or something that would kind
of alert you to the fact that you may have a shell company?
Again, I am trying to find out are there things we can do to
make sure that we don't give legitimacy to what we have found
out to be shell companies that were used for the purpose of
laundering cash?
Mr. Tipson. Can I ask Mr. Morrison to respond?
Senator Coleman. Absolutely.
Mr. Morrison. Sure. Senator Coleman, I think that we have
researched this particular transaction quite extensively. It
was a legitimate transaction. We got what we paid for in the
$229,000. We frankly did not know that when we went to the bank
and said would you please pay this company in Singapore that
they were sending the money via an entity that has for us
subsequently been identified as an entity involved in financial
shenanigans, about which, of course, we are not happy.
There is a recommendation in the Staff Report in regards to
a separate issue, which is our financial transactions with an
entity called Zang Lok, which does recommend that the various
entities and the various organizations in the international
community--UN and presumably non-UN--make stronger efforts to
share information about which entities may be up to no good.
And we fully support that recommendation.
Senator Coleman. Thank you, Mr. Morrison.
Mr. Benson, if I may, when you first became aware of the
Shkurtaj case, I believe you indicated that they made a prima
facie case of retaliation against UNDP. Is that correct?
Mr. Benson. That is correct.
Senator Coleman. And you urged UNDP to submit it to the
jurisdiction of your office in the best interest of the United
Nations. They did not do so. This debate we are having about
whether the Secretary-General's policy should apply--and let
me, again, be very clear. My big concern is that the UNDP
policy in place certainly did not cover contractors. And that
is a big part of your operation, contractors who perform core
functions. And I guess anyone can answer this, then. Is there
any question that contractors, individuals performing core
functions should be covered by whistleblower protections?
Anyone arguing about that? Mr. Benson.
Mr. Benson. From my perspective running the Ethics Office,
I do not have a problem with that. As was indicated earlier in
some testimony, individuals that are performing staff-related
functions or core functions should be afforded. So issues that
arise and come before me, I will address them in that context.
Senator Coleman. If somebody is reporting to somebody a
case, you want to make sure that you are able to operate
independently. A UNDP ethics officer reports to the executive
head of the program. Is that correct?
Mr. Tipson. That is right.
Mr. Benson. That is correct.
Senator Coleman. And who do you report to, Mr. Benson?
Mr. Benson. I report to the Secretary-General.
Senator Coleman. Would it be fair to say that you have a
high measure, a high degree--gentlemen, would you argue that
there is a high degree of independence, that if an employee is
going to report to a guy who is reporting to the head of the
program that you have got complaints about, would it be fair to
say that it would be a better system to have this employee go
to somebody where he wouldn't be worried that the guy who could
get rid of him or not renew the contract is going to make some
judgment? Would you argue that it is a better system to have
that higher degree of independence?
Mr. Tipson. One of the innovations, I think, by the
Secretary-General's bulletin in December is the idea that the--
Mr. Benson will chair an ethics committee, to which appeals can
be taken by employees who feel they haven't been satisfied by
their own organizations. Obviously, it is important that we
have a strong program in our own entity and that it does
protect people against that kind of retaliation. But this at
least would provide a two-step process for people who felt they
weren't fairly treated.
Senator Coleman. Could you respond then to the concern
about contractors? Are we going to see some change in that
program?
Mr. Tipson. Yes.
Senator Coleman. Mr. Morrison.
Mr. Morrison. We have been discussing this very recently,
and I think as you know, the strengthened UNDP protections
against retaliation came out as part of a legal framework that
UNDP had been working on for some time. In the work program,
that was a legal framework covering staff. The next part of the
work program was supposed to be a legal framework actually
covering contractors.
Now, you have said contractors performing core functions.
Mr. Benson has said he would have no difficulty with that. This
is a very difficult issue. I cannot speak for where we are
going to come out. I personally would not have any difficulty
with that either.
