VZCZCXYZ0001
OO RUEHWEB

DE RUCNDT #0011/01 0101828
ZNY SSSSS ZZH
O 101828Z JAN 07
FM USMISSION USUN NEW YORK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1102
INFO RUEHUL/AMEMBASSY SEOUL IMMEDIATE 0755
RHEHNSC/NSC WASHDC IMMEDIATE

S E C R E T USUN NEW YORK 000011 
 
SIPDIS 
 
SIPDIS 
 
FOR ISN, IO, T, EAP 
 
E.O. 12958: DECL: 01/09/2017 
TAGS: EAID KFPC KN KNNP KUNR PINR PREL UNDP
SUBJECT: USUN RECEIVES "SMOKING GUN" E-MAIL ON 
UNDP-DPRK/AMBASSADOR WALLACE SEEKS CLARIFICATION ON LETTERS 
RECEIVED FROM UNDP ON ACTIVITIES IN THE DPRK/UNDP INVITES 
USUN TO REVIEW AUDIT REPORTS IN PERSON. 
 
REF: A. A.STATE 2744 
     ¶B. B.USUN 2273 
     ¶C. C.USUN 00004 
     ¶D. D.USUN 00007 
 
Classified By: Acting Permanent Representative Alejandro D. Wolff 
 per reasons 1.4 (b) and (d) 
 
1.(S) Summary. As a result of the various inquiries by USUN 
of UNDP leadership, a UNDP "whistleblower" approached USUN 
and delivered a number of documents that serve to demonstrate 
that UNDP knowingly violated its own rules to accommodate the 
DPRK's stated request for hard currency. Specifically, USUN 
has received a "smoking gun" e-mail from a senior UNDP 
officer (pls protect), which indicates that UNDP officials in 
New York and in Pyongyang have long been aware that hard 
currency transactions were on-going in the DPRK due to the 
DPRK Government's insistence on receiving hard currency. 
Comment: The e-mail indicates that the Government of the DPRK 
sought UNDP as a source to provide a steady and consistent 
flow of hard currency and that UNDP knowingly violated its 
own rules and regulations in acting and continuing to act in 
accordance with the requests of the DPRK Government. End 
Comment. See para 4 for text of e-mail. 
 
2.(SBU) Per reftel D, on Friday January 5, 2007, following 
his letter to UNDP Administrator Dervis of December 22, 
Ambassador Wallace received late Friday evening three letters 
from UNDP and certain financial information regarding the 
UNDP program in the DPRK. Ambassador Wallace sought 
clarification from Mr. Dervis in a letter on January 8th. See 
para 9 for text of letter. 
 
3.(SBU) In response to Ambassador Wallace's letter sent to 
Mr. Dervis on Januray 8th, Ambassador Wallace received a 
letter the morning of January 10th from Mr. Dervis, which 
acknowledged Ambassador Wallace's request to examine UNDP's 
internal audit reports on DPRK and invited Ambassador Wallace 
to examine the internal audit reports on DPRK on site and in 
person. See para 10 for text of letter. End Summary. 
 
4.(S) Below is the text (identities deleted/protected) of the 
UNDP internal e-mail, which indicates that UNDP consciously 
sought to continue to engage in hard currency transactions to 
accommodate the DPRK Government. Comment: Please limit 
circulation within U.S Government pending consultation with 
USUN in order to protect source. Note also that the 
grammatical/syntax errors in the text below reflect the 
precise words of the e-mail. End Comment. Begin e-mail text: 
 
-Following our meeting last July 2005, as well as our 
communications in December 2005 in regard of the use of hard 
currency vis-a-vis local currency, I have tried to follow the 
financial rules and regulations as well as UNDP SBAA with 
DPRK, but without any results. 
 
-Still, after a year, the situation is that Government 
exclusively wants HARD currency, while we are piling GLOC 
contributions in KPW. What concerns me the most is that even 
tentative by myself to at least pay the Government 
institutions and individuals by EFT (bank transfer to their 
respective bank accounts), whereby minimizing CASH 
transactions-have failed. The Government and individuals 
wants CASH and wants it in hard currency. Salaries, overtime, 
local DSA, meal allowance, office maintenance, various bills, 
are being paid in full in hard currency (Euro), leaving us 
with no choice but to accumulate "un-wanted non-convertible 
KPW". 
 
-Giving this situation-since last September 2005, (...) I 
raised the issue among all Operations Managers and Finance 
Officers of various Agencies in DPRK, and agreed in December 
2005 to recommend to the UNCT (country team) that all 
agencies should go back and resume business according to the 
rules and regulations of the UN, which states that all local 
cost should be incurred in local currency. 
 
-Now the bottom line for me (...) stands as following: 
 
-Option One 
-Keep the status quo, whereby continuing using Hard Currency, 
with an increasing GLOC account. Whereby going against the 
rules and regulations of the organizations and the Standard 
Basic Agreement. In this scenario I would appreciate an 
acknowledgment from Treasury/Accounts/Legal whereby it is OK 
for us to continue. 
 
