U.S. suspicious of aid to North Korea

UNITED NATIONS — Concerned that North Korea may be siphoning millions of dollars in U.N. money for illicit purposes, the United States is demanding that the U.N. Development Program in North Korea be revamped and submit to external audits.

In response to the U.S. pressure, the UNDP will halt the transfer of hard currency to the government, local staff and vendors by March 1 and will stop reimbursing North Korean government officials’ travel to the U.N. after next week.

The UNDP will also insist that Pyongyang stop selecting and controlling the agency’s local staff, Ad Melkert, the program’s associate administrator, said Friday.

The U.N. Development Program has been in North Korea since 1995, overseeing projects in agriculture and the environment. This United Nations presence has provided food, work and pay for people surviving in near-famine conditions.

Some U.S. officials -- chief among them John R. Bolton, former ambassador to the U.N. -- have argued that the world should let the North Korean regime collapse, even though that would cause a flood of refugees into China and South Korea.

However, U.N. agencies, including UNICEF, the World Food Program and the U.N. Population Fund, are active in the isolated country -- and all probably face similar problems in doing their work.

Because the North Korean financial system is not set up to handle purchasing orders, checks or credit, the U.N. Development Program pays most of its expenses in bundles of euros, including rent. That practice is contrary to rules, but administrators felt that they could more closely follow money flows by putting payments directly in people’s hands, rather than allowing Pyongyang to convert them to local currency and then distribute them, spokesman David Morrison said.

But a series of internal audits by the accounting firm KPMG found lax controls and failure by international staffers to visit UNDP projects, raising questions about whether the U.N. funds were used as intended.

A Jan. 16 letter from Mark Wallace, the U.S. official overseeing U.N. management and reform, lauds the program’s goals but says the U.S. is concerned that at least since 1998 the program has been “systematically perverted for the benefit of the Kim Jong Il regime -- rather than the people of North Korea.”

Wallace’s letter to UNDP chief Kemal Dervis also says the program “has for years operated in blatant violation of U.N. rules [and] served as a steady and large source of hard currency and other resources for the North Korean government with minimal or no assurance that UNDP funds and resources are utilized for legitimate development activities.”

The issue is expected to dominate the UNDP’s executive board meeting next week, where a proposal of a $17.9-million budget for North Korea for the next three years will be on the table. Board members are already aware of the difficulty of executing projects in the country: Of the $22 million budgeted for the last two years, less than $3 million worth of projects was completed, Melkert said.

Top on the list of concerns is that foreign currency enables Pyongyang to bolster its nuclear weapons program. The U.S. has frozen North Korean funds overseas, and banned dealings in dollars with the regime as punishment for its alleged counter feiting of U.S. currency.

Washington also charges that Pyongyang traffics in drugs and provides illicit help for other countries’ missile and nuclear weapons programs.

U.S. officials Friday said it was too early to suggest any deal had been made in three days of talks with North Korea in Berlin.

North Korea’s official news agency had quoted negotiator Kim Kye Gwan as saying “a certain agreement” had been reached with U.S. envoy Christopher Hill and signaling that talks may have included ways to reconcile differences over U.S. sanctions against foreign banks doing business with North Korea.

North Korea has refused to negotiate the future of its nuclear weapons program until the sanctions are lifted.

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Times staff writer Bruce Wallace in Tokyo contributed to this report.