VZCZCXYZ0014
PP RUEHWEB

DE RUCNDT #0142/01 0512255
ZNR UUUUU ZZH
P 202255Z FEB 07
FM USMISSION USUN NEW YORK
TO RUEHC/SECSTATE WASHDC PRIORITY 1365
INFO RUEHUL/AMEMBASSY SEOUL PRIORITY 0791
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS USUN NEW YORK 000142 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAID KFPC KN KNNP KUNC PINR PREL UNDP
SUBJECT: (SBU) ACTION REQUEST: UNDP ADMITS TO POSSESSION OF 
U.S. COUNTERFEIT CURRENCY RECEIVED DIRECTLY FROM THE DPRK, 
 
AND SEEKS INSTRUCTION ON HANDLING OF COUNTERFEIT CURRENCY 
 
REF: A. STATE 9494 
     ¶B. USUN 55 
     ¶C. STATE 8922 
     ¶D. USUN 51 
     ¶E. USUN 50 
     ¶F. WARLICK/WOLFF TELCONS 
 
¶1.  (SBU) This is an action request (see para 3).  In the 
most recent communication between USUN and UNDP regarding the 
DPRK country programme (reftels), dated February 15, 2007, 
UNDP Associate Administrator Ad Melkert admits UNDP 
possession of counterfeit U.S. currency received directly 
from the DPRK.  USUN requests guidance on the response to 
Melkert's request for advice on how to appropriately handle 
the custody and control of counterfeit currency and its 
turnover to the United States government.  Although the 
letter contains interesting references to Ambassador 
Wallace's inquiries into UNDP please see the third from last 
paragraph of the letter relating to the counterfeit currency. 
 USUN will make further inquiry and seek additional 
clarification into the existence of counterfeit U.S. currency 
in UN DPRK country programs. 
 
¶2.  (SBU) Text of February 15, 2007 letter from UNDP 
Associate Administrator Ad Melkert to Ambassador Mark D. 
Wallace: 
 
Dear Mr. Ambassador, 
 
Thank you for your letter of 25 January 2007.  The agreement 
reached by the full Executive Board on 25 January 2007, with 
respect to the DPRK country programme, was an important one 
which will guide our work in the near future. 
 
The Administrator and I have taken note of your continued 
concerns.  In particular, I would like to refer to the 
following statements you made: 
 - "UNDP's decision to enforce its rules to no longer make 
hard currency payment to the (DPRK) government (..)"; 
 - "Under existing rules, UNDP should not be making direct 
cash payments (cash, check or wire) or "advance payments" to 
the DPRK government for any (including NEX) programs (..)"; 
 - "Your letter notes that the Country office maintains on 
record the Evaluation of Audit of NEX annual letters.  This 
presupposes that DPRK government audits are reliable (...)"; 
 
The rules that you refer to do not exist in the way you 
represent them, nor do these statements seem to take into 
account explanations we have proved you in previous 
correspondence.  I would greatly appreciate it if you would 
not confuse the meaning of maintaining the Evaluation of 
Audit of NEX annual letters with your judgment on the 
credibility of government audits.  The latter is the task of 
internal and external auditors.  The evaluation of Audit of 
NEX annual letters as such is a normal requirement that I 
mentioned to you in order to allay your concerns about UNDP 
not adhering to standing procedures. 
 
I would furthermore like to clarify a couple of points which 
I believe warrant a response. 
 
1) US concern: "we are note aware, of any effort by UNDP to 
bring concerns regarding the DPRK country programme to the 
Executive Board's attention.......We are not aware of any 
case in which the Board of Auditors annual report referred to 
any such concerns identified in your internal audits about 
the DPRK" and ".....no annual report of the Board (of 
Auditors) since 1998 reflects such concerns, nor do they 
contain any reference to the UNDP DPRK country programme." 
 
