VZCZCXYZ0020
OO RUEHWEB

DE RUCNDT #0004/01 0051628
ZNY SSSSS ZZH
O 051628Z JAN 07
FM USMISSION USUN NEW YORK
TO SECSTATE WASHDC IMMEDIATE 1086

S E C R E T USUN NEW YORK 000004 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 12/29/2016 
TAGS: EAID KFPC KN KNNP KUNR PINR PREL UNDP
SUBJECT: MEETING AND DISCUSSION WITH UNDP ON DPRK:UNDP 
DECLINES TO PROVIDE AUDITS ON DPRK/JAPANESE PROPOSAL TO 
DEFER UNDP PROGRAM IN THE DPRK. 
 
REF: A. STATE 183533 B. USUN 2273 C.STATE 2744 
 
Classified By: Ambassador Jackie Wolcott Sanders 
per reasons 1.4 (b) and (d) 
 
¶1. This message contains an action request. See para. 19. 
 
2.(S) Summary. Per reftels A and B, as a follow-up to the 
demarche delivered to UNDP Administrator Kemal Dervis by 
Ambassador Wallace on December 19, Ambassador Wallace and 
USUN/MR Officers met with Mr. Dervis and a team of UNDP 
officials on December 22 to provide a preliminary response to 
the demarche. Ambassador Miller, USUN/ECOSOC, attended the 
meeting as well. Mr. Dervis had stated his intention earlier 
to gather information on the UNDP program budget and UNDP 
internal audit policies. Mr. Dervis and his team claimed that 
the program budget approved by the Executive Board for the 
years 2001-2005 was $15 million and that the total number of 
UNDP staff was 2 International Professional's. Total 
expenditures for this allocated amount are $11.65 million, or 
$2.3 million per year. Of this amount, Mr. Dervis claimed 
that approximately $10 million went towards project 
implementation while the remaining sums funded the UNDP 
office. Mr. Dervis stated that internal audits are conducted 
on a cyclical basis, with the last audit of the office in 
DPRK occurring in 2004. Ambassador Wallace reiterated the 
U.S. position that access to these internal audits is 
essential to allaying U.S. concerns about the UNDP program in 
the DPRK. Mr. Dervis reiterated the UNDP policy not to 
disclose internal audits and promised to review UNDP policies 
to determine if UNDP could share the audit with a Member 
State. Notably, Mr. Dervis stated his intention to halt hard 
currency transactions in the DPRK beginning in March 2007 and 
to cease payment of salaries through the DPRK government and 
to expand the scope of internal audits to include all 
accounts administered by UNDP in the DPRK. He noted that the 
DPRK would almost certainly object to these actions. USUN 
will have discussions with Mr. Dervis during the first weeks 
of January to follow-up on the previous meetings and obtain 
additional responses to Ambassador Wallace's inquiries. 
Comment: The information provided by Dervis was in certain 
respects significantly different from information previously 
supplied by UNDP or others. End Comment. 
 
3.(S) In a follow-up letter sent to Mr. Dervis after the 
meeting, Ambassador Wallace confirmed his requests for the 
following information: internal and/or external audits of the 
UNDP country office in the DPRK from the years 1998, 2001 and 
2004; a line-by-line budget for the UNDP/DPRK Office of the 
Resident Representative; UNDP written rules, procedures 
and/or policies for waiving UN/UNDP restrictions on the use 
of hard currency transactions for in-country expenditures; 
confirmation that UNDP is taking action to preserve any and 
all documents and materials related in any way to the UNDP 
program in the DPRK from the last seven years. 
 
4.(S) On January 4, 2007, Mr. Dervis returned Ambassador 
Wallace's call and declined to provide UNDP internal audits 
on DPRK, asserting UNDP's managerial prerogatives. End 
Summary. 
 
5.(S) Attending the meeting for UNDP were Kemal Dervis, 
Administrator, Hafiz Pasha, Regional Director for the Asia 
and Pacific Office, Darshak Shah, Finance Officer, Bruce 
Jenks, Assistant Administrator for UNDP and Director of the 
Bureau for Resources and Strategic Partnerships (BRSP), 
Jessie Rose Mabutas, Director for Audit and Performance 
Review (OAPR) and Douglas Keh, Special Adviser and Senior 
Management Team Facilitator. There was no one present from 
UNDP's legal support office or the Treasurer's Office. 
Comment: Notably, the Assistant Administrator and Director 
from the Bureau of Management who, as we understand, 
supervises Mr. Shah and the Treasurer, Ms. Julie-Anne Mejia 
as well as the legal support office was not present. Since 
September of last year this position has been occupied by Ms. 
Akiko Yuges, a Japanese national. End Comment. 
 
