North Korean Economy Watch

The UNDP issued a response to the US Senate investigation into their operations in North Korea.  This is from their web site (January 23, 2008):

UNDP welcomed the recent investigation by the US Senate Permanent Subcommittee on Investigations (the “Subcommittee”) into its former operations in North Korea.  UNDP voluntarily cooperated with the inquiry, including by making its personnel and documents available for review by the investigators.  UNDP’s extensive cooperation is acknowledged in the report.

The Subcommittee initiated the inquiry in June 2007, in the wake of persistent allegations concerning UNDP’s operations in North Korea.  A 31 May External Audit had found that, because of constraints imposed by the North Korean authorities, UNDP and other UN agencies did not operate in North Korea according to the same standards and practices they used elsewhere worldwide.  The same audit found, however, contrary to allegations that UNDP spending totaled hundreds of millions of dollars, that UNDP ran a modest program of less than $3 million per year, and had in place a full range of monitoring mechanisms to verify its spending.  New allegations surfaced shortly afterward, including detailed charges that UNDP had underreported its funding levels, and engaged in illicit transactions with entities tied to the North Korean armaments program, and that a significant amount of UNDP funding had been diverted by the North Korean government.  The Subcommittee initiated its investigation shortly afterward.

Nearly seven month later, after extensive interviews with UNDP staff, as well as a Subcommittee field to visit UNDP headquarters to verify the financial control systems UNDP had in place in North Korea, UNDP emphasizes that the Subcommittee’s report contains nothing to substantiate persistent allegations that:

• UNDP transferred tens of millions of dollars to the North Korean government, as had been alleged;
• UNDP money was used to fund North Korean purchases of real estate, or were diverted to its nuclear or missile programs;
• UNDP dealt in significant amounts of cash, which could be diverted or embezzled in defiance of financial controls;
• UNDP ignored UN controls on prohibited vendors and dealt directly with entities barred by these processes.

The report does contain a series of findings and recommendations.  UNDP’s responses are outlined below.

On UNDP’s management and operational practices in North Korea:
Finding: UNDP operated in North Korea with inappropriate staffing, questionable use of foreign currency instead of local currency, and insufficient administrative and fiscal controls.  

UNDP Response:

– The report states that UNDP operations in North Korea are a case study of an international agency’s attempts to achieve development goals in a restrictive environment, and that By all accounts, operating development projects in North Korea presented management and administrative challenges of the most extreme nature.  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 a host nation.
– UNDP has said all along that North Korea was a difficult place in which to do business.  It operated there since 1981 at the explicit direction of its Executive Board, which includes the US, and which regularly approved its programs.  The Executive Board was aware of the operational constraints UNDP faced.  All foreign entities in North Korea – UN agencies, national diplomatic missions and international NGOs – face the same constraints. 
– UNDP is committed to addressing any and all management and operational deficiencies that have been identified in its former operations in North Korea, and to applying lessons learned to other countries in which it faces similarly challenging operational environments.

On access to internal audits

Finding: By preventing access to its audits … UNDP impeded reasonable oversight.
Recommendation: UNDP should provide UN member states with unfettered access to financial and management audit reports about UNDP activities, including providing timely copies of such reports and allowing UN member states to make audit information public.

UNDP Response:

– As noted by Senator Levin, a proposal that would grant routine access to UNDP Executive Board members to UNDP audit reports is currently before the UNDP Executive Board.

On deceptive financial transactions by the DPRK government:
Finding: In 2002, the DPRK government used its relationship with the United Nations to execute deceptive financial transactions by moving $2.72 million of its own funds from Pyongyang to DPRK diplomatic missions abroad through a bank account intended to be used solely for UNDP activities and by referencing UNDP in the wire transfer documents.

Recommendation: UNDP should take steps to ensure that its name and resources are not used as cover for non-UN activities.

UNDP Response:

– UNDP is not happy that its name may have been used inappropriately by the North Korean government in connection with deceptive financial transactions.  It has formally raised this matter with the North Korean government.
– UNDP is pleased to note, however, that there is no suggestion that UNDP either knew of or could have prevented the transactions.  The report states: The Subcommittee does not conclude that the deceptive financial transactions executed by the North Korean government would have been prevented had UNDP’s management been more vigilant.
– UNDP is also pleased to note that contrary to persistent allegations it has faced, the report finds that the $2.72 million in question was not UNDP’s money.
– UNDP records show that the total sum transferred from 2001 to 2005 to the North Korean entity that was misusing UNDP’s name was approximately $175,000.  This figure is far less than the $7 million UNDP was alleged to have transferred to the entity in during this period.

