1 May 2022 – Mukesh Kapila
This is the transcript of my letter to the World Bank triggered by a letter to them from the scandal-tainted Executive Director of UNOPS in which she struggled to explain that all was well in her deeply troubled agency which is rapidly sinking while she selfishly clings to office.
Copenhagen, 1 May 2022
Mr Ed Mountfield, Vice President, Operations Policy and Country Services Vice Presidency, The World Bank, Washington DC
Dear Mr Mountfield
All funding to UNOPS is currently unsafe: all donors should beware
I write in reaction to the 23rd April letter to you from Ms Grete Faremo, Executive Director of the United Nations Office for Project Services in which she asserts that funding UNOPS is safe and secure.
However, Ms Faremo provides no evidence to back up her assurances. Her cavalier approach to transparency around the single biggest case of UN agency suspected fraud and corruption of recent decades that she has personally presided over, should cause all prudent donors to be wary of her unsubstantiated assurances that all is well at UNOPS. On the contrary, UNOPS is deeply sick and troubled. Therefore, all donors are urged to suspend all funding to UNOPS until there is substantive change in the agency.
This letter is copied to your colleagues at the World Bank concerned with anti-corruption, standards, financial management, and procurement and country services, as well as to your other Vice Presidencies. It is also shared with members of the World Bank Group’s relevant Board of Directors which has several Member States in common with the Executive Board of UNOPS. A consistent approach to standards, transparency, and integrity across our global multilateral system is vital for public confidence.
I have formerly had the privilege of very close association with the World Bank when I was a donor, representing the UK Government; and subsequently as an adviser for a period of time to one of your programmes. In that context of my considerable previous experience with many international institutions and spanning several decades, may I take the liberty of counselling that all your regional and country directorates and managers should be made aware that continuing with or entering into new business with UNOPS is risky at the present time. All your existing investments in UNOPS should also be forensically audited to ensure their integrity. You should not rely on UNOPS’s own self-certification of expenditures and outcomes for projects funded by the World Bank.
Copies of this letter are also dispatched to all major donors of UNOPS as well as to the President of its Executive Board. Further copies go the UN Secretary-General and Deputy Security-General as well as to senior UN secretariat officials concerned with investigations and oversight, and ethics and compliance. it is also released for general public information, alongside my other writings that can be consulted here. More on this sad topic is being planned as yet more information is emerging. Several media outlets, beyond an early piece in Devex, are now conducting their own inquiries.
The simple facts and circumstances are that, under Ms Faremo’s misdirection, her own deputy Mr Vitaly Vanshelboim has been suspended for potential wrong-doing which resulted in around US$63 million of UNOPS funds going astray via its Sustainable Investments in Infrastructure and Innovation Initiative (S3i) that the Executive Director had herself approved. An embarrassed Government of Finland that hosts the S3i office has now suspended its contributions to S3i, and UNOPS’s host country, Denmark, is also deeply concerned. Contact with other donors suggest that several are freezing their general UNOPS support.
Meanwhile, a substantive proportion of the UNOPS/S3i losses are unlikely to be recouped. Ms Faremo has also sought to interfere with and influence the UN investigation by limiting it to Mr Vanshelboim, and seeking to pin all blame on him. However, it is not credible that Mr Vanshelboim could have misdirected millions of dollars on his own. The fraud is highly likely to have been facilitated by the calculated connivance of others. Principally, these are Ms Faremo’s own appointed Senior Leadership Team (SLT), and other key personnel in crucial compliance and control functions.
Without independent investigation into all the circumstances and all implicated UNOPS personnel including the Executive Director herself, any investigation around Mr Vanshelboim alone is of partial value and a deliberate obfuscation of the full truth.
Ms Faremo is not truthful
Ms Faremo is disingenuous in claiming in her letter to you that she has proactively sought guidance from UN oversight bodies. These bodies have raised, over a long period, some fundamental concerns but Ms Faremo and her SLT finessed them away while designing the highly risky and ethically dubious S3i venture.
Similarly, Ms Faremo is economical with the truth when referring to approval from the UNOPS Executive Board. In confidential discussions with some members of the Board, it is clear that Ms Faremo briefed the Board in a highly selective manner, and withheld critical analyses on risks, mitigations and other pertinent aspects of S3i strategy and operations. Ms Faremo cannot, therefore, avoid responsibility for misleading her Board who were, thereby, unable to make informed decisions.
