DPRK backgrounder and FAQ

Allegations about how UNDP conducted operations in DPRK continue to circulate in the press.

A full independent external audit of UNDP operations in DPRK is currently underway. UNDP is giving this audit its full support and looks forward to an independent analysis of its present and past activities in DPRK.

UNDP wishes to reiterate that:

- With minor exceptions such as petty cash (transactions less than 40 Euros) UNDP conducted its business in DPRK via check and bank transfer rather than in cash;

- Total hard spending by UNDP for DPRK on behalf of itself and all other UN agencies over the past 10 years (1197 - 2006) amounted to approximately $47.5 million. Roughly half of this ($24.5) was actually spent inside the DPRK.

- Although advance notice was usually required, UNDP international staff could and did visit project sites to verify that UNDP aid was being used for the purposes intended;

- UNDP obtained receipts to back up its spending, and other documentation (e.g. wire transfer records, check records) also exists;

- UNDP's direct payment of certain local expenses in Euros (as opposed to local Korean Won) over the past three years did not increase the amount of hard currency flowing into DPRK, as UNDP would have had to use Euros to purchase Won in order to pay directly in the local currency. UNDP began making some direct payments in Euros in 2004 to protect against arbitrary exchange rate fluctuations.

UNDP notes that in the most recent audit of its operations in DPRK (2004), Financial Management (commitments, disbursements, receipts; banking operations and cash management; and monitoring of financial resources) were deemed satisfactory.

UNDP encourages all parties to await the results of the audit before reaching conclusions about its operations in DPRK.

Frequently Asked Questions

Why has there been some concern about UNDP's operations in DPRK?

In December 2006, U.S. officials raised with UNDP's top leadership some concerns about UNDP's operations in DPRK. In particular, U.S. officials were concerned that UNDP development assistance in DPRK may have been diverted to other purposes.

Has UNDP funding been diverted?

Not to the best of UNDP's knowledge. UNDP's operations in DPRK have been subject to regular audits, most recently in 1999, 2001, and 2004. Nothing in these audits raised a concern about funds being diverted. UNDP international staff regularly visited project sites to monitor progress and for physical verification of equipment inventories, and did not observe or report any diversion. Nonetheless, DPRK is a difficult place in which to do business, and UNDP has welcomed the call by the UN Secretary General for an independent external audit.

What is the status of the external audit called for the by Secretary General?

The audit called for by the Secretary General is an independent, external audit, being conducted by UN board of auditors, which is comprised of the representatives of the national audit authorities of member states. UNDP is fully complying with the audit and has made available to the auditors all relevant documentation and staff for interview. The first phase of the audit took place in New York 19 - 29 March. All questions on the audit process should be directed to the UN Secretariat, as the commissioning body.

Did UNDP staff visit projects to see how funding was being used?

DPRK is a difficult place in which to do business and a 1999 audit raised concerns that North Korean authorities were not facilitating UNDP access to the projects it funds. The situation has improved markedly since 1999. Although advance notice was usually required, in 2006, ten out of eleven "monitorable" projects were visited by UNDP international staff and consultants . The 2006 visits showed that most of the projects were being implemented on time and in line with project objectives.

What about projects directly managed by the North Koreans?

In all countries in which UNDP operates, projects that are managed directly by UNDP ("direct execution") are subject to audit by independent UNDP and UN authorities. The purpose of the audits is to ensure that relevant rules and regulations are being followed and, in general, to ensure that UNDP funding is being managed properly and going towards intended purposes. Projects that managed by national governments ("national execution") are subject to the audit regime of the government in question. Globally, the expectation is that where they can governments will manage most of their projects themselves, in line with the basic principles of national ownership.

Concerns about the overall situation in North Korea over the past several years, however, led UNDP to insist on directly managing the vast majority of its project activity there. For example, during the most recent two year period (2006 -06) UNDP directly managed all but $337,000 out of approximately $6.5 million in total programme spending. The $337,000 that was managed directly by the North Korean authorities can be accounted for through project visits, verification of project activities, etc, and detailed financial accounts are provided to UNDP quarterly.

Is the UNDP local staff in Pyongyang "dominated by North Korean government employees"?

UNDP operations worldwide have very few international staff. The vast majority of the worldwide UNDP workforce is made up of national employees and consultants, serving in their home countries.