On UNDP payments to Zang Lok

Finding: UNDP transferred UN funds to a company that, according to a letter from the US State Department to UNDP, has ties to an entity involved in DPRK weapons activity.

Recommendation: Prior to making payments to a contractor, UNDP should take steps to ensure that the contractor is not associated with illicit activity.

UNDP Response:

– UNDP paid a Chinese company named Zang Lok $22,000 in 2002 on behalf of WIPO, and $30,000 in 2004, on behalf on UNESCO.  UNDP did so because although both of these UN agencies have run projects involving North Korea, neither of them has a presence in the country.  In both cases the goods in question (computer equipment) were paid for by WIPO and UNESCO and received in good order.
– The State Department first informed UNDP that Zang Lok had ties to a “designated entity” on 6 June 2007, and UNDP immediately agreed to cease doing business with Zang Lok.
– UNDP and other UN agencies routinely consult control lists maintained by the UN Security Council before making procurement decisions.  It is unclear whether Zang Lok, as a company with ties to a “designated” North Korean entity – but not itself a designated entity – was on any list that could have been consulted in 2002, 2004, or afterward.
– The report acknowledges that UNDP’s vetting procedures appear sound and that It does not appear that UNDP, or the UN agencies on whose behalf UNDP was acting, knew of – or had any way of knowing – whether Zang Lok was connected to an entity involved with DPRK weapons activity at the time the payments were made.
– UNDP agrees that it would benefit from increasing its information-sharing with the other UN agencies and is committed to doing so within the ongoing process of harmonizing the UN standards system-wide, in which it is a leading participant.

On alleged retaliation against a whistleblower:

Finding: By…not submitting to the jurisdiction of the UN Ethics Office … UNDP undermined its whistleblower protections. 

Recommendation: UNDP should ensure that whistleblowers do not face retaliation for reporting irregular or improper conduct.

UNDP Response:

– Contrary to criticism directed at UNDP over the past year, UNDP has had policies and procedures in place to protect employees from retaliation for some time.  Some of these predated the policies initiated by the Secretary-General in 2005.  Moreover, all personnel (staff and non staff), regardless of level or legal status, are encouraged to bring concerns and claims under these procedures, and all such claims are treated with appropriate seriousness. 
– More recently, and in accordance with the new policies issued by the Secretary General in late 2007, UNDP has appointed an Ethics Officer.  In addition to overseeing the key components of UNDP’s ethical standards and mechanisms, the Ethics Officer will work together with the Director of the Ethics Office of the Secretariat, the new UN Ethics Committee, and the Ethics Officers of other UN entities, to further harmonize the overall ethics regime of the wiser UN system. 
– From a staff perspective, there is now in place a “two step system”.  Staff from UNDP can now appeal to the Chair of the new UN Ethics Committee to have their individual case reviewed by the UN Ethics Office, if they believe that they have not been appropriately treated within UNDP.
– In the case referenced by the Subcommittee, there is no question that Mr. Artjon Shkurtaj raised operational concerns during his time at UNDP North Korea.  There is equally no question that it was his job to do so, that the concerns he raised were similar to those raised by his predecessors, and that UNDP managers responded as appropriate.
– A key point is fundamental to ethics regimes and whistleblower protection mechanisms almost everywhere, including at the UN and UNDP: the complainant must avail him or herself of the mechanisms and cooperate with any inquiry. Mr. Artjon Shkurtaj neither availed himself of existing UNDP mechanisms nor cooperated with a subsequent inquiry.
– Mr. Shkurtaj’s case has been taken up by the External Independent Investigative Review (EIIR), which is being led by former Hungarian Prime Minister Miklos Nemeth.  According to the terms of reference of the EIIR, if the UN Ethics Office is not fully satisfied on the issue of Mr. Shkurtaj, it will itself look into the matter.  UNDP will not offer further comment while the EIIR is ongoing.

The US Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs published a report detailing the failure of the United Nations Development Program (UNDP) to adequately monitor its projects in the DPRK. 

By way of background…In March 2007, the UNDP suspended its operations in North Korea because of the government’s refusal to agree to new measures designed to increase the transparency and accountability of the UNDP programs there. 