You have listed some statistics about the number of
contractors employed within the U.N. System, and we need to be
honest. Some of those contractors are on long-term contracts.
They are not performing core functions, but they are with the
organization, if you will, for a long time. And so we have
begun an internal dialogue as to what is correct as part of a
coming legal framework covering contractors.
Senator Coleman. I would just suggest that the current
framework is wholly insufficient in providing the kind of
protection that we would all want to have in place. Mr. Tipson,
going back to your days on the Foreign Relations Committee----
Mr. Tipson. Right.
Senator Coleman. We want what we would all say is the kind
of protection that encourages individuals to come forward
without fear of retaliation.
Gentlemen, I thank you.
Senator Levin. Thank you. Dr. Coburn.
Senator Coburn. Thank you. I caught some of this on the TV,
but I just want to kind of review and see if I have got your
testimony. You basically deny all the findings in the report
that this Subcommittee has issued. It is your statement also
that all programs in North Korea, including USAID, operate with
the same weaknesses that we have seen in UNDP, i.e., payment of
cash and hard currency instead of local currency.
If that is the case----
Mr. Tipson. That is not the case, Senator.
Senator Coburn. All right. Well, then, correct what my
assumption was based on what I heard from my office just a
minute ago.
Mr. Tipson. Well, I think there is a confusion there
between hard currency and cash. We did not deal in cash in
North Korea, hard currency being convertible currency.
Senator Coburn. Right.
Mr. Tipson. And the requirement by the North Korean
Government that said all entities pay in convertible currency.
Senator Coburn. But that is exactly opposite of the rules
under which UNDP operates everywhere else, correct?
Mr. Tipson. We did not have a rule on that subject, and, in
fact, it is intended to be flexible enough so that the
discretion of the local office can determine what the right
approach may be in a case of that kind. But the challenge if it
is the other way around, Senator, if you require to pay in only
local currency, in the case of North Korea the only place to
get local currency is from the North Korean bank. And if the
concern is that they will skim off a piece of that hard
currency for other purposes and only give you--they can set the
exchange rate in the case of North Korea.
Senator Coburn. Well, we don't know that they----
Mr. Tipson. It is not really a protection----
Senator Coburn. When we pay directly to the government,
anyhow, the salaries of the people that were employed that were
North Koreans. In other words, we didn't directly pay the North
Korean employees, did we?
Mr. Tipson. No. We went through the government. That is
right.
Senator Coburn. So we do not know how much they skimmed
that way.
Mr. Tipson. We don't.
Senator Coburn. And so we have no idea. And that is not
standard practice everywhere else, is it?
Mr. Tipson. In my testimony, I mentioned that China,
Vietnam, and North Korea all had that policy. Vietnam and China
have since abandoned that policy. North Korea is the only
country that requires----
Senator Coburn. So three stellar human rights organizations
have had that policy.
Mr. Tipson. When I worked in China with AT&T, in the
private sector we had to hire people through a government
agency. That is the way China required it to be done.
Senator Coburn. OK. Why should U.S. taxpayers support an
organization that provides legitimacy to illegitimate
transactions? In other words, based on some of the things that
we have seen going on, that went on with UNDP operations in
North Korea, in terms of some of the transactions like the
$50,000, why should Americans support UNDP's effort there? In
other words, we have $100 million in direct, and then we have
all these other agencies that put another $140-some million
into UNDP--nothing wrong with your goals. But why should we do
that?
If somebody is afraid of transparency, absolute
transparency, then we ought to really worry about whether we
ought to be supporting that agency at all in the first place.
So, it is not a matter of trust. I don't trust Federal
Government agencies. That is why I want them transparent. They
need to be able to show the American people that they are
effective in what they are doing and how they are doing it, and
there ought to be some metrics.
So explain to me why you would take a position that says
that is on the basis that we don't trust. I don't trust. I
readily admit it. And that is what keeps governments open and
responsive, is that they are transparent. So why would we take
a position that we wouldn't want transparency?
