It’s bad enough that the United Nations Development Program office in North Korea has been handing over hard currency to the regime of Kim Jong Il. But a new twist now emerging in the Cash-for-Kim scandal is that while the UNDP has been giving Kim real money, Kim’s regime may have been handing over counterfeit banknotes to the UNDP–which apparently had a stack of counterfeit $100 bills sitting in its office-safe in Pyongyang.
#ad#It has been well known for years, and was spelled out last fall by the U.S. Treasury, that North Korea’s regime has been sponsoring the counterfeiting of U.S. banknotes and laundering into world markets these so-called Supernotes, which first surfaced in the Philippines in 1989. What has not made it into the news, however, is that some of these banknotes appear to have ended up in the possession of the UNDP office in Pyongyang–which, until it got hit with scandal this past January for funneling genuine cash to Kim, apparently did nothing to report counterfeit bills allegedly coming at them.
The UNDP spokesman’s office has confirmed to me some details of the suspect cash, which, according to the UNDP, is now in the process of being removed from the agency’s Pyongyang premises and turned over to U.S. authorities. This was alluded to in a press briefing Tuesday at the U.N.’s New York headquarters by UNDP spokesman David Morrison, who, as part of a longer statement, touched in vague terms on “an incident dating back more than 10 years” in which “a consultant who worked for UNDP” had “some difficulty” with U.S. banknotes.
To the UNDP’s credit, when I later asked for more details, Morrison, in a move most uncharacteristic of the U.N., released a bit more of tale. The story, as recounted to me in an e-mail from the UNDP spokesman’s office, is that in 1995 an Egyptian national (whose name the UNDP did not provide) did some consulting work for the UNDP in North Korea. The UNDP country office paid him with a check, which he cashed for U.S. currency while he was still in North Korea, at the government’s Foreign Trade Bank–which is the banker for the UNDP country office in Pyongyang, and serves as the conduit for hard currency transferred from abroad for the use of the UNDP in North Korea.
This consultant then left North Korea, but later sent to the UNDP office in Pyongyang a wad of $3,500 in $100 bills, which he said he had received from the Foreign Trade Bank in Pyongyang when he cashed his UNDP check. He claimed his home bank had refused to accept the bills and had invalidated them. The UNDP apparently tried to exchange them at North Korea’s Foreign Trade Bank, which refused to take them. So, as explained in the e-mail, the UNDP’s North Korea operation “has kept the bills in its safe in the country office in Pyongyang since that time.”
The e-mail from the UNDP spokesman’s office concludes: “UNDP senior management became aware of this last month and immediately sought the advice of U.S. officials on how to proceed. UNDP is making arrangements to turn over the bills to U.S. authorities.”
That leaves the UNDP, already under heavy fire for allegedly lax controls in North Korea, with even more questions to answer. How could the UNDP in Pyongyang get away with either covering up or overlooking for more than ten years a stack of thousands of dollars in presumably counterfeit U.S. banknotes in its own office safe? Did no one try to inform the UNDP’s auditors? Did the UNDP reimburse the consultant for the $3,500 in bad banknotes? If so, then how was the additional payment accounted for, and by whom? Was there really no report ever made to UNDP headquarters in New York?
In the U.N. system, the UNDP has the responsibility of serving as the flagship organization for other agencies in the field, representing the Secretariat if necessary, and handling not only the UNDP’s own funds, but also some of the money for other U.N. agencies–which in North Korea includes, among others, the U.N. Population Fund and UNICEF. With such responsibilities, working in one of the world’s hot spots, did it never occur to UNDP officials at least to notify U.S. authorities that they had at least some dozens of strange $100 bills on their hands?
Morrison, the UNDP’s spokesman, says that to the best of his knowledge all this was an isolated incident. In a phone interview Thursday, he stressed, “I’m satisfied that no one who’s currently at the country office is aware of anything else of this kind.” (However, there aren’t a lot of people left at the country office right now. The UNDP just this month suspended its operations in North Korea, leaving only a skeleton crew of two international staff and two locals in place, because Kim’s government has refused to comply with conditions for better UNDP oversight laid down by the board just after the Cash-for-Kim scandal erupted in January).
But a U.S. administration official in Washington, who prefers to remain anonymous, says stories have been circulating quietly since last year about more recent incidents, allegedly involving North Korea’s government passing counterfeit banknotes to U.N. international workers in Pyongyang. “Even the U.N.’s own staff in North Korea has been concerned that some of their pay is counterfeit currency,” says this official. By this account, some U.N. international staffers who have been working in North Korea, and drawing travel money in hard currency from the UNDP’s Pyongyang channels, were worried that if they tried to spend the money outside the DPRK, they might get caught passing counterfeit bills.
It is of course a good idea to be wary of statements by government officials who prefer to remain anonymous. I must stress that I have seen no documentary evidence that the UNDP’s counterfeit-cash problem extends beyond the single incident confirmed by the UNDP itself this week. Nonetheless, this is a case in which the allegation has enough plausible elements to raise real questions. With the U.N. having been the conduit and cover not so many years ago for Saddam Hussein’s multi-billion-dollar kickback and bribery schemes under the Oil-for-Food program, U.N. officials should have learned to take very seriously any allegations that point to ways in which rogue regimes can scam the U.N. system.
