4 March 2022 – Mukesh Kapila
Shakespeare’s memorable phrase is a literary device to signify corrupt or foul play at the top of a powerful hierarchy. It is found in his most-discussed play Hamlet, located in Denmark. The geographical reference is apt here as it concerns the United Nations Office for Project Services (UNOPS), headquartered in Copenhagen.
Is something shady unfolding at UNOPS? Could this be a saga of mis-governance, mal-administration and mis-use of global public funds? Among the concerns raised are those of possible corruption and impunity at this multi-billion profit centre of the UN system.
What put the cat among the pigeons is the sudden despatch , in December 2021, on administrative leave without pay, of UNOPS’s deputy executive director and chief operating officer (with the rank of Assistant Secretary-General). His most recent function was as chief executive of UNOPS’s Sustainable Investments in Infrastructure and Innovation (S3i) Initiative that finances housing, energy, and health infrastructure projects. The administrative leave modality is usually used to suspend staff while investigation and disciplinary processes are conducted.
The disappearance of millions of dollars at UNOPS/S3i is relevant here. If any investigations are afoot, they are being done internally in secret as UNOPS goes out of its way to hush the scandal, under its long-established Executive Director.
The most recent UNOPS Board meeting in February 2022 was a bizarre affair. Its records make no reference to the potentially greatest corruption scandal to hit any UN entity since the foundation of the United Nations itself. Instead, the conspiracy of silence has seemingly been succeeded by a Great Whitewash through the Board’s retrospective regularisation of mismanagement at UNOPS. This has been done through over-looking massive breaches of financial rules.
How could the UNOPS Board – consisting of representative of member states – connive with suspected fraud? Why have they not even questioned the core operating model that allows fast-and-loose behaviour at UNOPS? On the contrary, the practices there have been applauded as innovative and the Executive Director feted for making UNOPS the first UN agency to be run like a business.
It is for such reasons that internal investigations of potentially criminal misdeeds are never credible in any institution. And least of all in the United Nations system which has self-governing privileges that it can abuse with impunity. Thus, it is unsurprising that public trust in today’s global bodies is at record low.
In UNOPS’s case, even the UN’s system-wide policing authority, the Office of Internal Oversight Services (OIOS) has gone mysteriously quiet: hear no evil and see no evil because it is more convenient to detect no evil. This raises the even more disturbing possibility of a nexus of interest between UNOPS and OIOS senior management – perhaps involving personally self-interested or corrupted officials.
At a time that multilateralism is under so much attack, the UN system must be much more transparent and accountable. It should waive the privileges and immunities behind which it often hides, and allow a national authority with jurisdiction to conduct an independent investigation into any fraud that may have been committed at UNOPS.
Denmark could do this as UNOPS is headquartered there. Or the United States as UNOPS’s New York office is a central player – perhaps even a driver – of the murky doings. Norway should take some interest, as the UNOPS Executive Director is a Norwegian citizen and former minister – including for justice, no less! The Chief Suspect, the suspended executive director of S3i is Ukrainian but, understandably, Ukraine is currently pre-occupied with more existentialist matters.
How did UNOPS dig a hole that is at least US$ 22.19 million deep according to its official audit report? Its losses may approach US$60 million if confirmed by independent forensic auditing, if that happens. It remains to be seen if any individual or individuals are eventually held to be publicly accountable, as opposed to quietly allowed to leave and retire with their ill-gotten gains. Of even wider importance is the functioning, leadership and accountability of the UNOPS institution that allowed this to happen.
What is UNOPS?
UNOPS had gross assets exceeding US$3.9bn and revenues topping US$1.16 billion in 2020. COVID-19 was good for UNOPS as it brought new business worth US$ 0.7bn in 2021. UNOPS has scores of offices and recruited 12,000 personnel spread across 80 countries for itself and its partners.
UNOPS was set up as an independent agency in 1995 by mandate of the UN General Assembly. It’s lofty mission is to “help people build better lives and countries achieve peace and sustainable development”. In more earthly terms, it is the arms and legs of other UN agencies to implement the projects they can’t be bothered to do themselves. UNOPS specialises in infrastructure building, procurement, personnel recruitment and payroll handling, financial, logistics, and project administration.