Mr. Tipson. You shouldn't and we don't. I think the
discussion is how do we get to a point where you feel you have
sufficient transparency to have confidence in the information
that we are providing to you. We are not there, clearly, and if
there are a number of steps that the staff has suggested that
would help the process--and, as Senator Coleman has indicated,
we really need to have a conversation around these issues to
get to a point where you have that level of----
Senator Coburn. You may have answered this already, and
forgive me if I am asking--so you have this audit, and you have
this governing body, and yet they cannot have a copy of the
audit? Explain to me--I am just from Oklahoma; I don't
understand that--why the people that is your governing board
cannot have a hard copy of the audit of what you are doing.
Mr. Tipson. In the case of North Korea, which, of course,
we are talking about, in 2006 there was a request for the
audits, and on an extraordinary basis, the Administrator did
make audit access available to the U.S. Government so that they
could confirm the content of the audit.
Senator Coburn. OK. But that is not the point. The point
is: Why would that be an extraordinary basis that we get to see
how the money is spent? Why is that extraordinary?
Mr. Tipson. Well, one reason that we are advocating that
policy be changed is obviously unless you feel you have access
to them, you are not satisfied that it is sufficiently
transparent.
Senator Coburn. We shouldn't and nobody----
Mr. Tipson. But I think when you were out of the room, Mr.
Morrison was trying to explain the original rationale for why
audits, internal audits, can be considered to contain the kinds
of sensitive information that are best left confidential.
Under the current circumstances, to change that policy we
have to get the Executive Board of our organization to agree to
go along. We are well on the way to doing that, but it is a
matter of our leadership persuading the governing board of our
organization that that is a policy we should adopt.
And that is his posture with respect to other----
Senator Coburn. I would hope that the realization is
present among you today that there is a group of us in the U.S.
Senate that, if, in fact, that does not become the policy, it
is going to become our policy.
That there is a U.S. Federal law right now called the
Accountability and Transparency Act that is publishing today
how all the money that this Federal Government is spending, and
if you are not in compliance with that, then you are not in
compliance with the law, which will put at jeopardy funds from
the American Government to UNDP.
So I would think it would be in your best interest to
become as transparent as you can. Nobody wants to know
somebody's Social Security number. Nobody wants to know the
details under a certain contract. But the U.N. routinely--not
UNDP but the U.N. routinely does not share a contract when it
does not have anything to do with private actions or
significant proprietary information on contracting, and they
still refuse to do so.
So I am not going to allow UNDP or the U.N. to hide behind
the idea that there is so much proprietary stuff that we cannot
know how our money is spent. And my suggestion is that you all
move in that direction because as long as I am going to be a
Senator, I am going to keep attaching that thing and eventually
the American people are going to see that--they are not happy
with the way we spend money domestically, and I guarantee you
there is less support for how we spend it internationally. And
it would be in--to do what you want to accomplish, which is to
truly impact and help people who need help, the best way to do
that is do that in the light, open, and taking the criticism,
and that builds understanding. The lack of transparency implies
and the lack of desire for transparency implies there is
something to hide. And that may not be a great basis under
which to have a relationship, but the fact is that is the basis
that we have now because of things like North Korea and the
fact that a U.N. agency was hoodwinked and was utilized to
accomplish things other than what they intended to.
Mr. Tipson. Senator, we take the point. I hope, however, we
can also get to a relationship where, once you do have that
level of access and confidence, we can deal in a much more open
way and you will have confidence in the rest of the information
that we share with you.
Senator Coburn. I will give you a great example. USAID,
malaria in Africa, totally closed, not transparent, most of the
money went for bureaucracies, not for treatment and care for
black African pregnant women or their children. This is just
the opposite. They have a transparent website. We can see how
much money they are spending. We can see their contracts. We
can see what they are doing now. So we went from total lack of
transparency to transparency with me saying, ``Atta boy, keep
going. If I can get you more money, I will.''