And Kim Jong Il’s government has a record not only of cheating on nuclear nonproliferation deals, but of exploiting every opening the world allows. counterfeiting and peddling abroad everything from banknotes to cigarettes to Viagra. Kim also has a record of shaking down for his own uses the aid and development efforts meant to help the captive population of some 23 million North Koreans living under his murderous rule. His behavior has been so egregious that in 1998 the medical relief outfit, Medecins Sans Frontieres, decided to stop working inside North Korea. Rather than cater to Kim’s demands, MSF deemed it a greater service to North Korea’s people to help refugees who had managed to flee the totalitarian turf of the “Dear Leader.”
The UNDP itself prepared an internal memo recently on North Korea’s sources of hard currency, which the spokesman’s office made available in response to my questions. It was meant to show that the UNDP’s official total of some $47.5 million dispensed by the agency’s office in North Korea over the past 10 years was just a drop in Kim’s bucket. But to reach that conclusion, the UNDP had to acknowledge that for North Korea’s government, crime is the norm, explaining that along with income from weapons exports and whatnot, North Korea “earns between US$500 million and US $1 billion annually from the narcotics trade” and is believed to earn “US$15-20 million per year in counterfeiting.” A recent report from Rep. Ed Royce, drawing on Treasury and Secret Service reports, says that $50 million in “North Korean origin Supernotes have been seized from circulation since 1989.”
The U.S. Treasury has just finalized a rule cutting off from the U.S. system one of Kim’s favorite banks, Macau’s Banco Delta Asia, for its alleged role in the laundering of hundreds of millions of dollars in North Korean illicit cash, as well as what Treasury Under-Secretary Stuart Levey described as “North Korea’s trade in counterfeit U.S. currency.” (As it happens, Morrison confirmed, in response to one of my questions, that during the 1990s the UNDP used Banco Delta Asia “for some dollar transfers” to its Pyongyang office; though no one has accused the UNDP or Banco Delta of any wrong-doing over the these transactions, and Morrison says that more recently the UNDP has been using as the correspondent bank for its North Korean account the Bank of China in Hong Kong).
Morrison says there was little chance that any of Kim’s counterfeit currency could have made its way to U.N. international workers in North Korea. He explains that, apart from petty cash and travel money, the UNDP in North Korea has handled payments to international personnel by way of check or bank transfer. Beyond that, he says, the only hard currency used since 2002 by the UNDP in North Korea has been–at Kim Jong Il’s behest–the Euro, not the dollar.
But how can anyone at UNDP headquarters in New York be sure that’s how it worked on the ground among the 20 or so North Koreans and much smaller handful of international staff coming and going in recent years in Pyongyang? This past January, after much prodding, officials of the U.S. Mission to the U.N. in New York finally got a look (the UNDP would not let them take copies) at three internal audits of the UNDP’s doings in North Korea since 1999. Among other outrages, they found that UNDP local staffing in Pyongyang was dominated by North Korean government employees, who in violation of UNDP rules were handling a lot of the money. This included a North Korean acting as a bank signatory, making travel arrangements, and managing the petty cash and financial records.
A 2001 UNDP internal audit reportedly also noted that the UNDP checkbook was not adequately controlled or kept in a secure spot. One can only infer that while the counterfeit $100 bills were locked away in the office safe, the checkbook was not.
Ideally, the job of looking into all this could simply be entrusted to the management of the U.N. itself. But so far the new Secretary-General Ban Ki-moon has been defaulting, step by step, to some of the worst habits of his predecessor, Kofi Annan, whose practice when confronted with scandal was to set up inquiries so opaque, oddly timed, and inadequate that the investigations themselves tended to evolve into cover-ups.
And so it seems to be going now. When the Cash-for-Kim scandal burst upon the scene back in January, Ban promised that same day an urgent global audit of the entire U.N. system, which his spokeswoman said would be carried out by genuinely independent, external auditors. Instead, the following week Ban turned the job over to the U.N.’s own so-called “external” Board of Auditors, staffed by the governments of South Africa, the Philippines, and France–the same trio that oversaw Oil-for-Food at the height of its corruption, but failed to blow the whistle. The scope of Ban’s global audit was scaled back, at least for the time being, to U.N. agencies working in North Korea, or at least some of them, including UNDP.
And even with that much-narrowed mission, the audit has not even begun yet. In February, Ban’s spokeswoman, Michele Montas, told the press: “The external auditors have started on the process.” Then it turned out they had not, but the audit was supposed to start this past Monday. Then it transpired that the auditors were not ready. Now it turns out that the audit is due to begin this coming Monday–two months after it was promised as a top priority. But the first phase will be a review conducted in New York, not Pyongyang. A U.N. internal memo dated March 1, 2007, says this review may lead only to a “possible” visit to North Korea and a report with “preliminary findings (if any).”
So, in this U.N. welter of cash and Kim, who’s left to exercise any real oversight? One might suppose the U.S., except that Secretary of State Condoleezza Rice appears to have turned over North Korea policy entirely to Assistant Secretary Chris Hill, envoy to the Six-Party talks on North Korea. Hill’s approach is to appease North Korea at any cost, and hope that by paying nuclear extortion in the form of free fuel and utterly undeserved respect, and sending in the same feckless U.N. inspectors who have been visiting Iran, the U.S. might persuade Kim Jong Il to give up his bomb program. If the Chris Hill doctrine ends up propelling the UNDP back into Pyongyang–as might well happen–maybe there’s at least one useful role the U.N. inspectors could play: Take a peek now and then inside the UNDP office safe.