First, I would like to refer to page 104 (paragraph 431) of 
the most recent report of the Board of Auditors A/61/5/Add 1 
in which a reference was made to implementation rates for 
audit recommendations of less than 60 per cent, including the 
Democratic People's Republic of Korea (54 per cent).  Since 
this rating was noted on 31 December 2005, I am pleased to 
inform you that the current rate of implementation of audit 
recommendations has increased from 54% to 76% -- as at 31 
December 2006. 
 
With regard to UNDP's efforts, I would like to refer to the 
many management actions that have been undertaken on the 
basis of internal audit reports as mentioned in our previous 
correspondence. 
 
2) US request: to review the DPRK government audits 
 
On the basis of standing NEX procedures, audit reports 
 
 
 
submitted by Governments for their NEX projects are 
confidential and contribute to the reporting by internal 
 
SIPDIS 
auditors and the independent external UN Board of Auditors in 
their respective roles.  However, as stated before the 
Executive Board, there will be consultations within the CEB 
on procedures related to access to internal audit reports. 
 
3) US concern: "UNDP pays rent to the DPRK for at least some 
of its country office expenses.........we seek more 
information regarding DPRK's GLOC contributions, which you 
state amount to only 45% of its obligation - another 
violation of UNDP rules." 
 
I would like to refer you to the annex of my letter of 21 
January 2007 in which you will not the GLOC payments by the 
DPRK since 2000.  Please note that in addition DPRK has also 
made available, free of rent, a two floor building near the 
UNDP office in which several project offices and staff are 
accommodated.  DPRK has made a partial payment of its GLOC 
contribution and we expect them to contribute the remaining 
portion. 
 
4) US request to learn more about the "practical 
arrangements" to "help ensure adequate controls on the 
functions of local DPRK government staff." 
 
With regard to the "practical arrangements" that have been 
made to put adequate controls on the functions of local DPRK 
government staff, I have ensured that action be taken such 
that no national staff has the authority to make resource 
allocation decisions or commitments on behalf of UNDP, and 
that only international staff have approving rights in Atlas 
(our financial system). 
 
5) Modalities of the external audit 
 
Your letter makes reference to the modalities of the 
independent external audit.  Since your letter was written in 
advance of the discussion at the Executive Board, you will 
note that I stated before the Executive Board on Thursday 25 
January 2007 that the external audit will be conducted in 
compliance with international standards of auditing and 
within the provisions of Article VII of the United Nations 
financial regulations governing activities of the UN Board of 
Auditors.  As you will know, on 9 February 2007 the ACABQ 
requested the Board of Auditors to carry out a "special audit 
of the operations of the United Nations organizations" in the 
DPRK.  We will of course fully cooperate in facilitating the 
Board of Auditors' task. 
 
Before concluding, I would like to revert to a question that 
was raised in the meeting of 22 December 2006.  Subsequent 
clarification from the Regional Bureau and Country Office has 
brought information on a matter dating to before 1998 
(1995/1996) concerning USD bank notes that had been returned 
by a UNDP consultant from Egypt after his bank had rejected 
the notes.  These notes were subsequently not accepted back 
by the DPRK Foreign Trade Bank (from where they were 
originally received).  While the notes (with a total value of 
$3,500) do not belong to UNDP, they have been kept in the 
office safe since that time.  I would appreciate your advice, 
possibly involving the Federal Reserve, how this matter could 
be dealt with appropriately. 
 
Finally, I would like to inform you that upon my request, 
last week our Resident Coordinator reported in person in New 
York so as to be fully updated on the concerns raised by 
Executive Board members and in order to ensure consistent 
follow-up to the Executive Board decisions. 
 
I hope that the above clarifications satisfy your concerns. 
However, I believe for both of us it will be important to 
await the outcome of the DPRK audit that will take place 
under the Secretary-General's auspices.  Any additional 
points would therefore be best considered as part of that 
further process.  Meanwhile, I count on your trust in UNDP 
management to follow-up on the steps agreed with the 
Executive Board. 
 
Yours sincerely, 
 
(Signed) Ad Melkert 
 
¶3.  (SBU) ACTION REQUEST: USUN seeks expeditious guidance on 
the instructions to give UNDP on the turnover of the 
counterfeit currency to the United States government. 
WOLFF