US embassy cable - 05ALGIERS2293

UNCLAS SECTION 01 OF 02 ALGIERS 002293 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, EIND, ETRD, EFIN, AG, Economic Reform 
SUBJECT: ALGERIA BANKING SECTOR SUFFERS ANOTHER SETBACK 
 
1. (U) SUMMARY:  The Algerian banking system was recently 
hit by another scandal of fund embezzlement at the state- 
owned National Bank of Algeria (BNA). This comes at a time 
when the GoA is making a big push to privatize and reform 
the banking sector. According to media sources, between 
2002 and 2005 about one hundred complex transfers caused 
AD15 billion ($205 million) in losses for the treasury. 
Several high-ranking officials have been implicated in the 
scandal, including the former CEO of BNA.  Six of these men 
have been formally charged and placed under legal 
proceedings.  One official is said to be hiding in Great 
Britain and others are expected to be implicated following 
additional investigations. Following the past bankruptcy of 
private banks due to fraudulent activities, it appears to 
be the turn of public banks to cause problems for the GoA. 
End Summary 
 
EMBEZZLEMENT OF $205 MILLION 
---------------------------- 
 
2. (U) The embezzlement of $205 million was recently 
discovered at the state-owned Banque Nationale d?Algerie 
(BNA).  Some specialists are speculating that actual losses 
may reach as high as AD160 billion ($2.19 billion). 
According to initial inquiries, between 2002 and 2005 large 
amounts were transferred from account to account within the 
country to branches in the small cities of Kolea, Cherchell 
and Bouzareah.  The funds were then diverted overseas to 
European banks, making it difficult to identify the 
perpetrators.  The most recent transaction of $27 million 
may have been as recent as September 2005.  Minister of 
Finance Mourad Medelci declared in an interview on national 
Arabic radio that this was unfortunate and announced that 
in cooperation with the Ministry of Justice, an 
investigation was underway at the Bank of Algeria and at 
the Ministry of Finance to uncover the facts.  He added 
that an enquiry commission composed of Algerian and foreign 
experts was currently working on the case. 
 
HIGH RANKING OFFICIALS IMPLICATED 
--------------------------------- 
 
3. (U) Since the discovery of the fraudulent activities, 
six high officials, including the former CEO of BNA and 
regional Directors of the Bank?s subsidiaries, have been 
charged and placed under legal proceedings.  The press has 
speculated that the enquiries may reveal the involvement of 
additional parties.  One official was reported to have fled 
the country and is allegedly hiding in Great Britain. 
Media reports are claiming that these six officials are 
merely ?fall guys? and that the real actors who 
orchestrated the theft are still in hiding. 
 
AFTER PRIVATE BANKS, PUBLIC BANKS 
--------------------------------- 
 
4. (U) The Algerian banking system was first weakened by 
the 2003 bankruptcy of the two largest private banks, 
Khalifa Bank and Banque Commerciale et Industrielle 
d?Algerie (BCIA), owing to violations of bank regulations 
and reserve requirements. The Khalifa Bank collapse hurt 
millions of ordinary Algerians, revealed serious 
deficiencies in government supervision of banks, and 
seriously undercut support for bank privatization. It also 
threatened other local private banks, despite their limited 
size, as clients lost overall confidence in private 
financial institutions and the government drew the wrong 
lesson from Khalifa?s negligence and proceeded to instruct 
public enterprises to deposit their funds only in state 
banks. The decision by the GoA to strengthen bank controls 
appears to have applied only to local private banks, while 
public banks subject to the same regulations continued to 
benefit from state ?protection?. 
 
5. (U) Between 1999 and 2002, the Treasury bailed out 
public banks to enable them to meet reserve and debt ratio 
requirements. Following the recent scandals of Banque de 
Development Local (phony accounts causing $164 million in 
losses), Banque Exterieures d?Algerie (numerous non- 
performing loans) and the Banque Algerienne du Developpment 
Rural (questionable loans granted to a big packaging 
company), long running efforts by the GoA to modernize and 
privatize banks are once more in question.  Former Finance 
Minister Benachenhou, expressing the disgust, frustration 
and mistrust of most Algerians, was quoted in a recent 
press article as declaring the current financial system of 
Algeria a threat to the security of the state. 
 
6. (SBU) Embassy contacts in the private banking sector 
told EconOff that the GOA brought in a French expert to 
assist in the ongoing investigation.  One source said the 
Algerians do not even know how much money was taken.  There 
are all sorts of figures floating around the banking system 
but no one really knows how large this scandal may be. 
Asked about the effect this will have on the hopes of the 
Algerian government to privatize the BNA, the same source 
laughed and said we should first wait to see if the 
Algerians are successful with the privatization of the 
first bank, Credit Popular d?Algerie (CPA).  He added that 
BNA privatization is a long shot at best.  BNA is a much 
bigger bank than CPA with a lot of non-performing public 
sector loans.   EconOff will follow up with private sector 
contacts for additional information and insights following 
the as yet unscheduled banking committee meeting that has 
been called to address the scandal. 
 
ERDMAN