These are, of course, necessary and important services for which UNOPS charges direct and indirect costs, plus management fees. It is also liable for an additional coordination levy imposed by the common UN system. There is nothing wrong for an agency to cover its costs, especially as UNOPS does not get core donor funding and must sustain itself from the proceeds of what it does. But it is abhorrent if legitimate cost recovery drifts into profiteering from aid funds provided in good faith to help the poor.
The whiff of plunder at UNOPS comes from how it charges for its services. This is akin to the mystery of a Papal election process. As both judge and jury of the assessment of factors that feed into the computation, and then executioner of the subsequent project, there is inherent conflict-of-interest in the self-serving UNOPS model. There is no independent verification or appeal, and every incentive to inflate costs.
Even the UN’s Advisory Committee on Administrative and Budgetary Questions has challenged the transparency of UNOPS’s pricing algorithms and haphazard ‘manual adjustments’ made in the bazaar-like haggling that UNOPS conducts with its clients. That is in the context of what is, essentially, a closed and rigged UN-wide market. And a market that is also broken because there is no proper disclosure of information to enable fair pricing of services provided by UNOPS.
A partial explanation may be that UNOPS charges also include the unstated premium a client must pay to rent the prestigious UN logo and benefit from associated tax and other privileges that include special, quasi-diplomatic “UN passports” (laissez passer). This brings to mind the racket by several countries that sell golden visas or citizenship for a hefty financial consideration. UNOPS has also understood from the corporate world that the UN brand is a valuable asset that can be monetised to sell a product or service.
A related dimension to the highly lucrative UNOPS business model comes out of the operational niche that it has carved out. It allows UNOPS to prosper at the cost of those desperate for its services.
To start with, UNOPS has endeared itself because it happily does the tedious backroom stuff without questioning or taking credit away from the ‘frontline’ policy-based UN agencies who are either too lazy to deliver their own services, or don’t want to get their hands dirty at the coal-face where theory meets practice with inevitably messy results. The consequences are a policy-reality disconnect that allows continuation of questionable development, humanitarian and peace support endeavours. This is despite a lucrative evaluation and lesson-learning industry. UNOPS is also pleased to handle that for you and to mark its own homework. Unsurprisingly, this produces glowing ratings that attract further business.
UNOPS is most adept at finding creative solutions for other agencies seeking to bypass their own cumbersome regulations. For example, difficulty with hiring and firing at will? Want to save on heavy UN salaries? Bypass staff unions? No problem: get UNOPS to do staff contracting for you through its Individual Contractor Agreement modality that strips desperate job seekers, often from poor countries, of their basic employment benefits and protections.
These rapacious practices are then lauded as flexible modern business working. The result is a two-tier exploitative UN system with different rates for the same job. This may sometimes even breach national tax regulations which, of course, can be easily ignored in weak jurisdictions that are in awe of the UN’s status. Such alleged sharp practices were also going on in UNOPS’s regional office in Geneva where panic set in when the Swiss authorities finally decided to crack down.
Particularly ingenious is the UNOPS ‘hosting’ modality that also operates from its predatory-minded Geneva hub. This allows several development activities, for example, in health, water and sanitation, urban development, and disability, to be marketed by associating their profile with the UN name after paying a hefty fee. Currently, there are at least ten such entities doing many hundreds of millions of dollars’ worth of business from which UNOPS derives substantial revenue.
They do useful work to advance the Sustainable Development Goals. The health sector provides illustration through, for example, the Stop TB Partnership, Roll-back Malaria, and Scaling-Up Nutrition. However, each has a contentious back story in terms of how they ended up at UNOPS rather than staying with their specialised parent, in this case, the World Health Organization. One consequence is the fragmentation of the global health system through proliferation of separate autonomous entities, each with their costly separate governance and administrative set-ups. ‘Divide and rule’ approaches benefit UNOPS through its hosting fees, direct, indirect, and management surcharges.
The effect is that funders – largest being US, UK, Japan, Norway, Canada – end up paying hefty premiums to achieve their original policy goals. This happens because of the transaction costs inherent in a multi-layered system, as well as perverse competition among fragmented actors that push up rather than reduce costs. Ultimately, it is the poor beneficiaries that suffer because more aid funds leach away along a complex delivery chain.
Developing countries can also benefit from or exploit UNOPS services, especially when they don’t trust their own. That happens when they contract UNOPS to procure and import materials, taking advantage of the UN’s tax free privileges to bypass import and other duties set by their own governments. Several countries have used this facility. The perverse consequence is that they short-change themselves by depriving themselves of badly-needed national revenue and don’t get to develop their own project-handling capacities. This is bad for the sustainable development of nations – but good for UNOPS’s bottom-line.