The subcommittee staff released the following findings:

1. UNDP operated in North Korea with inappropriate staffing, questionable use of foreign currency instead of local currency, and insufficient administrative and fiscal controls

• UNDP’s DPRK office was staffed in large part with North Korean nationals who were selected by the DPRK, contrary to UNDP policy; 
• UNDP paid the salaries of local staff directly to the North Korean government without any way of verifying that the salaries were properly disbursed and despite UNDP’s suspicion that the DPRK was, in the words of one UNDP official, “skimming” money from the payments; 
• UNDP paid salaries and other expenses in convertible currencies, such as US Dollars or Euros, rather than in the local currency, contrary to UN best practices; 
• UNDP was required to conduct its financial transactions using a DPRK state bank that accepted paperwork only from DPRK personnel, sometimes routed UNDP funds through an unrelated bank account, and, until recently, refused to provide UNDP with copies of cancelled checks;
• UNDP was allowed to conduct on-site project visits only with prior notice and in the company of North Korean officials, contrary to UNDP best practices; and
• The UNDP office in Pyongyang operated without secure communications, and the regime routinely monitored UN activity, going so far as to enter and search private residences of UN personnel.

2. By preventing access to its audits and not submitting to the jurisdiction of the UN Ethics Office, UNDP impeded reasonable oversight and undermined its whistleblower protections.

The UNDP commissioned four audits of its North Korean operations, in 1999, 2001, 2004, and 2007. Problems were identified in all four. The first three audits were nonpublic and, in accordance with UNDP policy, unavailable for review even by nations serving on the UNDP Executive Board. After repeated requests, UNDP made an exception to this policy and, in 2007, showed the audit reports to the US Mission to the United Nations, whose personnel were allowed to read but not copy them.

Beginning in 2005, Artjon Shkurtaj, then Operations Manager of the UNDP office in Pyongyang, raised concerns about management and operational deficiencies in UNDP operations. After raising these concerns, his employment contract was not renewed. He then filed a complaint with the UN Ethics Office claiming that UNDP had retaliated against him.  In August 2007, however, the Ethics Office determined that, although Mr. Shkurtaj had established “a prima facie case of retaliation,” it lacked jurisdiction to decide his claim and could protect only whistleblowers within the UN Secretariat.

3. In 2002, the DPRK government used its relationship with the United Nations to execute deceptive financial transactions by moving $2.72 million of its own funds from Pyongyang to DPRK diplomatic missions abroad through a bank account intended to be used solely for UNDP activities and by referencing UNDP in the wire transfer documents.

4. UNDP transferred UN funds to a company that, according to a letter from the US State Department to UNDP, has ties to an entity involved in DPRK weapons activity.

UNDP regularly made payments to contractors on behalf of other UN agencies operating in North Korea. During the course of its investigation, the Subcommittee learned that payments on behalf of other UN agencies – totaling approximately $50,000 – were made to an entity named Zang Lok Trading Co. in Macau. According to a letter dated June 7, 2007, to UNDP from the US Permanent Mission to the United Nations, Zang Lok “has ties to a North Korean entity that has been designated [by the US government] as the main North Korean financial agent for sales of conventional arms, ballistic missiles and goods related to the assembly and manufacture of such weapons.” UNDP maintains that it does not know, and has no way of knowing, whether Zang Lok is connected to North Korean weapons sales.

How much money are we talking about?
UNDP estimates that, from 1995 to 2005, it spent a total of about $33.5 million in North Korea. Of that figure, approximately $6 million was spent on UNDP office, staff, and operating expenses, including roughly $100,000 per year in payments to local staff and contractors, and $500,000 per year spent on rent, office supplies, transportation, employee compensation, and other expenses. An ongoing external audit is expected to refine these estimates. In addition, the UNDP office in North Korea made payments and provided administrative support on behalf of other UN Funds and Programs operating in North Korea including the United Nations Population Fund and United Nations Office for Project Services, among others. Total expenditures by all UN agencies in North Korea – excluding the World Food Program – during the same ten-year timeframe have been estimated at roughly $200 million.

Here is the full report: undpreport.pdf

According to Environmentalexpert.com:

The United Nations Environment Programme and the Republic of Korea today signed an agreement for establishing a Trust Fund that addresses key environmental issues in the Democratic People’s Republic of Korea (DPRK). The Republic of Korea will contribute US$4.4 million in total for this project. The first venture of its kind on the environment between the two Koreas, the Trust Fund will tackle forest depletion, declining water quality, air pollution, land degradation and biodiversity in DPR Korea. It will also support eco-housing initiatives as well as conservation and management of the Taedong watershed, environmental education, integrated environmental monitoring system, clean development mechanism and renewable energy technology.

‘This multilateral cooperation with UNEP is of great significance for both South and North Korea and a huge step forward in addressing pressing environmental issues in DPR Korea,’said LEE Kyoo-Yong, Ph.D., Minister of Environment of the Republic of Korea.