6.(S) Mr. Dervis began the meeting by explaining that UNDP as 
Resident Coordinator (RC), has convening authority, but no 
line authority; asserting that UNDP has no signature 
authority over funds of other offices and agencies. Mr. 
Dervis stated that the total approved budget for the years 
2001-2005, core and non-core, was $15 million of which, total 
expenditures were $11.65 million, or $2.3 million per year. 
Of this $11.65 million, Dervis claimed that approximately $10 
million was used for implementation of projects and 
approximately $1.35 went to the UNDP office.  Comment: The 
numbers provided during this meeting conflict significantly 
with the numbers previously provided to USUN. USUN had been 
told previously that the budget for the years 2001-2005 was 
$19,009,056 and that the number of UNDP staff consisted of 4 
international staff, 15 national staff and 4 project 
 
 
 
managers. End Comment. Mr. Dervis further explained that of 
the approximately $10 million used for UNDP projects, some 
$6.2 million was implemented under National Execution 
arrangements on behalf of the DPRK. Ambassador Wallace asked 
if these payments were made directly to the DPRK Government. 
The Controller, Darshak Shah, replied that in the DPRK, UNDP 
is engaged in the "full-service" program, which means that 
UNDP makes all procurements on behalf of the Government. 
However, when queried by Ambassador Wallace, Mr. Dervis 
conceded that there could be cases where payments are made 
directly to DPRK entities. Even where payments in connection 
with projects are made directly to the DPRK, Mr. Dervis 
contended that such payments are subject to audit. 
 
7.(S) USUN asked Mr. Dervis if there was any other funds of 
other UN offices or agencies going through, managed or 
facilitated by the UNDP Resident Coordinator. Mr. Dervis 
stated that UNDP did not handle the funds of other UN 
entities, except in regard to UNFPA. However, even in regard 
to UNFPA, the Resident Coordinator reports directly to 
UNFPA-not to UNDP. 
 
8.(S) USUN was told that there are essentially two kinds of 
transactions occurring in the DPRK. The first is the 
electronic transfer of euros from a UNDP account outside of 
the DPRK into the DPRK and the second is the disbursement of 
hard currency in the form of cash or check within the DPRK. 
The Controller maintained that it is UNDP's prerogative to 
conduct hard currency transactions in euros within the DPRK. 
When asked by Ambassador Wallace how electronic transfers to 
the government and hard currency payments are monitored, the 
Controller contended that any transfer of funds for the 
implementation of projects are monitored by periodic internal 
audits, however the hard currency that is given to the 
government ministry to be distributed among staff for 
salaries is unmonitored. Ambassador Wallace reiterated U.S. 
concerns that hard currency funds should not be transferred 
directly from UN programs to the DPRK government. Mr. Dervis 
responded that this is why UNDP is ending hard currency 
transactions in euros, even though it could result in 
shutting down the UNDP office in the DPRK. In this respect, 
Mr. Dervis stated his intention to halt hard currency 
transactions in the DPRK beginning in March 2007. He added 
that UNDP will cease to pay salaries through the DPRK 
government; something that has already been done in China and 
Vietnam. 
 
9.(S) During the course of discussion, Mr. Dervis 
acknowledged that UN policy dictates that hard currency 
should not be used for local transactions. However, Mr. 
Dervis stated that these restrictions can be waived by the 
Administrator to allow the use of hard currency. Ambassador 
Wallace asked if there was an administrative process whereby 
this issue was determined. The Controller only stated that 
the Executive Board "discussed the situation" in each Country 
Office. Ambassador Wallace reiterated the importance of 
understanding the process for waiving restrictions governing 
hard currency transactions and requested that the written 
rules, procedures and policies governing such a waiver 
generally, as well as the documents reflecting the decision 
to waive in regard to the DPRK, be provided to USUN as soon 
as possible. 
 
10.(S) In response to Ambassador Wallace's inquiries 
regarding the counterfeiting of U.S. dollars, Mr. Shah and 
Mr. Dervis replied that UNDP officers and officials had no 
knowledge nor understanding of any counterfeiting of U.S. 
dollars in the DPRK and denied that UNDP had received any 
counterfeit U.S. dollars. They emphasized that they could not 
vouch for individual UNDP personnel in the DPRK who may in 
their personnel capacity possess dollars or counterfeit 
dollars. 
 
11.(S) Regarding counterfeiting, UNDP stated that it shifted 
from dollars to euros in 2001 and closed its U.S. dollar 
account in the DPRK in 2002. However, UNDP informed USUN that 
dollars are still used to pay some UNDP employees 
(international contractors) through the ATLAS system, which 
enables UNDP to transfer dollars from UNDP dollar accounts 
outside of the DPRK to private accounts also outside of DPRK. 
UNDP stressed that these payments in U.S. dollars never occur 
in-country in the DPRK, as there are no dollars available. 
Mr. Dervis acknowledged that UNDP had no controls in place to 
ensure that these dollar payments outside the DPRK were not 
being made to agents of the DPRK. 
 
12.(S) Regarding audits, USUN was told the Malaysia UNDP 
regional office conducted the last internal audit of the DPRK 
country office in 2004 and that this was a financial and 
management audit. USUN was also informed that UNDP employed 
Ernst and Young to assist in the audit, which gave a rating 
of "partially satisfactory". In addition, there have been no 
 
 
 
external audits of the UNDP program or country office in the 
DPRK in 4 years. Mr. Dervis mentioned that he could have the 
scope of the internal audits expanded to include all UN 
program accounts administered by UNDP in the DPRK. However, 
Mr. Dervis maintained that these actions require approval of 
the DPRK government, which is unlikely. Mr. Dervis added that 
UNDP on the other hand, could switch its method of 
implementation entirely to direct implementation rather than 
national execution to avoid any cooperation with the DPRK 
government. Mr. Dervis maintained that if the DPRK government 
failed to accept either of these changes, then the UNDP 
program would cease. The representative from the Asia Office 
stated that the subject of halting hard currency payments for 
all local services has already been broached with the DPRK 
Government and other UN agencies. 
 