 
 
 
-Risks to UNDP: Organization might face audit problems. 
 
-Option Two 
-Change the status, whereby we respect the SBAA and UNDP 
financial Rules and Regulation. All payments in the country 
should be made in local currency. Explain to the government 
that both parties (us and the government) are (bound) by the 
SBAA and the UNDP rules and regulations. 
 
-Risk to UNDP: Strong opposition and reaction from the DPRK 
Government. If Government reacts-UNDP should demand a written 
explanation and justification from the Government, and if 
need be SBAA should be amended on order to showcase future 
relations in the country. 
 
-Would highly appreciate your attention and usual support and 
advise as to which option I should follow. End e-mail text. 
 
5.(SBU) Per reftel D, on Friday January 5, 2007, following 
his letter to UNDP Administrator Dervis of December 22, 
Ambassador Wallace received three letters from UNDP (a cover 
letter from Administrator Dervis and two letters from 
Assistant Administrator Ad Melkert, responding to U.S. 
requests for information regarding UNDP's program in the DPRK 
and the Office of Audit and Performance Review (OAPR), 
respectively), and certain financial information regarding 
the UNDP program in the DPRK. 
 
6.(SBU) Per reftel C and D, USUN obtained line-by-line 
budgets of the UNDP program in the DPRK, which consists of 52 
projects, for the years 2004-2006, UNDP administrative 
budgets for its DPRK program for the years 2004-2006, summary 
information of OAPR's audit practices for the years 2002-2006 
and an overview of the recommendations from the internal 
audits conducted on UNDP's DPRK office in the years 1999, 
2001 and 2004. 
 
7.(SBU) In response to the three letters received from UNDP 
on Friday evening, Ambassador Wallace sent a letter to Mr. 
Dervis on January 8th making specific requests for 
clarification. See para 7 for text of letter. 
 
8.(S) Mission has been informed by a usually reliable source 
that upon reading the letter from Ambassador Wallace, Mr. 
Dervis expressed anger at his staff in response to the 
information contained in the second paragraph, i.e. that UNDP 
apparently funded the travel of DPRK officials to the 
Executive Board Meeting, which was apparently unknown to Mr. 
Dervis. 
 
9.(SBU) Below is the text of the letter sent from Ambassador 
Wallace to UNDP Administrator Dervis in response to and in 
clarification of Mr. Dervis' letters of January 5th. Begin 
letter text: 
 
Dear Mr. Dervis, 
 
-Thank you for the telephone discussion with your Chief of 
Staff, Tegegnwork Gettu, on Friday January 5, 2007.  In our 
discussion Mr. Gettu confirmed that I would receive 
correspondence later in the day regarding UNDP programs in 
the DPRK.  We also discussed the UNDP decision to not provide 
full copies of internal audit reports.  Mr. Gettu indicated 
that UNDP would consider allowing me to review the internal 
audit reports on site and in person and that you would 
confirm this understanding.  Please let me know when I may 
review UNDP internal audit reports on the DPRK on site and in 
person. 
 
-Also in our call we discussed the UNDP sponsored (and paid 
for) business class travel of DPRK officials to New York this 
past weekend.  Mr. Gettu indicated that he would look into 
this matter.  At your earliest convenience please provide 
information as to: 
 
a.    The identities of the DPRK officials and their official 
titles and responsibilities; 
b.    The purpose of the visit; 
c.    Their business schedules during their stay in New York 
City; 
d.    The total cost of their visit to UNDP and the source of 
the payment of such funds; 
e.    The UNDP rules and regulations that permit UNDP to 
provide travel (business class) and accommodation to these 
particular officials for the purpose of attending the 
Executive Board. 
 
 
 
 
-As you promised in the call, I did receive three (3) letters 
from UNDP late Friday -- including a letter from you and two 
letters from Mr. Melkert - and certain financial information 
regarding the UNDP program in the DPRK.  Thank you for the 
letter responses and the financial information.  We are 
carefully examining the financial information and we will 
contact you with any questions or comments separately. 
 
-As to your letter: 
Is permission or authorization from the Executive Committee 
required in order for UNDP to share the internal audits of 
DPRK with Executive Board members?  If so, please indicate 
what authority imposes this requirement.  If there is a 
meeting of the Executive Committee to discuss UNDP Executive 
Board members' access to UNDP internal reports of the DPRK, 
please let me know the date of such meeting.  While the 
United States Government (USG) understands the importance of 
permitting UNDP Executive Committee appropriate "management 
tools," the USG maintains that Executive Board members should 
have access to full and complete UNDP audit reports as they 
relate to the UNDP DPRK program.  Please convey these 
sentiments to the Executive Committee. 
 
