29 November 2022 – Mukesh Kapila
Through the 16 articles in this series we have plumbed the depths of the sordid scandal that has degraded the good name of the UN Office for Project Services (UNOPS) and, indeed, damaged he United Nations itself. The implicated UNOPS leadership tried to bluff its way through obfuscation. But the evidence was copious and clear.
This is confirmed in two recent “third party reviews” by KPMG. At the time of writing, only short summaries had been released publicly but I have seen the full reports. Their hundred pages, rich in facts and figures, are an admirably clear exposé.
The first report dissects how UNOPS screwed with its ‘Sustainable Investments in Infrastructure and Innovation (S3i) venture. The second report complements this by examining how UNOPS’s controls, management, and governance were subverted to enable the egregious blunder.
How the dangerous stupidity of S3i emerged
The reports outline how, when Ms Grete Faremo was appointed as Undersecretary-General and Executive Director in 2014, she connived with her deputy, Assistant Secretary-General Mr Vitaly Vanshelboim to mis-direct the UNOPS Executive Board to agree to an “extension” of UNOPS’s mandate. That is how the ill-fated journey started, diverting UNOPS from its core UN mandate as a development assistance agency towards becoming a predatory and profiteering business, the flagship of which was to be S3i.
Who was responsible? Analysing the KPMG reports suggests that Ms Faremo was equally – or even more – responsible for the plotting, scheming, and misleading that created the debacle. Not just Mr Vanshelboim as has often been suggested. That was against the background that neither Ms Faremo nor Mr Vanshelboim had any track record of successful private sector enterprise.
And, of course, as the Board was unqualified to assess the ideas put to it, the Faremo/Vanshelboim duo found it easy to sell snake oil to them. The Board must take its own share of responsibility for allowing itself to get hoodwinked through failing to discharge its most fundamental duty of diligence.
The fatal pathway
The reports lay bare a disastrous journey that started from the “strong top-down approach” instituted by Faremo/Vanshelboim. They centralised all power to themselves and deliberately appointed weak cronies to do their bidding. These are described by KPMG as senior management with “lack of capacity and limited expertise”.
Weak and incompetent people often survive, and even prosper, through the “abuse of power” to intimidate others. That is what happened, as described in the KPMG reports. UNOPS leaders and managers (spanning the former Senior Leadership Team, EAC+, and regional directorates) “created a culture of fear in the organisation”. So much so, that those whose job was to provide checks and balances were thoroughly neutralised.
The result was that UNOPS’s previously established scrutiny processes that were standard in any agency handling billions of dollars – in both public and private sectors – were deliberately ignored, bypassed, co-opted, or corrupted. All four of these phenomena occurred.
The reports outline how that happened in UNOPS where “many critical oversight and segregation of duty elements were not implemented”. That impacted on risk management and flawed project design and monitoring as well as careless contracting and financial disbursement. The principal responsibilities here were with the Chief Legal Counsel and Chief Financial Officer who failed their duties.
Other egregious failures included ignoring “red flags”, not investigating “whistle blowing” complaints properly, ignoring conflicts of interest, and exposing the organisation to “opportunity for fraud”.
The internal control machinery of UNOPS was, therefore, completely and fully compromised. This included the Internal Audit and Investigations Group (IAIG), Audit Advisory Committee (AAC), and the Ethics and Compliance Office. Their integrity was not trusted as they were not independent of the top leadership. Ultimately, they failed to discharge their functions to industry standards. Worse, they appear to have victimised complainants and thus, in effect, facilitated the misdeeds they were supposed to guard against and correct.
The question still remains on whether all the blame can be laid solely on the back of the Faremo/Vanshelboim duo. The KPMG reports make clear that such massive organisational failures require acts of commission and omission at many levels. Thus, the whole of the former Senior Leadership Team (SLT) was implicated.
Going beyond the then SLT, there are questions about the roles of regional directors. While they had been removed from the SLT at the time that the major misdeeds occurred, did they play a helping role? That questionable things were going on was talked about fairly openly in the corridors of UNOPS offices in Copenhagen, Geneva, New York and elsewhere . They appear to have been aware of the initial grants given out in a questionable manner to WATO/SHS, as uncovered by the latest report of the UN Board of Auditors and other evidence.
UNOPS regional directors are senior officials of the United Nations, and the excuse of ignorance and fear is no self-defence. At the very least, they fell short of their duty to the UN code of conduct which required them to act against institutional wrong-doing. Not only did they not do that – but their actions and inactions had the effect of sustaining their abusive leaders in power while also deepening the culture of fear that infected the whole organisation. The Regional Directors appear to have benefited in consolidating their own powerful professional positions from mismanagement at the top, and dispensations.
Wider UN failure
The reports describe UNOPS’s “three lines of defence model”. But there is no safe place when an organisation is set on wilful self-harm. That is exactly what UNOPS did when it holed its own inner defences, as outlined clearly by KPMG.
The outer defence is provided by the wider UN secretariat’s oversight mechanisms. They include the Advisory Committee on Administrative and Budgetary Questions (ACABQ), and the United Nations Board of Auditors (UNBOA) both of which raised flags concerning UNOPS budgeting, especially concerning its burgeoning reserves that violated previously established policies and principles. They also referenced the questionable S3i investments including subsequent and increasing provisions for losses. These concerns were ignored.