The past decade has seen declining forests in DPR Korea due to timber production, firewood consumption, wild fires and insect attacks associated with drought, population growth and conversion of land to agricultural production. Pollution of rivers and streams has become severe in recent years, particularly in the Taedong River, which flows through central Pyongyang. DPR Korea’s reliance on coal for power generation, industrial processes and domestic heating also led to serious air pollution, particularly in cities like Pyongyang and Hamhung.

To counter this, the country has encouraged community, youth and children’s groups to establish tree nurseries and to participate in campaigns such as the National Tree Planting Day on March 2 every year. The government is currently strengthening legal control on effluent from factories by applying the’Polluter Pays Principle’ and has initiated mass media campaigns to inform the public of the need for water conservation.
Environmental protection was also recognized as a priority issue and a prerequisite for sustainable development after a series of natural disasters in the mid-1990s led to a critical drop in yields of major crops. In 1998, DPR Korea revised its constitution and designated environmental protection as a priority over all productive practices and identified it as a prerequisite for sustainable development. National laws on forests, fisheries, water resources and marine pollution were also adopted.

‘This agreement will build on the momentum that DPR Korea has begun. It will also go a long way in strengthening the spirit of cooperation between the two countries,’ said UN Under-Secretary General and UNEP Executive Director Achim Steiner.

Since 2000, UNEP has been working in partnership with the National Coordinating Committee for Environment and UNDP to strengthen the capacity of the national government for environmental assessment and monitoring and implementation of Multilateral Environmental Agreements. In 2004, UNEP and DPR Korea signed a Framework Agreement for Cooperation in Environment. The first DPR Korea State of the Environment report was also launched that year.

Korea Times
Andrei Lankov
11/12/2007

Kim Jong-il loves to surf the net. In 2001 he asked the U.S. Secretary of State for her e-mail address, and in 2002 he told a visiting North Korean dignitary that he spent much time going through South Korean sites. He repeated this statement during the recent summit describing himself as ”an internet expert.”

Despite his relatively advanced age, Kim Jong-il takes the IT industry seriously. He obviously believes that the IT industry might become a wunderwaffen (super weapon) which one day will save the ailing North Korean economy (Kim Jong-il has always believed in simple, one-step, technology-based fixes for problems).

Now and then, news agencies report on North Korean efforts to train software specialists, or on a technology firm established by the North Koreans, or even on Kim Jong-il’s plans to create a large industrial complex which would become the North Korean reply to the Silicon Valley.

Efforts to create a computer industry go back to the late 1970s. In those days, the U.N. Development Program helped the North build a small pilot integrated circuit plant. Its history was plagued by one misfortune after another: the plant’s building proved to be badly insulated, the electricity supply was unreliable, and the engineers who were sent overseas for training arrived too late (most of them did not speak English, anyway). However, by late 1985 the plant was operational, producing ICs, an essential component of a computer.

By the early 1990s, the North was producing some 20,000 computers a year. Not much, but enough to provide for the military and even earn some money from export (over 60 percent of them were said to be exported).

In the early 1990s the North Koreans developed their own software, including a word processor. The latter had, among others, a peculiar function: it could automatically insert the names of the Great Leader and Dear Leader through a specially designated hot key.

In the North the PC was never meant to be a personal computer. It is reserved for office or industrial use, not for home – not least because the Internet is unavailable. For a regime which (correctly) assumes that its survival depends on its ability to keep the populace ignorant about outside world, the internet presents a mortal danger. Matters are further exacerbated by the unique success of the South Korean internet. If North Koreans were allowed to surf the numerous Southern sites at will, the carefully constructed picture of the world would instantly fall apart.

Thus, the internet is outlawed – but not completely. In recent years, foreign embassies have been allowed to connect to Chinese internet providers, but they have to pay the exorbitant fee for an overseas call (currently, $2 a minute). The connection is unreliable, but if your bills are paid by your country’s taxpayers, you probably can check your email… Access to email through business centers and even Internet cafes is becoming possible as well _ as long as one is a foreigner and is willing to pay exorbitant prices.

Only the privileged few have unlimited high-speed access to the Internet. But these trusted people are numbered in the hundreds or, perhaps, count a few thousands. Access is provided for the military, intelligence, and few privileged research centers only. Rooms where the internet-connected computers are installed are considered off limits for the North Korean personnel, and only people with proper security clearance can access this source of dangerous knowledge.

Less privileged institutions have access to local networks with limited connections to the World Wide Web. Their task is to let scientists and engineers retrieve the data they need without unduly exposing them to the dangers of overseas decadence.