13.(S) Ambassador Wallace asked particularly given the 
"partially satisfactory" rating, for a copy of the last 
internal audit of the DPRK. The representative from the Asia 
office stated that the rating was not based on a violation of 
financial rules; it was due entirely to a human resource 
issue i.e. the lack of competitive recruitment of staff 
because all national staff in the DPRK are pre-selected 
and/or directly provided by the DPRK government. Ambassador 
Wallace indicated that such a circumstance was at least 
partially the cause of U.S. concerns with the program. In 
response to the request for access to the internal audits for 
the DPRK, Mr. Dervis stated that he will ask other UN 
agencies if they object to UNDP sharing the internal audit 
with the understanding that it would be a one-time event. 
Comment: This is a policy decision for UNDP, although they 
would no doubt like support from such other UN agencies to 
resist. End Comment. Ambassador Wallace stated that USUN 
would need the last three audits in order to provide a 
comparison. Ambassador Wallace added that the U.S. is not 
sympathetic to UNDP's claims that internal audits should not 
be shared, at least in this instance, due to the seriousness 
of the allegations at hand. Mr. Dervis promised to review the 
request for a copy of the audit and to provide a formal 
response to Ambassador Wallace in the first week of January. 
 
14.(S) Mr. Dervis indicated he has requested an audit at the 
beginning of 2007. Ambassador Wallace asked whether the scope 
of the audit would include all transactions in hard currency. 
Mr. Dervis agreed to make such a request. 
 
15.(S) Ambassador Wallace requested Mr. Dervis to take action 
to ensure that all documents related in any way to the UNDP 
program in the DPRK during the last seven years be preserved, 
in accordance with UNDP's document retention policy. 
 
16.(S) Mr. Dervis agreed to meet with USUN during the first 
week of January to follow-up on the previous meetings and 
obtain additional responses to Ambassador Wallace's inquiries. 
 
17.(S) On January 4, 2007 Ambassador Wallace contacted Mr. 
Dervis by phone. Mr. Dervis stated he had consulted with 
other UN programs and that he had concluded UNDP would not 
share with the U.S. copies of internal audits(s) of the DPRK. 
Mr. Dervis said that such information was solely for the 
managerial prerogatives of UNDP. Mr. Dervis also stated that 
UNDP would attempt to provide other financial information to 
allay U.S. concerns. Ambassador Wallace indicated that the 
refusal to provide such audits appeared unsustainable given 
the seriousness of the matter. Ambassador Wallace stated that 
the UNDP/DPRK program was opaque at best and that: 
      ¶1. UNDP had been and was continuing, at least in the 
short term, with providing the DPRK regime with hard currency; 
      ¶2. UNDP had provided inconsistent information to USUN 
on the scope and nature of the DPRK program; 
      ¶3. There is a lack of transparency of UNDP programmatic 
activities in the DPRK, and; 
      ¶4. The U.S. was a member of the UNDP Executive Board 
and it was counter to any fiduciary principle, that a UNDP 
Executive Board member should be denied a review of any audit 
of UNDP. 
Accordingly, Ambassador Wallace requested Mr. Dervis to 
reconsider his refusal to provide the audit(s). Mr. Dervis 
stated he would consider the request further. He promised to 
provide other financial documents by January 5, 2007. 
 
18.(S) Comment: USUN is of the view that considering the 
apparent duplicity, inconsistent statements and lack of 
transparency on the part of UNDP regarding the UNDP program 
in the DPRK, that our delegation to the UNDP Executive Board 
meeting January 23-26 be authorized to take whatever steps 
are necessary to bring our concerns about both the UNDP DPRK 
program and UNDP's lack of transparency and responsiveness to 
the attention of the Board. End Comment. 
 
19.(S) Action Request. Following Ambassador Wallace's meeting 
with Mr. Dervis on December 22, Ambassador Wallace was 
 
 
 
approached by Ambassador Kodera of the Japanese Mission who 
inquired about the U.S. Government position in regard to a 
Japanese proposal to defer (end in the interim) action on the 
DPRK country program for 2007-2009. Ambassador Kodera 
indicated that Japan sought to defer the program because of 
serious concern regarding administration of the program and 
possible violations of Security Council Resolution 1718. In 
view of the information developed as a result of the 
demarches to and meetings (reftel C) with UNDP over the last 
several months, USUN proposes, as a first step, to join the 
Japanese in seeking co-sponsors for deferral of the DPRK 
country program. Irrespective of our success in that 
endeavor, however, we believe that we should raise both the 
DPRK program and UNDP's lack of transparency with the Board 
under appropriate agenda items. 
WOLFF