That S3i funds came from a “dedicated reserve” does not mitigate what happened, as implied by Ms Faremo in her letter to you. These funds were accrued by profiteering from excessive charges levied on externally financed projects. Ultimately, the funds that were misused are not the privately-owned or privately-generated capital of S3i or of its parent UNOPS. They were provided by donors, including the World Bank. UNOPS leadership has mismanaged and gambled-away public funds provided, in good faith, for the global good.
Ms Faremo’s casual relationship with the truth is also illustrated by her claim that the organisation itself identified and reported disturbing issues to its Board of Auditors in 2020. Actually, this was somewhat late. The alarm around pertinent underlying issues was first rung by staff in 2017 and then again in 2018 by UNOPS’s own internal diligence function. When this was rebuffed by UNOPS’s leadership, approach was made by concerned staff to the UN’s Office for Internal Oversight Services (OIOS) in early 2019 but no action was taken by Mr Ben Swanson (OIOS Director).
Meanwhile, UNOPS continued to disburse funds to S3i, despite the serious problems that had been identified some time previously. In fact, internal UNOPS communications suggest that as late as a month ago, UNOPS/S3i was still developing new projects and preparing new disbursements to one of its discredited contractors, SHS, who have not delivered on previous contracts and who are, presumably, part of the UN OIOS investigation.
This shows extraordinary contempt on the part of Ms Faremo as she seems to be violating explicit donor prohibition on further disbursements without justified Board approval, as requested, for example, by the United States in its 1st February statement at the UNOPS Executive Board.
UNOPS remains a risky recipient of donor funds
The factors that led to the catastrophic S3i debacle remain in play and place other UNOPS projects and operations at risk. That is why continued funding of UNOPS – without first tackling its underlying deficiencies – is very risky. UNOPS’s specific vulnerabilities – going well beyond S3i – are summarised here.
Ms Faremo and her senior leadership remain in position, along with their leadership and management culture. These spawned the misjudgments around S3i and are likely to lead to similar risks being taken elsewhere. For example, Ms Faremo and SLT ignored or bypassed the concerns raised by internal diligence controls. Only the removal of the Executive Director and SLT will lead to a credible re-examination of UNOPS’s business model, restoration of integrity in its internal control system, and of donor and public confidence in the agency.
The UNOPS business model relies on extracting unjustifiably large margins from its donor-funded projects and by rent-seeking through ‘selling’ the UN logo under its ‘hosted partnerships’ business line which operates from its Geneva hub under the direction of its unprincipled Europe Region Director, Mr Moin Karim. It is such profiteering that allowed UNOPS to accumulate the huge reserves used for the ill-fated S3i. Accompanying this is top-down extreme management pressure on all its units – regional and country offices – worldwide, to acquire more business.
The Copenhagen headquarters set arbitrary and unrealistic targets that drive regional directorates and their subsidiary units to cut diligence corners and treat compliance and control processes with flexibility and creativity. This has been applauded as “innovation”, although in this ‘anything- goes-to-get-more-business’ culture, sharp, unethical and corrupting practices are inevitable and tend to be ignored. Indeed, they also risk undermining the integrity of the countries where UNOPS operates, by encouraging the development of a corrupt nexus of local sub-contractors and government patronages.
The avaricious behaviour of UNOPS drives it to venture into areas where it has no competence. One illustration – out of several examples – suffices. It concerns a US$6 billion contract to procure pharmaceuticals in Mexico from which UNOPS gained at least US$109 million by getting itself entangled into a shady enterprise where graft and corruption ruled. While UNOPS lined its own pockets, Mexican children with cancer were deprived of life-saving medication, and pharmacy shelves emptied of other essential drugs and vaccines. The Mexican government – a relatively-prosperous OECD nation – also lost valuable expertise in doing its own procurement. It is not known if anyone in UNOPS – let alone its senior leadership which has ultimate responsibility – was held accountable for its involvement in what appear to be corporate criminal practices.