Since UNDP started operations in DPRK at the beginning of the 1980s, its national workforce has come from the DPRK government. This is because there is no labor market in North Korea from which UNDP could recruit personnel on a competitive basis: all workers are part of official government work units, and thus come, in one way or another, from the North Korean government. This has meant that the DPRK government has made its personnel available to foreign missions (i.e. national embassies), NGOs and UN organizations working in DPRK. These practices were also common in China and Vietnam before the recent changes in those countries.

In response to concerns voiced the U.S. in December 2006, UNDP informed the North Korean authorities that from 1 March 2007 all all personnel working for UNDP must be directly employed by UNDP. This was also one of the conditions set out by UNDP's Executive Board in January 2007 for continued UNDP operations in North Korea. North Korea's unwillingness to meet this condition contributed to UNDP's 2 March decision to suspend operations in the country.

Did UNDP allow hard currency to flow to the DPRK government?

UNDP's presence in DPRK, indeed the presence of any outside entity (UN agency, national diplomatic mission, individual tourist visitor, etc.) entails a flow of hard currency. This is because projects must be funded, gasoline and other supplies must be purchased, salaries must be paid, travel must be arranged to visit projects, and so on. These are basic economic principles, well understood by the Executive Board that has mandated UNDP to work in DPRK. The flow can be directly in internationally convertible currency (e.g. Euros) or the internationally convertible currency can be first exchanged for Korean Won, with accounts then settled directly in the local currency. Either way, however, a similar amount of hard currency will flow into the country.

Why did UNDP decide to make some payments directly in Euros?

In 2004 UNDP switched from paying most accounts in Korean Won (having purchased the Won with Euros) to paying some accounts directly in Euros. It made the switch to protect against arbitrary exchange rate fluctuations likely to increase overall costs of UNDP operations in the country.

Why did UNDP decide to switch back to making payments in local currency?

After the U.S. raised concerns in December 2006 about direct payments in Euros, and to mitigate against possible misperceptions, UNDP informed the DPRK authorities that it would be switching back to making local payments in Korean Won. It is worth noting, however, that this would have had little impact on the volume of hard currency flowing into DPRK. It is also worth noting that with the exceptions already noted (e.g. petty cash, travel advances) all payments made in DPRK are made via check or bank transfer rather than in cash.

How much did UNDP spend on DPRK over the past 10 years?

Total spending on DPRK over the past 10 years (1997 - 2007) was $47.58 million. This figure includes all monies expended by UNDP on behalf of itself and other UN agencies. Only about half of this figure ($24.5 million) what actually spent inside the country and therefore represents a hard currency transfer.

The UNDP-only figures (excluding payments on behalf of other UN agencies) are as follows: roughly $30 million on program, roughly $7 million on office support. Again, only about 50% of this or approximately $18.5 million would have been spent inside the country.

Does this mean that UNDP was a significant source of hard currency for DPRK?

No. Official U.S. estimates put North Korea's foreign exchange earnings from international trade and other sources at approximately $3 billion per year. Over the ten year period 1996 - 2005, UNDP assistance has accounted for less than 0.1% of the total flow of hard currency into the country. UNDP's share of total Overseas Development Assistance (ODA) flowing into DPRK in the same period is only 1.8%.

Why do some media reports cite UNDP's spending as "up to $150 million"?

Media reports have substantially exaggerated UNDP's own spending, and have apparently also overestimated payments made by UNDP on behalf of other agencies.

Why did UNDP recently suspend operations in DPRK?

The UNDP Executive Board met in January to decide, among other things, on the shape of the shape of UNDP's future operations in DPRK. On 25 January 2007, the Executive Board established a set of conditions for continued UNDP operations in the country. Some of these conditions had deadlines of 1 March 2007.

The DPRK authorities came back to UNDP on 1 March 2007 to say they could not agree to certain of the conditions. As the package of conditions had been approved by the entire UNDP Executive Board, of which DPRK is a member, UNDP was unwilling to reopen negotiations and, in view of the established deadline, announce the suspension of operations in DPRK the next day, 2 March 2007.

Did UNDP suspend operations in order to avoid the external audit, as suggested in some media reports?

No. The two processes are not connected. UNDP suspended operations effective 2 March because the DPRK authorities were not willing to abide by terms of the Executive Board agreement for continued operations. The external audit is going ahead and UNDP is fully cooperating by making all documentation and relevant staff available to the auditors.

