A controversy is brewing at the United Nations over allegations that funds from the United Nations Development Program (UNDP) have benefited the regime of Kim Jong Il in North Korea. Last week, the Wall Street Journal opinion page–often critical of the United Nations–published a report by Melanie Kirkpatrick which revealed contents of a letter from an American UN representative raising concern that UNDP funds were being converted into hard currency to the benefit of North Korea. Like the World Food Program and UNICEF, the UNDP must sometimes work in partnership with unsavory totalitarian regimes in order to serve long-suffering citizens. Sometimes, as is the case in North Korea, this requires hiring local staff and renting local office space. This means that foreign currency can end up in the hands of governments in one of two ways: either the agency pays fees and local staff in foreign currency (which is what happens in North Korea) or the agency must purchase local currency through the national bank. Either way, the necessities of doing business can cause less than optimal financial procedures to be followed.

Kirkpatrick admits she does not know the precise amount of hard currency that has been transferred to North Korea, but alleges that tens of millions of dollars have been transferred to the regime since 1998. Over the last ten years, however, the UNDP has only spent $29 million on programs in North Korea, or about $3 million a year since 1998. In the last two years, the UNDP says only $337,000 was handled exclusively by the North Korean authorities. And even these funds, says the UNDP, can be accounted for. Meanwhile, oversight for this program (as in all UNDP programs) is the responsibility of its Executive Board. And it is probably worth mentioning that the United States is one of 36 members of the Board.

Still, it seems that the appearance of impropriety has led Ban Ki-moon and the UNDP to take some swift action. Almost immediately following the public airing of this revelation, Ban called for an external audit the UNDP North Korea program (and more broadly of various UN country programs). For its’ part, UNDP immediately briefed the press on its program, provided available information and the UNDP’s assistant administrator suspended all cash payments to North Korean workers and said that “a full, independent external audit is in order to make sure that we really understand what it means to work in a country like North Korea.”

Despite this quick response by both the UN Secretariat and the UNDP traditional UN critics appear to want to create a scandal before the investigation even begins. The Heritage Foundation quickly turned out a report calling for the suspension of all US funding of the UNDP until “a full independent and outside forensic audit of the UNDP’s activities and the activities of other U.N. funds and programs in the DPRK are completed.” According to the Wall Street Journal‘s editorial page, some members of Congress are already considering legislation that would cut US funding to UNDP.

This strikes me as a severe overreaction. Currently, the United States pays 11.4% of UNDP’s budget.* (Unlike the regular UN budget, UNDP is funded through voluntary contributions by member states.) Cutting all US funding to UNDP would disrupt important work of UNDP projects like democracy building in countries recovering from conflict, poverty reduction programs; and combating the AIDS pandemic.

Soon, the external audit will begin. It may provide new guidance on how aid agencies like UNICEF, the World Food Program and UNDP approach totalitarian regimes like North Korea. It may find absolutely nothing. In the interim, cutting off all funding to the UNDP until this audit is complete rather extreme response.

*11.4% represents the American contribution to the “core” UNDP budget, which is paid into by developed countries and accounts for about 20% of the full budget. Of the total budget, which is paid by developed and developing countries alike, the United States contributes about 5%, or $245 million out of $4.6 billion for 2005 (the most recent numbers available publicly.)

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