There have been attempts to make money through IT. None of the grand plans for selling locally developed software on the international market have come to fruition, but there are easier ways to make a buck. In 2002 the North Koreans started an on-line gambling site in cooperation with a South Korean company. It targeted South Koreans, since gambling is illegal here. Its message board attracted much popularity since it was a place where the Southerners could exchange messages with the North Korean staff. The ability to chat with the Northerners was exciting (even though the largely young participants probably did not realize to which extent their interlocutors were controlled). The combination of gambling and propaganda obviously terrified Seoul, and the site was closed down.

Another area where North Koreans are trying their luck (and obviously not without moderate success) are game development and computer animation. Indeed, even major studios are sometimes inclined to outsource their animation work to North Korea.

The Internet remains a hot potato for the North Korean leaders. They understand its importance, but they do not know what to do about its political dangers. While facing such a choice, they have always opted for political security.

Financial Times
Anna Fifield
Richard McGregor
10/18/2007

China suspended key rail freight services into North Korea last week after 1,800 wagons carrying food aid and tradeable goods crossed into Kim Jong-il’s hermit state but were never returned.

Absconding with Chinese wagons would be a strange move for North Korea because Beijing is Pyongyang’s closest political ally and biggest provider of food, goods and oil. Analysts monitoring North Korea said Chinese officials had privately complained to them that the North Koreans were dismantling Chinese wagons and selling them back as scrap metal.

The Chinese railway ministry suspended a number of rail freight services into North Korea on October 11, humanitarian agencies operating in North Korea told the Financial Times. The ministry told international aid agencies that it would not send any more wagons into North Korea until Pyongyang returned the 1,800 Chinese wagons.

Tony Banbury, Asia director for the UN World Food Programme, said that the curtailed service had held up the delivery of 8,000 tonnes of maize and wheat already stockpiled in Dandong, a Chinese border town. “We now have significant amounts of food but we can’t deliver it,” Mr Banbury said.

Reliefweb, a United Nations website for aid agencies, reported that the delivery of food stocks into North Korea had been “critically affected by the cessation of movement of railway wagons from China”.

An official with China’s railway ministry said yesterday that it was not aware of any suspension of freight services into North Korea.

But Fu Xue, of the Dandong Tianda International Freight and Forwarding Company, said there had been delays in the return of wagons but that North Korea had asked for permission from China.

North Korea has frequently failed to pay for goods or to pay back debt. It has also long been accused of relying on currency counterfeiting and drug smuggling to stay afloat.

But purloining Chinese wagons would be a brazen move. China is already thought to be disillusioned by Pyongyang’s refusal to embrace economic reform. It was also angered by North Korea’s decision last year to conduct a nuclear test despite Beijing’s objections.

North Korea has a history of not returning vehicles. In 1998, the late Chung Ju-yung, founder of South Korea’s Hyundai Group, donated 1,001 cows to North Korea to make amends for stealing a cow as he escaped from the north as a boy.

Pyongyang said the cows should be transported on Hyundai trucks. The trucks were never seen again.

Yonhap
10/15/2007

*View the UN report here

The number of North Korean women who have died while giving birth rose drastically in 2005 from five years earlier due to worsening health care conditions in the impoverished communist state, a report said Monday.

Maternal mortality rose to 370 per 100,000 births in 2005 from 67 in 2000, according to the report issued jointly by the United Nations Population Fund, UNICEF, the World Health Organization and the World Bank.

Although the rate is lower than the global average of 400 deaths per 100,000, it is 26 times higher than that of South Korea with the rate of 14 deaths per 100,000.

Sub-Saharan African countries have the highest maternal mortality rate of 900 per 100,000, followed by Southeast Asia’s 450 and East Mediterranean countries’ 420.

The comparable figures for the United States, the Western Pacific Ocean and Europe are 99, 82 and 27 respectively.

Blurb from report:

The MMR estimate for 2005 (370) was higher than the 2000 MMR (67). The predicted PMDF in 2005 was higher than in 2000, because the GDP estimate (in purchasing power parity) used in the 2005 model was approximately 75% lower than the estimate of US$ 14 996 used in the 2000 model.

Yonhap
9/24/2007

North Korea is becoming more transparent and effective in dealing with disasters, spurred by both internal and external factors, an Asia-Pacific regional specialist said in his latest paper.

Dr. Alexandre Mansourov, a securities studies professor at the Asia-Pacific Center for Security Studies (APCSS) in Hawaii, noted five trends in the North Korean government’s responses over the past decade to nationwide shocks, including floods, typhoons, drought and avian influenza outbreaks.