-As to Mr. Melkert's letter on the UNDP program in DPRK and 
in response to my letters dated December 22, 2006 and January 
4, 2007: 
In the letter Mr. Melkert states that the UNDP Executive 
Board approves the "design" and "implementation" of UNDP 
"Country Programmes" and that hard currency must be 
transferred in DPRK to effectuate the Programme. "(as long as 
the Board expects us to remain active in any country (in this 
case DPRK) a flow/exchange of hard currency is inevitable. 
This is in accordance with UNDP's Financial Regulations and 
Rules."  We understand that UNDP normally requires that local 
expenditures on its field offices, including local staff 
salaries, are to be paid exclusively in local currency. 
Please 
provide the rules and/or administrative issuances that impose 
such a requirement. 
 
-In addition, I would appreciate your providing me with the 
specific UNDP Executive Board action and/or minutes where the 
Executive Board specifically approved the DPRK Country 
Programme with any and all specific references to the payment 
of hard currency (US and/or Euro) in the DPRK (for e.g. local 
salaries and local procurement) and/or directly to the DPRK 
government.  Finally, so that my Government can better 
understand UNDP's controlling authorities, please provide me 
with the specific UNDP Financial Regulations and Rules that 
permit the payment of hard currency (US and/or Euro) in the 
DPRK and/or directly to the DPRK government. 
 
-The USG does appreciate the information that you provided. 
Nonetheless and notwithstanding the statements contained in 
your letter, to date, in the various interactions between the 
US Mission to the UN and UNDP staff we have received 
inconsistent information on various fronts of inquiry.  Your 
letter of January 5th also contains an apparent inconsistency 
from the statements made in our meeting of December 22nd. 
 
-In our meeting of December 22nd you stated that the decision 
to make payments in hard currency (Euro) in the DPRK was made 
as a result of a waiver process personally signed off on by 
the UNDP Administrator.  In your letter of January 5, 2006, 
you state that "the decision regarding the choice of 
currencies utilized is delegated to the Resident 
Representative.  As a consequence no waiver procedure needs 
to be in place for the DPRK."  What are the specific UNDP 
Financial Rules and Regulations that permit 
the delegation of any such authority of the Administrator to 
the Resident Representative to make payments in the DPRK 
and/or to the DPRK government in hard currency (US and/or 
Euro)?  Moreover, I would appreciate you providing me copies 
of any such written delegation of authority to the DPRK 
Resident Representative. 
 
-To better understand the waiver process please also provide 
me with copies of any and all documents (including e-mails, 
memos and/or international cables) that reflect the decision 
making process of the DPRK Resident Representative to permit 
payment of hard currency (US and/or Euro) in the DPRK and/or 
directly to the DPRK government. Have any UNDP staff and/or 
other UN staff expressed concern that UNDP has been and 
continues to permit payment of hard currency (US and/or Euro) 
in the DPRK and/or directly to the DPRK government?  If they 
have, please identify such concerns and provide any and all 
documents including e-mails, memos, and/or international 
 
cables that reflect such concern. 
 
-Mr. Melkert's letter also addresses UNDP's document 
retention policy. Mr. Melkert states that "UNDP has a 
retention policy that requires accounting documents to be 
retained for a period of seven years after the 
finalization/approval of the document." (Emphasis added). 
For clarification and for your information my request to 
retain and preserve documents and materials related in any 
way to the UNDP program in DPRK was not limited to accounting 
documents.  The request covered all documents and materials 
including such as but not limited to e-mails, written memos, 
and/or international cables. 
 
-Again, please confirm that you will formally take action to 
retain and preserve any and all documents and materials (such 
as but not limited to e-mails, written memos and 
international cables) including but not limited to, 
electronic media related in any way to UNDP's program in 
North Korea during last seven years.  To the extent that you 
and or your immediate staff are aware of the destruction 
(including the erasure from electronic media) of any 
documents related to the UNDP program in DPRK, please provide 
us with a detailed description of your understanding. 
 
-I will separately and more specifically respond to Mr. 
Melkert's January 5, 2007 letter regarding my letter of 
November 17, 2006 on the UNDP Office of Audit and Performance 
Review. 
 
-I appreciate all of your help. 
 
-Thank you for your attention to this matter. End letter text. 
 
10.(SBU) Below is the text of the letter received by 
Ambassador Wallace from Mr. Dervis on the morning of January 
10th, which addresses Ambassador Wallace's specific request 
to come and examine the internal audit reports on DPRK in 
site and in person. Begin letter text: 
 
-Dear (Ambassador) Wallace, 
 
-Thank you for your letter of 8 January 2007, which I just 
received. We will carefully look into the content of your 
letter which covers a number of issues and we will respond 
accordingly. 
 
-I would like to address your specific request to come and 
examine the internal audit reports on DPRK on site and in 
person. As stated before, I am consulting my UNDG colleagues 
on establishing a general approach to this type of request. 
In anticipation that your specific request can be met, and 
respecting the basis of maintaining confidentiality, we will 
provide you the opportunity for an on-site examination of the 
documents. UNDP is, on an exceptional basis, adopting this 
approach on a voluntary basis and with the full preservation 
of privileges and immunities. 
 
-Please let us know when you would like to come and examine 
the reports. End letter text. 
WOLFF