Profiting from aid?
Such contentious practices allowed UNOPS to garner an overall surplus (profit) of US$39.5 million in 2020. By itself, this is unremarkable in a multi-billion dollar setup – representing a defensible 9.4% annual gross margin on project services. However, its steadily increasing surpluses from previous years allowed UNOPS to amass a war chest (accumulated reserves) of US$124.6 million by 2020. Auditors have criticized that this is far in excess of the authorised reserve level of some US$22 million. But that was set in 2013 and needed to be raised as UNOPS has grown massively since then.
So, not unreasonably, its executive board allowed the agency to increase its permitted reserve level to approx. US$127 million last year, and created a complicated formula to keep this updated. But a dubious justification for this is the supposed risks that UNOPS undertakes. It has been argued that because the agency functions in many difficult humanitarian and insecurity contexts, it needs to hedge risks by charging premiums. But UNOPS is not the only agency at the frontlines of instability and it does not directly risk its own assets and funds. It is paid in advance by its clients who, therefore, are at the forefront of bearing any losses.
The increasing volume of reserves, accumulated from overcharging, has been embarrassing. A comparison is with the egregious profiteering by UN agencies, including UNOPS, from the notorious Iraq Oil-for-Food Programme that was heavily criticized by the 2005 Volcker Enquiry.
Making business from aid funds?
In 2019, the UNOPS Executive Director, acting under her own authority, siphoned-off a large part of the burgeoning reserve into a sub-fund for “growth and innovation”. That was allocated for the S3i initiative which she appointed her deputy (now on “administrative leave”) to run.
UNOPS/S3i proceeded to invest US$58.8 million via a private company, Sustainable Housing Solutions (SHS) Holdings. It was a most unusual decision by UNOPS to select a single entity for the investment and that too, not via a competitive, comparative process. SHS does not reveal its financial accounts on its public website and red flags around its possible credit-worthiness and loss-making appear to have been ignored. Neither did UNOPS follow sound business practice by seeking some financial guarantees, including possible collateral. There are concerns over murky influences at play in the decision-making process: UNOPS had previously given a partnership grant in 2017 to ‘We are the Oceans’, the owner of which is a close family member of the owner of SHS.
As is apparent from its auditors’ reports, the results of UNOPS’s own diligence processes were ignored or over-ridden. The concerns of some of its experienced staff were also over-ruled with strong pressure to rubber-stamp conclusions favoured by the Executive Director and her Deputy. That is consistent with the well-known culture of bullying and intimidation widely prevalent at UNOPS. Facilitating this conduct is as an easy hire-and-fire strategy which means that concerned staff who are critical of organisational practices can be easily separated. While UNOPS, in common with other bodies, has a whistle-blowing policy, it is weak and widely ignored. Indeed, UNOPS is known to be highly vindictive: any one running foul of its leaders pay a heavy price.
These practices were paralleled by senior management changes imposed by the Executive Director. That removed the experienced directors (Corporate Operations Group) who understood UN rules and core business, and replaced them with a new Senior Leadership Team. Installed on that by fiat of the Executive Director were outsiders including, for example, a chief finance officer imported from the luxury brands conglomerate, Moët Hennessy Louis Vuitton. Some insiders were also among the newly-favoured and got rapidly promoted several ranks from ‘professional’ (P) grades – to senior director (D2) via unusually accommodating personnel processes. Normally, such progression takes a lifetime in the UN system.
It appears that all the critical and independent functions of diligence and accountability – legal, financial oversight, ethics scrutiny, human resources management – were gradually re-shaped and undermined so that UNOPS’s top-most management could enjoy unfettered total authority, including that of utilising organisational funds as they thought fit.
There are further serious questions of integrity. The General Legal Counsel of UNOPS was himself the beneficiary of the Executive Director’s promotion policies, and a major facilitator of its dubious decisions around S3i. He had also previously been at the UN Development Program (UNDP) that had admitted serious wrong doings involving millions of dollars of contracts. There are suggestions that his young son, as CEO of Caribbean-based Custom Corals, a “United Nations Global Innovation Center Sustainable LLC” may have had a beneficial interest in decisions made around S3i. If so, this transgresses the absolute taboo in the UN rules of conduct that there should be no conflict-of-interest in the way its decisions are made. That includes an anti-nepotism policy whereby relatives of an UN official cannot be employed or benefit from decisions he or she makes. The ethics scrutiny function at UNOPS appears to have ignored this which raises parallel questions about the integrity of the Ethics Office itself.