Increasing transparency is one of the trends, with Pyongyang more quickly admitting to disasters that have struck the nation, he said in a paper (download here) released last week through the Korea Economic Institute in Washington.

It took North Korea several years to admit the impact of natural disasters in the mid-1990s that led to massive starvation and chronic food shortages. But in August 2000, when it was hit by Typhoon Prapiroon, North Korea released the news three weeks after it occurred, and in the two following years, when other typhoons struck, North Korea reported it within three to six days, Mansourov said.

Pyongyang immediately acknowledged flooding in August 2007, he said.

“Observers agree that the timeliness, details, and amount of coverage of flood damage and rehabilitation work in August 2007 is unprecedented.”

North Korea is also showing institutional knowledge and a capacity for disaster management, with new organizations growing out of a decade of learning and experience, such as various provincial centers, the professor said.

The North Korean Red Cross Society has been exceptional, he said, working with the International Federation of Red Cross and Red Crescent Societies, and has made itself the leading agency in disaster preparedness and response.

Inter-agency coordination has also increased, with deputy prime minister-level working groups working closely together in each disaster since the flood of 2001, as there are preventive programs through which basic relief supplies are stored in town and villages.

For example, the 10-year strategy against avian influenza, worked out by the emergency commission in 2005, would have been unthinkable a decade ago, Mansourov wrote.

Another notable trend is the increasing cooperation between the North Korean government and international humanitarian community, gradually allowing joint needs assessments and monitoring, he noted.

Mansourov argued that external factors helped bring about the changes.

“International factors did make a difference in what happened in (North Korea), especially through the introduction of innovative ideas and dissemination of best humanitarian practices,” in addition to foreign aid, he said.

The scholar also argued that while the country’s top leader, Kim Jong-il, does control any institutional changes, there is also adaptation driven by needs.

“There has been some degree of autonomous institutional learning and adaptation; it is incremental in nature and caused by both positive and negative feedback from the environment regarding institutional performance in crisis situations,” he said.

Reuters
Patrick Worsnip
8/20/2007

The U.N. ethics office found evidence that the United Nations Development Program retaliated against an employee who tried to expose its alleged wrongdoing in North Korea, a letter leaked on Monday said.

The letter sent on Friday by the office to UNDP chief Kemal Dervis is likely to lend fresh ammunition to the United States in a long-running dispute with UNDP over its North Korean operations, centering on claims of financial irregularities.

The agency has denied that it fired Artjon Shkurtaj, a native of Albania with Italian citizenship who was head of UNDP’s operations in North Korea from 2005-2006, because of his criticisms. It says his contract was not renewed.

The case came before the Ethics Office because Shkurtaj applied for U.N. whistleblower status under a two-year-old directive. But the office cannot launch a formal investigation without UNDP’s agreement because, as an agency with its own executive board, UNDP does not come under its jurisdiction.

In his letter, Ethics Office director Robert Benson told Dervis that the evidence it found would have supported a case against the UNDP if jurisdiction had applied.

UNDP has decided against waiving its right not to be investigated by the Ethics Office, but Benson urged the agency to do so, saying: “I believe this would be in the best interests of the United Nations and UNDP.”

His confidential letter first appeared on the Web site of Inner City Press, an independent blog on U.N. affairs.

The United States accuses UNDP of sloppy accounting, handing over cash to North Korean bodies without proper documentation and hiring staff hand-picked by the communist Pyongyang government.

OUTSIDE REVIEW

A U.N. audit published on June 1 said rule breaches had occurred but did not find systematic diversion of U.N. funding. UNDP quit North Korea in March after Pyongyang refused to accept changes ordered by its board of directors.

UNDP and U.S. officials have been unable to agree how much money Pyongyang, whose nuclear program has for years been the subject of international concern, received from UNDP.

Some of Washington’s information came from Shkurtaj, who has said publicly that UNDP violated “multiple rules and regulations” and engaged in “criminal conduct” in North Korea.

UNDP spokesman David Morrison told a news conference last month that Shkurtaj had been invited to submit evidence to back up his allegations but had so far not done so.

He admitted that UNDP barred Shkurtaj from entering the U.N. compound in New York after his contract expired in March, even though his U.N. pass was still valid.

Instead of agreeing to be investigated by the Ethics Office, UNDP has opted for an outside review — yet to be set up — that would look simultaneously at Shkurtaj’s allegations and other aspects of UNDP’s North Korea operations.

“UNDP believes that having multiple processes reviewing related or identical issues would not be the most effective way to achieve closure of this matter,” agency spokeswoman Christina LoNigro said.

