USUN RECEIVES "SMOKING GUN" E-MAIL ON

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