So if, in fact, you become transparent and what you are
doing is accomplishing something that really moves, then you
won't have any problem.
Mr. Morrison. Could I address that point, Senator?
Senator Coburn. Sure.
Mr. Morrison. Because that gets to the point of other
things than internal audit access create this level of
transparency. We are actually implementing country by country
the requirement that our country offices put on websites a
whole range of information relating to contracts and
procurements and so on, for exactly the purpose that you say,
so people can see the details of what is going on in that
country and have some level of confidence that it is going for
the right purpose.
We are also, for example, piloting a possible way of
allowing access to information where major countries, donor
countries like the United States can actually get into our
system, look at our financial systems and have direct access to
understand the kinds of information that they can rely on as to
what is happening with the money. That is not obviously an easy
thing for security reasons to implement, but that is one of the
things that we are working on implementing. So we are trying to
move in that direction.
Senator Coburn. Well, my last comment, Mr. Chairman, is I
think that Senator Coleman raises a great point on
whistleblowers. If you do not have the capability to raise the
issue and then be protected, we will never have transparency.
And that has to get fixed.
Senator Levin. Did you want to comment, Mr. Morrison.
Mr. Morrison. I was just going to add on the transparency
point because in our view it is very closely linked to your
role in oversight, and tie this back to the audit dialogue we
were having a moment ago. And I think we have been--I hope you
are clear where we stand on the audit issue, and it is before
the board and so on.
But it strikes us that an audit is a snapshot of a country
office or a headquarters unit at a moment in time, and that is
getting you folks access to that is a very good way to enable
your oversight.
But I would say that in countries of particular concern,
North Korea being one of them but Burma being another one, my
colleague Mr. Lockwood is reasonably well known down here on
the Hill because he has come down multiple times to talk about
our operations in Burma. there is an ongoing dialogue with the
United States as a very close partner and one of our largest
donors.
Similarly, on North Korea, we were engaged over a number of
years in a very close dialogue with countries that had
expressed concern, Japan being the leader, but also in 2004 we
were engaged in a dialogue with the U.S. mission who had sought
information on our operations in North Korea. We explained our
staffing practices. We explained NEX versus DEX and that we, in
fact, controlled all of that expenditure and that it was
auditable. We gave all details of programs and budgets and so
on.
So the point that I am trying to make is that audits and
access to audits are one issue--but I would like the
Partnership Bureau, we engage on an ongoing basis with donors
all of the time.
Senator Levin. Let me pick up that NEX/DEX. Could you put
that chart back up there again, the one with the--yes, that
one. Can you see--this is your document.
Mr. Morrison. Yes.
Senator Levin. Can you understand why there might be some
confusion about that?
Mr. Morrison. I think I can understand why there is a lot
of confusion about many parts of our operations.
Senator Levin. Well, how about that one particular chart?
Mr. Morrison. Well, I am trying to say we are hard to
understand, and I would acknowledge that.
The left pie chart divides NEX versus DEX. The intent of
the right pie chart is to show that 100 percent of the NEX
expenditure was actually done by UNDP, meaning it is fully
auditable. We did the procurement and so on. That is also the
intent of the text down below.
Yes, I can see why someone who does not know what DEX is
and does not know what NEX is might not have picked that up
instantly.
Senator Levin. Well, even somebody who does know what NEX
is and DEX is could be confused by it. The way you described
this was--the reason that this was all DEX, U.N. controlled, is
because North Korea asked UNDP, at UNDP's insistence, to have
the UNDP do the administration. So there is a little bit of
diplomatic dance going on here. But why couldn't that have been
explained more carefully there? Why couldn't you have made the
same statement on that chart that you made here today, that
this is all administered by us at the request of the U.N.?