Are media reports true that UNDP was giving out manila envelopes stuffed with cash daily to North Korean government officials and failing to get receipts?

No. With minor exceptions such as petty cash (40 Euros or less) and travel advances, UNDP conducted transactions in DPRK Euro-denominated checks and bank transfers rather than in cash.

In the most recent audit of UNDP operations in DPRK (2004), Financial Management (commitments, disbursements, receipts; banking operations and cash management; and monitoring of financial resources) were deemed satisfactory.

Allegations of "manila envelopes stuffed with tens of thousands of dollars in hard currency" being dispensed to DPRK officials on a daily basis from the UNDP country office are sensational and completely false.

Are media reports true that UNDP failed to get receipts for its spending?

No. UNDP has receipts to back up its spending.

Did UNDP operate using US Dollars?

UNDP stopped using US dollars in 2002 and switched to Euros.

Did UNDP's office in DPRK ever have any problems with counterfeit currency?Some time in 1995, an Egyptian national who had provided consulting services to UNDP in DPRK sent the UNDP Country Office in Pyongyang thirty-five $100 bills. He explained that his bank had refused to accept the bills and invalidated them. He informed us that these were bills that he received at a bank in DPRK when he cashed a Korean Won (local currency) check we had given him for his services. He did not provide anything to enable UNDP or the DPRK Foreign Trade Bank to confirm that those were, indeed, bills from that bank. The DPRK Foreign Trade Bank did not accept the notes.

The bills do not belong to UNDP. UNDP discharged its responsibility by paying the consultant by Korean Won check in 1995 and did not make any further payment to the consultant.

The Country Office in Pyongyang has kept the bills in its safe since the incident occurred. UNDP senior management became aware of this last month and immediately sought the advice of US officials on how to proceed. The bills are now in the hands of the US authorities.

UNDP has asked that the external auditors look into this matter.

If the bills don't belong to UNDP why were they in its safe in DPRK for 12 years?

We are looking into why the bills were not dealt with appropriately at an earlier date.

Are media reports true that UNDP rules call for the filing of regular reports on the contents safes ("safe reports")?

No. There are no such UNDP rules.

Are media reports true that UNDP has a "worldwide reporting system that allows the agency to keep track of the contents of its office safes"?

No.

Are media reports true that a "safe contents count record" is filed with UNDP headquarters twice a year?

No.

Are media reports true that UNDP staff in Pyongyang are confined to a compound and cannot visit the city unescorted?

No. There is no UN or UNDP compound in Pyongyang. Staff have freely move within the city, but must request permission to travel outside. Similar rules are applied to the movements of DPRK officials in the U.S.

What were the results of the most recent audits of UNDP operations in DPRK?

UNDP's operations in DPRK underwent regular internal audits in 1999 (KPMG Malaysia), 2001 (KPMG Malaysia) and 2004 (UNDP Office of Audit and Performance Review). As is normal, certain deficiencies were identified and management followed up by addressing the deficiencies (per the below). UNDP's external auditors have had full access to these internal reports (and all other materials) and have not raised any concerns about our UNDP operations in DPRK. The next regularly scheduled internal audit was to have taken place in the first quarter of 2007 but has been superseded by the external audit called for by the Secretary General.

What has UNDP been doing in DPRK?

All member states of the UN with GDP per capita of less than $4700 per annum are eligible for development assistance. DPRK, like several other countries, only chose to request assistance in 1979, having had in place rigid policies of self reliance until that time. Successive submissions in the form of Country Programmes have been made every few years since that time, which, until January 2007, have been approved unconditionally by UNDP's Executive Board of member states. Thus UNDP operates in North Korea because its entire Executive Board, representing all the member states of the United Nations, has mandated it to be there.

Amongst other things, UNDP's presence in North Korea since 1979 allowed for a more effective international response to the horrific famines the country experienced in the 1990s. Over the past decade UNDP has funded roughly $3 million in development activities per year, focusing on food production, rural and environmental sector management, economic management and social sector management.

UNDP's capacity building and development-related activities have in the past been seen to provide DPRK officials and technocrats with exposure to and understanding of the outside world. This was also a role played by UNDP and other UN agencies assisted in China, Vietnam and elsewhere before the opening up of these countries.