The culture that Ms Faremo and her venal SLT cabal have created mean that UNOPS is no longer a development agency operating to ethical UN principles. Instead, it is a profit-maximising, self-promoting business cartel where many types of dubious ventures can find fertile soil. What happened at S3i is just an illustration of the wider vulnerability that is a warning to all donors that all funding to UNOPS is risky – until there is a radical re-engineering of its core business model and culture.
It is well-documented that the centralised – and secretive – SLT was personally appointed by Ms Faremo by-passing, in some cases, strict UN personnel hiring standards. The SLT’s competence, capacity, and integrity to run a multi-billion international agency is seriously doubted. The SLT replaced a more skilled, experienced, and inclusive Corporate Operations Group (COG) that used to provide valuable peer review and ensured checks-and-balances. Obviously, the authoritarian-minded Ms Faremo found COG’s questioning irksome and abolished an important internal quality assurance and accountability mechanism.
One consequence is that there are now few checks and balances at the top. Another is that there is insufficient segregation of powers among senior directors at headquarters. For example, the Chief Finance Officer (Ms Marianne de la Touche) rules over finance, treasury, information security, human resources and crucially, risk management, among other functions. The Chief Legal Counsel (Mr James Provenzano) is also Chief Procurement Officer and not only makes the ‘internal law’ of the agency by interpreting UN rules and regulations according to his own discretion, but is then the sole judge and jury over how it is applied, besides being the ultimate arbiter of hundreds of millions of dollars of procurements of goods and services, many of which are open to corrupt deal-making. These are completely inappropriate ways to manage a modern public sector organisation where the management structure should guard against abuse of power and conflicts of interest. The UNOPS structure does the opposite.
UNOPS is gravely under-governed through a shared, part-time UNDP/UNFPA/UNOPS Executive Board that does not have the independent skills and capacities to properly scrutinise a very large and complex agency’s policies and practices. This is completely different, for example, from governance at the World Bank.
The implication is that a CEO like Grete Faremo, who is well-practiced at withholding essential information can easily run rings around the Board. Governance reform is long overdue and should be a donor condition.
The internal audit and investigations function at UNOPS reports personally to the Executive Director (as does ethics and compliance), rather than independently to the Board. It means that these functions are easily pressured by senior management when inconvenient issues and wrong-doings emerge.
Current and past staff aver that this causes reluctance to raise suspicions of wrong doings in UNOPS operations. They say that when reports of misdeeds by the audit and investigations group have been prepared, the leadership does not always take them seriously and, in several cases, it has actually looked away. Thus, many hundreds of thousands of dollars are said to have gone missing from various donor-funded projects worldwide – and left un-investigated or hushed up as “write-offs”.
Key information suggests that the internal audit department was specifically prohibited by the leadership to look into S3i. Evading controls is very likely to happen again with other pet projects favoured by Ms Faremo. That is why donors should not entrust their funds to UNOPS under current circumstances.
The Audit Advisory Committee (AAC) is not independent and does not report to the Board, as is normal good practice in many agencies. Instead, it reports to the Executive Director who selects and appoints its members. They tend to be her friends and may have held previous positions where they benefitted from UNOPS. The conflict-of -interest is self-evident.
This is not a new issue. As long ago as 2018, the UN’s Joint Inspection Unit stated that its review of UNOPS showed that “the AAC’s terms of reference do not fully correspond to the requirements of leading practices and good governance. As a result, the AAC differs somewhat from similar oversight committees in the United Nations system, in particular with regard to its mandate, independence, the frequency of self-assessments and the procedures for the selection and appointment of its members”.
UNOPS has still not brought its audit and advisory practices up to the standards of comparable organisations. This function cannot , therefore, be seen as fully credible and trustworthy, and donors should not rely on it.
In theory, UNOPS has elaborate checks in its project management systems. But its senior management itself leads in evading them. For example, the Engagement Acceptance Committee (EAC) is supposed to satisfy itself that proper risk management has been undertaken, mitigations included, and all due diligence completed, before endorsing a new commitment. In practice, such is the rush to make new business, that the EAC often rubber stamps acceptances, after commitments have already been entered into.
As is already well known, the biggest of all UNOPS commitments – S3i – never even went to the established EAC for appraisal. Ms Faremo and Mr Vanshelboim were in too much hurry and also realised that it would not pass standard EAC scrutiny. Hence, the EAC was bypassed by Executive Diktat.