Mr. Morrison. That is from an internal audit report, so it
was not available to member states. At roughly the same time,
because we are talking about 2004, the UNDP did engage with the
U.S. mission to the U.N. on exactly this issue and explained in
an e-mail exchange and a meeting the difference between NEX
versus DEX and that all of the spending was done by us.
Mr. Tipson. And the United States supported that approach
for the very reasons that you----
Senator Levin. Are you saying that the USUN mission in 2004
was told that all of the North Korean funds were being
controlled and administered by UNDP?
Mr. Morrison. Yes, I am, Senator.
Senator Levin. Well, I don't know. Ambassador Wallace sure
didn't seem to know that. I mean, he got his $7 million figure
by just simply multiplying 48 percent times $12 million. I
don't know if you want to look at it--you are probably familiar
with it. But Exhibit 5 says, ``Out of the total budget value of
ongoing projects of $12 million, 48 percent is NEX.'' \1\ Well,
if somebody reads that, it says 48 percent is NEX, so you
multiply 48 percent times $12 million, you can get roughly the
$7 million that Ambassador Wallace says. Now you are saying in
2004 they were told no, that is not the way it is, take a look
at the right-hand side of the chart. Take a look at the line
that says the office is providing 100 percent support services.
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\1\ See Exhibit 5, which appears in the Appendix on page 207.
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Well, I don't think the chart is very clear to begin with,
I've got to tell you. But if you have a conversation with us
explaining it and that is an internal document--was Ambassador
Wallace not there in 2004?
Mr. Morrison. I don't know whether he was or not.
Mr. Tipson. No, he wasn't.
Senator Levin. Well, when the question was raised, whenever
the letter came from him to you, did you sit down with
Ambassador Wallace and say, ``we told you folks in 2004 that
you cannot just multiply $12 million by 48 percent to get $7
million because, folks, we are administering the whole thing,
take a look at the line below it, take a look at the right-hand
chart, which says 0 percent?'' Did you explain that to him when
he wrote you?
Mr. Morrison. To tell you the truth, Senator, I have just
learned where the $7 million figure came from. I had no idea up
until now where that figure came from.
Senator Levin. No, but did you ask him when the letter came
or it became public?
Mr. Morrison. I was not in the meetings. We responded by
saying that we did not--I think he was under the impression
that the $7 million all went to the National Coordinating
Committee for UNDP. We responded by checking our own records
and learning that in the period that he was talking about,
$175,000 went to the NCC for UNDP. So we had no idea where he
got the figure.
Senator Levin. But did he ask you or did you ask him? I
mean, you are in the same town, aren't you?
Mr. Morrison. I think in your opening remarks, you used the
phrase ``accusatory.'' I think by this time it was June 2006,
and we were quite far apart on our understanding of the issues,
and most of the dialogue was taking place via formal letter.
Mr. Tipson. Something went off the track, Senator, and that
was when Ambassador Khalilzad and our boss, Kemal Dervis, said
we are not getting anywhere with this exchange of letters,
let's create an independent commission that can look into it
and will solve our questions here. And that commission, of
course, will report soon.
Senator Levin. Who was it in 2004, do you know who was
briefed on this at the U.S. mission?
Mr. Tipson. Advisor Robert Shapiro.
Senator Levin. Robert Shapiro. OK. I am over my time limit.
Do you want to pick up?
Senator Coleman. My concern, I keep getting back to the
idea that North Korean officials are the folks who are
operating the program. I am not sure there is much difference
between NEX and DEX. If, in fact, UNDP is controlled by the
North Koreans in North Korea, I am not sure it makes a big
difference.