U.N. spokeswoman Michele Montas said Secretary-General Ban Ki-moon was “very much concerned about this whole issue,” including the fact that Ethics Office jurisdiction did not cover UNDP, which has no such office of its own.

“There is no doubt that the Secretary-General is going to discuss ways of filling” the gap, she told a news briefing.

Yonhap
7/21/2007

A U.N. relief official said North Korea currently receives only a small portion of the food aid it needs and his agency is considering stepping up aid to feed almost 2 million more people, a U.S. government-funded radio station reported Saturday.

In an interview reaching here Saturday through the Korean version of the VOA’s Web site, Robin Lodge, a spokesperson for the World Food Program (WFP), said international relief agencies, including the Office of Food for Peace, recently gathered in Rome, Italy and discussed the possibility of sending the communist state additional food that could feed 1.9 million people there.

Lodge was also quoted by the U.S.-funded broadcaster as saying North Korea currently receives from his agency only about 10 percent of what it needs to feed the 7 million believed to be suffering from starvation.

North Korea does not release any official data on its food situation but many outsiders believe that more than 2 million people died when famine swept through the country in the late 1990s.

Good Friends, a Seoul-based relief group dedicated to North Korea, said in its latest weekly newsletter on Wednesday that a growing number of North Koreans died of starvation or hunger-caused diseases recently, especially in remote areas.

“Famine-driven deaths began to occur across North Korea in late June,” the report said. “In some cities and counties in the provinces of North Pyongan, Ryanggang, Jagang and South and North Hamkyong, the number of deaths is on the increase daily.”

The reports contradict widespread reports that the North’s food situation has improved significantly in recent years.

On Friday, Seoul started sending 50,000 tons of rice aid to North Korea overland as part of its promised loan of 400,000 tons of rice aid.

Over the next five weeks, the South is to deliver 30,000 tons of rice to the North via a road passing through the border town of Kaesong, while another 20,000 tons will be transported across a paved road on the east coast. South Korea is delivering 350,000 tons of rice to the communist country by sea.

South Korea resumed shipping rice aid to North Korea in late June after more than a one-year hiatus, as the North shut down its nuclear facilities in the first step toward eventual nuclear dismantlement.

Wall Street Journal
Melanie Kirkpatrick
7/20/2007

Of all the evidence turned up by the U.S. concerning irregularities in the United Nations Development Program’s operations in North Korea, some of the most disturbing concerns the transfer of dual-use technology.

As reported last month, the U.S. has uncovered documents showing the UNDP procured and delivered to North Korea in May 2006 technology that could be used for military purposes: global positioning system (GPS) equipment, a portable high-end spectrometer and a large quantity of high-specification computer hardware. According to packing lists and confirmation receipts, the items were intended for a “GIS” — geographic information system — project.

The equipment “is the type of technology subject to (U.S.) export controls,” says a spokesman for the Commerce Department’s Bureau of Industry and Security, which is responsible for issuing export licenses. So how did it end up in Pyongyang? It would seem more than passing strange that Commerce would have issued the requisite export licenses. The answer is: It didn’t.

U.S. officials, led by Ambassador Mark Wallace at the U.S. mission to the U.N., have spent a year looking into the UNDP’s operations in North Korea. Now, at the request of the State Department, Commerce searched its archives and found no record of any application for export licenses for the GPS, spectrometer or other equipment for the GIS project in North Korea.

Over the past 10 years, Commerce has received more than 200 license applications to export U.S. technology for U.N. projects in North Korea. Of those applications, the UNDP was named in a grand total of two, including one for software for the same GIS project that was equipped last year. That application was rejected.

Previously undisclosed documents show that the UNDP had been trying to equip the GIS project since at least 1999, when the application for an export license for mapping software was denied. Commerce cited concerns over the lack of safeguards in the project that could result in the software being diverted to the North Korean government and used for military purposes.

Yet seven years later, the UNDP procured and transferred sensitive technology to the same, unsafeguarded project — this time without bothering to apply for a license. And while there’s no evidence the UNDP went ahead and purchased the software for which it had been denied a license, that possibility must be considered, since GPS equipment is useless in such a project without mapping software.

The denial notice for “Case Number: Z177037” is dated Sept. 18, 1999. The “consignee in country of ultimate destination” is listed as the UNDP in Pyongyang. The one-page notice is written in prose that is clear and unambiguous: “The Department of Commerce has concluded that this export would be detrimental to U.S. foreign policy interests.”