The Joint Inspections Unit (JIU) of the UN system, an independent, externally-run body, “has issued several reports in recent years that are relevant to UNOPS”. They concern management and administration, audit and oversight, and ethics functions. They have pointed out that UNOPS does not comply with “the requirements of leading practices and good governance” and made several recommendations that remained unfulfilled.
The UN Secretary General also has an Office of Internal Oversight Services (OIOS). It has done an investigation report on S3i but not released it. It also received complaints about UNOPS including, in particular, about Mr Vanshelboim. But it did not investigate and passed on complaints to IAIS which also did not investigate. One point for contention was whether UNOPS’s internal mechanisms or that of the wider UN had jurisdiction over concerning matters.
While these issues were debated in a leisurely manner over months and years, wrong-doers at UNOPS were free to carry on their misdeeds, without restraint or accountability. It is strongly evident that the oversight mechanisms of both UNOPS and UN have not just failed but served to create a climate of impunity that allowed such crimes to occur.
Reform at UNOPS
The Acting Executive Director of UNOPS, Mr Jens Wandel, has welcomed the KPMG reports and undertaken to implement the 43 recommendations addressed to him. Indeed, he has already been active in executing several of them because UNOPS’s shortcomings have been heavily trailered in previous months.
Most significant is the pledge to return UNOPS to UN principles and values and to review its strategy and mandate so as to return the agency to what it was good at and, presumably, away from rent-seeking and profiteering behaviour.
As I had originally demanded, UNOPS has also acknowledged over-charging and reduced some of the exorbitant prices and premiums it charged to other organisations and programmes.
Mr Wandel has also committed to a more collegiate approach within the organisation and with partners. Greater investment in staff capacity building and more training are promised.
Many of KPMG’s recommendations address oversight gaps and weaknesses, and new senior appointments by Mr Wandel signal the move towards progressive change in the ethics, compliance, and organisational culture including better whistleblower protection. Better management and operational systems are also promised.
S3i in its previous form is dead. It survives as a shell at its Helsinki base, but it will not be making any more investments. It may seek to develop a technical advisory role in the area of impact investing, but one wonders about its credentials to do that. Who will want advice from a failed, corrupted entity? Or perhaps it may develop a useful business line lecturing about its faults and lessons learnt pour décourager les autres?
The five recommendations for the Board call for its modernisation and professionalisation including, in particular, establishing an audit and risk committee. These are the minimum improvements necessary for a Board that has presided over the most stunning failure of governance oversight of any UN agency, in living memory.
A thorough independent review of governance – taking the lead from these UNOPS management reviews – is necessary. This is even more crucial because the same Board governs two other big organisations – UNDP and UNFPA. What risks and problems may be lurking there?
Accountability and justice
UNOPS reform would be more credible if accompanied by holding accountable those who committed the abuses and wrongs. This should be accompanied by some attempt at restitution.
The UN’s Office of Legal Affairs has been tasked to consider criminal prosecutions against incriminated parties and to recoup as much as possible of the millions lost by UNOPS through S3i’s questionable business partnership with SHS Holdings. Whether or not this succeeds or how long that takes remains to be seen.
If and when some funds are retrieved, the question arises: will there be restitution made to those funders and project partners including the hosted entities in Geneva from whom UNOPS profiteered shamelessly to build up its illegitimate reserves to gamble with potentially fraud-and-corruption tainted investment in S3i?
UNOPS donors and project partners are the victims of the misdeeds and mismanagement sanctioned by UNOPS and deserve justice. Even more so do the poor and vulnerable beneficiaries of UNOPS programmes who were ultimately did not get the help they desperately deserved because their allocations were misapplied. How will they – both funders and beneficiaries – who are the real losers be compensated?
Meanwhile, it is good that those who masterminded these misdeeds have been removed – a demand that I had articulated in my earliest writings. Executive Director Faremo resigned in disgrace, Deputy Executive Director Vitaly Vanshelboim has been removed pending some mysterious accountability process, and Chief Legal Counsel James Provenzano has been accelerated towards his retirement. Their principal collaborators on the former Senior Leadership Team, CFO Marianne de la Touche, Regional Portfolios Director Honoré Dainhi, and Implementation Practices and Standards Director Nick O’Regan, have been removed from leaderships roles and given transitional sinecures – presumably pending their final exits.
Ironically, however, retirement with generous UN pensions, or separations with extensive accrued benefits is hardly justice. When will they be held to account and, if appropriate, penalised?
Without meaningful accountability, there is no real closure for UNOPS or the wider UN under Secretary General Antonio Guterres. They can then be open to charges of cover-up.
A postscript: Why?
The anatomy and physiology of the heist at UNOPS has been clarified. But not its psychology. We know what went wrong, how that happened, and who was implicated. And I am sure that with all the fuss created, we will succeed in re-securing the door – even if this is after the horses have bolted.
So, the question that haunts me is: why? Specifically, why did so many senior and respected people of established reputation betray us? Were they greedy? Were they drunk with power? Was it impunity from a sense of over-weening privilege ? Was it arrogance from the perception that they were above the rules? Was it weakness that pushed them to obey their wrong-doing leaders without question? Or was it just contempt for ordinary people like their supposed colleagues, partners, donors, beneficiaries?
Each of the principal characters in this sorry drama must have had their own reason that excused their misconduct. This is known perhaps only to their conscience and hopefully to law enforcement if it calls.
But answering the basic question of ‘why?” is important because although UNOPS will recover, the nasty taste of betrayed trust will linger for much longer.