We are making appropriations of significant amounts of U.S.
taxpayer dollars for UNDP. I thought the figure was $100
million. Just a couple days ago, maybe yesterday, I found it
was $247 million in 2005. It should be the reasonable
expectation of working with your partners and funders that they
have access to all the information that they need. I think that
is what my colleague, Senator Coburn, is raising--$247 million,
that is a lot of money, even for Washington. And I think what
we are talking about here is simply a reasonable expectation as
funders and partners that, in fact, there is full
accountability. We understand the limits of audits. We deal
with this stuff all the time. This government at this time is
one that has made some very strong statements about
accountability and transparency and use of taxpayer dollars
about that. My colleague, the Chairman, is a champion of
knowing how money is spent and that it is spent wisely. We have
raised some issues today about use of the UNDP imprimatur. We
raised issues about access to audits. We have raised issues
about whistleblowers. And I just think it is important, knowing
the significant contribution we make, that they are adequately
addressed so that we can kind of walk out of this together and
be in a situation, by the way, where we can respond to the
question about what are we accomplishing. We can do it using
metrics. And I think if we do that, we are all going to be
better served.
Thank you.
Mr. Tipson. I think we are on the same page, Senator.
Senator Levin. I fully agree with the need for transparency
and open audits and having audits and sharing audits. I totally
agree with that. But there also is a requirement that there be
conversation, and I, for the life of me, don't understand if we
are making an allegation about mis-spending money, why we just
don't go to the UNDP and say, hey, folks, how is it that this
money is getting into the hands of the North Koreans or that
they are controlling it? Apparently the answer is there was a
conversation back in 2004.
Mr. Tipson. Senator, I think one of the contributions of
this inquiry hopefully will be to get that communication back
on track.
Senator Levin. Well, I hope it will be. Just on the NEX/DEX
issue, what is the difference?
Mr. Tipson. National execution and----
Senator Levin. I think I know the difference, but is there
a difference between the two? Is it real?
Mr. Tipson. Yes.
Mr. Lockwood. There is a real difference.
Senator Levin. Even in a situation where a country is
picking the employees for the UNDP?
Mr. Lockwood. In most countries, national execution is
implemented by government ministries or departments themselves.
They obviously hire their own staff to do their own work, and
we are partners in that development process, bringing often
technical support behind the scenes.
In the case of some countries, especially those emerging
from crisis where you have capacity issues, UNDP very commonly
is then asked by government--that is a polite way or a
diplomatic way of putting it, as you said--to assist in that
through direct execution, where we then----
Senator Levin. Is that direct execution using their people
that they pick for you?
Mr. Lockwood. No. That is absolutely unique to North Korea.
Senator Levin. But that was what was done in North Korea.
Mr. Lockwood. Because there are no other people in North
Korea.
Mr. Tipson. Well, among the people working there would be
the North Korean nationals.
Senator Levin. Among, but it wouldn't be all of them?
Mr. Morrison. No, not at all. The office is staffed with a
mix of internationals and nationals. In the case of North
Korea, Mr. Morrison would know the exact figures better than I
would, but I do know that when we shut down, we had eight
internationals and 20 nationals, including drivers and so on.
Project visits, for example, are conducted with internationals.
Signing of checks, internationals.
Senator Levin. Who would be the controlling folks in the
office? Who would be the top people? The internationals or the
nationals?
Mr. Morrison. No. The internationals. We had a resident
coordinator. Reporting to that person was someone that headed
the programs, someone that headed the operations. There is a
deputy reservation representative. So you have a structure in
all UNDP offices worldwide where the key managerial functions
are staffed by internationals, and the support staff plus the
program staff, those actually doing the projects, working in
very close collaboration with the Ministry of Health or the
Ministry of Agriculture and so on are nationals.
Senator Levin. Just one question on the ethics, because
there was a request from, as I understand it, the Ethics
Office. The Director of the U.N. Ethics Office, as I understand
it, urged UNDP to voluntarily submit Mr. Shkurtaj's case to
their office, and that was rejected. You are all sitting here,
you are all friends. What was the reason you folks rejected the
request?
Mr. Tipson. There was a formal jurisdictional issue with
respect to the jurisdiction of the Ethics Office, which Mr.
Benson could probably better address. The upshot is that his
case will be looked into by this independent review and
potentially referred to the U.N. Ethics Office.