Ms Faremo is not truthful in her letter to you when she says “UNOPS regular project activities are overseen by internal controls, policies, and procedures”. These systems are often bypassed when it is convenient for her and her SLT to do so.
UNOPS has over 1500 projects spanning some 120 countries and involving 100,000 large and small contractors as well as a similar number of monthly transactions. This is a massive undertaking that should, by now, have matured into a trusted treasury management system. In reality, some of its own staff say that the UNOPS payment mechanism is as leaky as a sieve and, therefore, vulnerable to scams as well as, in the words of an informant, “money laundering”. It certainly appears to be the case that monitoring methods that are common in the payments industry, such as validating payees, monitoring patterns of payments to detect anomalies, and instituting controls to prevent money laundering are not in consistent use at UNOPS.
It is almost certain that across the massive numbers of payments being processed through the flawed UNOPS machinery, funds are likely to go astray. Donors are rash to trust a system that is not robustly designed and properly secured to do what it is supposed to do.
As an UN agency, UNOPS enjoys the usual privileges and immunities, that are intended to facilitate its regular work according to the laws of the countries where it operates, and not to circumvent or undermine them. Internal risk management experts say that this is a risk to the integrity of its transactions. This crystallises in a number of ways.
For example, external or internal parties who suspect wrong-doing don’t report it because they say that nothing happens because staff protected by UN privileges tend not to be prosecuted as that would be a laborious process requiring the lifting of immunities and would, of course, embarrass UNOPS. This sense of impunity makes corrupt or careless UNOPS personnel more reckless because the worst that will happen to them, if they get found out, is that they will be separated. UNOPS does not usually pursue offenders once they have been induced to leave the organisation. This means that they go scot-free, usually taking their ill-gotten gains with them.
Furthermore, UNOPS has been abusing its immunities and privileges. For example, the entities at the heart of the S3i scandal were authorized by UNOPS to bypass national customs inspections and import duties. According to informants, that also exposed the organisation to the risk of money laundering as we know that no houses have been built so far. Thus, what was being imported by UNOPS/S3i contractors and for whose benefit, if no activities were taking place? This is in addition to robbing legitimate revenues that should accrue to host countries that UNOPS is supposed to serve.
Last but not least, numerous UNOPS personnel have testified that a culture of intimidation and bullying prevails at UNOPS. This appears to emanate directly from Ms Faremo and her SLT, and is directed against staff who question actual or potential wrong-doing. Instead of appreciating honest staff who do their duty, they are often picked-upon, harassed and dismissed, as many have found to their cost.
Thus, the working atmosphere in many of its workplaces is toxic, with staff dis-respected and desperately unhappy. There is also no effective whistleblower protection at UNOPS.
At a time of increased global consciousness on issues such as ‘Black Lives Matter’, gender equality, zero-tolerance of sexual abuse, action against bullying, and even modern forms of slavery, UNOPS workplace practices continue to cause considerable distress in a variety of places. Despite leadership rhetoric to the contrary, the senior and mid-level management chain has, in general, put the lid on alleged abuses, refused to take them seriously, not conducted investigations with fairness and consistency, and victimised the victims even further.
Should the World Bank and other donors be bankrolling such as enterprise whose conduct would be considered completely unacceptable – and illegal, even criminal – in their own organisations and countries?
Ms Faremo is wrong in her assertions, and her statements lack veracity and back-up evidence. She continues to cause huge damage to UNOPS and its erstwhile good and necessary work. Her conduct is a betrayal of UNOPS donors and other stakeholders and clients.
The ten issues summarised above are just some of the major reasons why all funding to UNOPS is currently unsafe. The World Bank and all other multilateral and bilateral donors should suspend their disbursements under their existing pledges and commitments. They should also not make any new funding commitments to UNOPS until there is complete change at the top i.e. Ms Faremo, Ms De La Touche, Mr O’Reagan, Mr Daihni, Mr Provenzano, Ms Lahiouel and Ms Swift are removed. A strengthening of UNOPS governance and a revamp of the business model that has generated such toxicity is also an essential pre-requisite for resumption of support to, and through, UNOPS.
The urgency of this matter at a time of great global need where an honest, effective, and trusted UNOPS is much needed, requires no elaboration. With best regards,
Professor Mukesh Kapila, CBE