Such changes and decisions were made very feasible at UNOPS by its proficiency at serving itself by interpreting and twisting the very strict rules of the UN to make its own preferred operating rules and procedures, for which it has received delegated latitude-without-accountability from the Secretary-General.
The S3i used its preferentially-appointed conduit to make several initial investments in the Caribbean, Ghana, India, Kenya, Mexico, and Pakistan. These don’t appear to have delivered in concrete terms i.e. it is not clear how many poor have actually been housed and how many joules of green energy generated, in relation to the millions invested. But, instead, it looks as if they racked-up shocking losses in a record short timeframe. That forced UNOPS to make provision for “doubtful debts” of US$22.19 million. Some of this may be recouped but, equally, further investigation could show that millions more have gone astray.
Inept or crooked?
The irony is that unlike a genuine business where investors risk their own capital and sink or swim accordingly, UNOPS leaders are bureaucrats appointed by the UN Secretary General. This contrasts to multilateral financial institutions such as the World Bank and IMF set up under stricter conditions, staffed with qualified experts, and watched by financially astute hawks from governing member states.
The situation at UNOPS is very different. Its leadership has no track record of running a substantive or successful business but has been licensed to gamble with huge public funds. The nominal oversight provided by member states’ own bureaucracies is easily bamboozled.
Despite these gaps and failings, It is highly unlikely that bad luck and ineptitude are responsible for the losses at UNOPS. The possibility of associated criminal fraud needs to be considered. A complicated web of financial channels appears to be at play, and the UNOPS/S3i operating model has the whiff of a Ponzi scheme in relation to the loans it made followed by the sudden post-contract reduction of interest rates charged to its partners/debtors.
Is this what the world wanted from UNOPS?
It is highly doubtful that when the world’s nations got together to create UNOPS as a public service agency, it was in their mind to set up such a highly speculative and profiteering business, the design of which could be easily subverted towards self-serving, and possibly corrupt, ends.
UNOPS ultimately comes under the authority of the UN Secretary General, currently Antonio Guterres. He has been dubbed the most docile Secretary General in the UN’s 77-year history. Known to avoid acting on anything if possible, not much may be expected from him. However, there are lessons to learn from the Volcker investigation. It led to the indictment of the executive director for the UN’s Iraq Oil-for-Food programme on corruption charges in a federal court in the United States. That saga also contributed to the fall of his boss, the then UN Secretary General Kofi Annan, who was also troubled by charges of nepotism.
There is a very strong case for the UN Secretary General to act quickly to remove the Executive Director of UNOPS from office. At the very least this would be on grounds of gross incompetence and misuse of office. Then she must answer questions around what she knew or if she connived with the wrong-doings in the organisation she is leading. And whether or not she personally profited from it.
Of course, she could not single-handedly drag the mighty machine of UNOPS off the tracks. There is prima facie case to also hold accountable and remove her Senior Leadership Team who appear to be principal enablers of suspected malfeasance. Further, it would be quite remarkable if many directors and managers at UNOPS did not suspect what was going on – but were too self-serving or cowardly to stand-up. The catastrophic failure at the top of UNOPS will need a full senior-level clear-out before the world can have confidence in a re-built organisation.
The first step is an unfettered independent investigation with legally-mandated powers. No one should be immune from such an enquiry, nor the penalties that may be imposed on those found guilty.
Equally important will be some form of recognition, redress and restitution towards committed, principled UNOPS staff who tried to stay honest but had to suffer under such mis-governance, and the donors and clients who were cheated. As well as any whistleblowers who were victimised because they had the courage to do their moral duty.
To shirk accountability at UNOPS will be a bare-faced betrayal of the UN’s sacred duty to maximise assistance to the world’s poorest and most vulnerable people.
[Personal disclosure: The author has served as a donor to UNOPS operations when he was a senior official of the UK Government’s official aid programme – now at the Foreign, Commonwealth and Development Office. He has also served in senior roles in several agencies of the UN system that included authorising or co-operating with UNOPS field operations. In 2018-19 he was also CEO of a hosted partnership programme at UNOPS in Geneva.]