Senator Levin. Are you satisfied with the answer you got
from UNDP on the request that the case be referred to your
office? And if you were not satisfied, did you make your
dissatisfaction known, and to whom?
Mr. Benson. I think to answer that question, the
information that transpired in that wasn't released by my
office. The information went out other than through me. But
obviously the letters that were in confidence and provided to
the individual did make it out into the public area.
The communication between myself and UNDP did not get into
the facts of the case--couldn't. I have to maintain
confidentiality. But on the basis of the information that I
obtained in conducting the review that I did, I met on two
occasions with Mr. Dervis and Mr. Melkert, and through that we
discussed the process of the protection for retaliation.
I indicated at that time and I have indicated subsequent to
that that I did not have the jurisdiction. As I went through it
myself coming into the United Nations--and I should say I have
said this also publicly out there, that when I came into the
United Nations, I expected the jurisdiction would be United
Nations. To me the United Nations was the United Nations. But
when I got in and faced with actually having to discharge this
mandate with responsibility, as issues come before me, then I
have to look at it, and I look at it from the Charter on down.
I look, as to where my mandate flows. So I was able to conclude
myself that I didn't have jurisdiction, but in light of the
fact that this individual had come into the office, and in
light of the fact that it got into the media, it was well known
that I was looking into the matter. And there was actually a
press conference that Mr. Morrison had acknowledged that I had
been looking--the Ethics Office was looking into it.
But subsequent to that, as I said, the issue of information
I had become privy to and the fact that I didn't have
jurisdiction, but I felt, as I still do, that in the best
interest of the United Nations, if they ceded jurisdiction on
this one case and allowed it to proceed, it would be in the
best interest. It was then their consideration of that, and
they communicated back--I am not privy to what transpired or
who they communicated with. But I allowed the opportunity for
them to consider, and they communicated back to me that they
wished to proceed on their own, which they did.
Senator Levin. Thank you. Senator Coleman.
Senator Coleman. Do you expect to or do you anticipate
returning to North Korea? Is there discussion about that?
Mr. Lockwood. I think that is a decision that our Executive
Board would make. I am sure at this point they are not ready to
even discuss that issue pending the outcome of various reviews
that are underway. But that is not a position that I think we
as the Secretariat of the organization, would want to take. It
is a very complicated decision.
Senator Coleman. Maybe this is difficult to answer now, but
would you have the ability to change anything, where we are at
today, if you were to go back in tomorrow?
Mr. Lockwood. I think it is perfectly clear to all that we
would not go back in under the old conditions under which we
worked. We suspended the program because the government would
not accede to a change in those conditions. And I am sure the
board itself would not want us to go back there unless those
conditions changed.
Senator Coleman. I appreciate that, and without getting
into NEX and DEX, just to follow up. Unlike other countries
where you hire nationals through some hiring process, which I
think does build development, I consider these folks to be
North Korean officials. I consider them no different than they
are working in a ministry, and they are the finance officer and
the IT manager and the general services administrative officer
and bank signators. If you look at it, it is their program.
And, again, it is the only conditions in which it could
operate.
We may have exhausted that discussion, but I appreciate
your response, Mr. Lockwood, that if we could go back in, we
have to understand that there are going to have to be some
changes in the way in which we operate. Thank you, gentlemen.
Senator Levin. Thank you. Do any of you want to add
anything to the conversation before we adjourn?
Mr. Tipson. I hope it will be a robust conversation going
forward, not just with this Subcommittee but with the U.S.
mission and others in the U.S. Government.
Senator Levin. We thank you for coming. We know it is
voluntary. We know it is in the form of a conversation. It was
very helpful, regardless of what you call it, designate it, or
label it. Thank you.
Mr. Morrison. Thank you.
Mr. Benson. Thank you.
Mr. Lockwood. Thank you.
Senator Levin. We will stand adjourned.
[Whereupon, at 12:59 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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