The 14 items on the UNDP’s wish list were all classified “EAR99,” which means they are subject to Commerce jurisdiction but didn’t specifically appear on the Commerce Control List of items restricted for export. In discussions over the past several weeks with State Department officials, Commerce officials who examined the archives explained their agency’s decision to deny the export license. During the interagency review of the UNDP request, they say, questions were raised about whether the software would stay in North Korea after the UNDP international staff left and whether North Koreans would have access to the software.

Supporting documents show that the answer to both questions was yes. A letter dated April 5, 1999, from the software manufacturer that was seeking the export license on behalf of the UNDP, explains: “The project is supposed to be completed in three (3) years and the software will be left with the state agencies.”

Emails from the UNDP to Commerce offer further information about the UNDP’s security controls — or lack thereof. An Aug. 3, 1999 email from the UNDP’s Shankar Manandhar, in response to a Commerce query, says, “We would like to inform you that the North Korean nationals will have access to the computer in the project office in [the] presence of UNDP staff.” In another email, Mr. Manandhar notes that the software will be “utilized in the project office.”

The Defense Department recommended to Commerce that the application be denied. In a memo dated July 20, 1999, Defense explains that “These items could pose both national security and proliferation issues for the US and allies if diverted to the North Korean military.” Among the list of potential military applications cited are “planning a nuclear weapons infrastructure or missile launch sites.” And, “it could also be used for targeting.” In the end, as one Commerce official explained, since this type of mapping software can be used for military purposes, it was deemed to be “too great a risk of diversion.”

The Commerce official also says the case notes for the denial specify that several earlier licenses granted to the UNDP in North Korea had been conditioned in such a way that no North Korean nationals were to have access to the licensed items. Oh, really? Based on the UNDP’s replies to Commerce’s questions regarding the 1999 application, the official says that the licensing officer at the time believed it was “highly likely” that the UNDP was violating the terms of its previous licenses by allowing North Koreans access to licensed items. We now know — as confirmed by the U.N.’s preliminary audit of the UNDP’s North Korea operations — that the agency’s local staff were Ministry of Foreign Affairs employees assigned to the UNDP by the government.

It’s also worth noting the year these events took place: 1999. That is, the denial notice originated in Bill Clinton’s Commerce Department, part of an administration that was “conducting a one-sided love affair with North Korea,” in the felicitous phrase of Christopher Cox, then a Republican congressman closely monitoring Asian issues. On Sept. 17, 1999, the day before the issuance of the denial notice, the administration announced it would ease economic sanctions on North Korea. But approving the sale of sophisticated mapping software was a bridge too far even for the Clinton administration.

Since the U.S. went public in January with evidence of the UNDP’s lack of oversight of its programs in North Korea, the agency hasn’t exactly been forthcoming. At first, the UNDP denied that it had purchased dual-use equipment for North Korea, referring instead to “rice husk removers” and “plotters to help the [Korean] authorities more accurately produce maps for environmental monitoring.”

Next it look the line that the GPS equipment, portable spectrometer and computers delivered in May 2006 “do not represent state-of-the-art technology,” as Ad Melkert, the No. 2 UNDP official, put it in a June 28 letter to Zalmay Khalilzad, U.S. ambassador to the U.N. An annex to Mr. Melkert’s letter describes the technology as “not high-end or sophisticated” — an assessment at odds with the representations of the manufacturers. Trimble, for example, maker of the GPS GeoXT Handheld sent to North Korea, describes its product as having “a powerful 416 MHz processor running the most-advanced operating system available.” Mr. Melkert says in the annex that the UNDP is investigating “whether the vendors [in the Netherlands and Singapore] were required to obtain export permits for these items” — which sure sounds like an effort to shift responsibility.

Since January, when the U.S. concerns were made public, the UNDP has pulled out of North Korea and the U.N. audit has confirmed extensive violations of U.N. rules regarding hiring practices, the use of foreign currency and site inspections. The latest U.S. revelations raise far more serious questions about the UNDP’s oversight. Under the most generous interpretation, the agency was negligent of its legal responsibilities to keep dual-use technology out of a country that is on the U.S. list of terror-sponsoring states. At worst, it deliberately transferred the technology, knowing it was breaking U.S. law and helping to strengthen Kim Jong Il’s military dictatorship.

These questions — and many more concerning the UNDP’s record in North Korea — highlight the need for an independent, external inquiry of the UNDP’s programs world-wide. The U.S. first went public with its concerns in January, after months of pressing the UNDP for more transparency. If anything, as the latest U.S. evidence shows, things are worse than anyone thought.

Ms. Kirkpatrick is a deputy editor of the Journal’s editorial page.