Nathaniel
Kalkali El-Hadi tells the story of the fall of Algeria's largest private bank, and the corporate shell game that hid the truth of its shaky finances from its investors, regulators and its customers. In the end, it was all too good to be true.
The Ugly Death of an Empire
By Kalkali El-Hadi
In early 2007, Algeria opened its "trial of the century," a three-month spectacle that followed the biggest financial corruption scandal in the history of the country: the stunning collapse of Khalifa Bank, the country's largest private bank.
The trial was the result of a three-year investigation that ensnared 4,000 people. Eventually 118 people, including executives, were arrested, but the man at the top, Abdelmoumen Rafik El Khalifa, was not one of them. He fled to Britain in 2003 when the scandal broke. The Algerian court tried him in absentia, along with 103 others. Khalifa and dozens of others were convicted. Khalifa was sentenced to life in prison and in late 2007 was awaiting extradition to Algeria.
The Khalifa trial came at a time when President Abdelaziz Bouteflika was trying to crack down on corruption. A tough law enacted in February 2006 provides that anyone charged with corruption, regardless of their official rank, would lose the traditional immunity from prosecution enjoyed by public officials.
Despite such measures, corruption remains a basic part of life for Algerians. Financial corruption remains almost daily front-page news in the Algerian press, dealing blows to the government efforts. Among the scandals:
* The Agricultural and Rural Development Bank (BADR — Banque de l'Agriculture et du Développement Rural), a state bank that reaches into many sectors of Algeria's economy, misappropriated more than two billion dinars (US$30 million) in a series of banking scams.
* In the wilaya (province) of El Tarf, a financial scandal ended with El Tarf's governor, Djillali Arar, in prison.
These affairs had so shaken the Algerian society that corruption had become the key domestic issue. But none of the scandals — indeed, no corruption scandal since the country's independence in 1962 — was as big as the Khalifa affair.
The trial opened on Jan. 7, 2007, in a court in Blida, 30 miles west of Algiers. The 104 defendants were accused of more than 30 serious charges, among them theft, fraud, forging official and bank documents, bribery and abuse of power. However, the star defendant, the Khalifa business empire's founder Abdelmoumen Rafik Khalifa, was in Britain, jailed on immigration and money laundering charges. An extradition agreement between the two countries was worked out just too late for Khalifa to be sent back to face justice in Algeria. Six other key defendants were also tried in absentia, after they fled to various European countries.
Khalifa, 40, is the son of a Cabinet minister in the administration of Algeria's first president, Ahmed Ben Bella. Rafik Khalifa worked as a small-time chemist in Cheraga district before rapidly and mysteriously ascending to lead an empire of 10 companies. Between 1998 and 2003, Khalifa's companies hired some 20,000 employees; the collapsed Khalifa Bank - the only Khalifa unit charged with wrongdoing — had 7,000 workers. It was a meteoric rise, and in hindsight, it was too good to be true.
The scandal began in 2003 with the arrest of three Khalifa Bank executives who were allegedly trying to smuggle two million euros (US$2.9 million) in a suitcase through Houari Boumediene Airport in Algiers. By June 2003, Khalifa Bank, the largest in Algeria, was bankrupt.
The collapse of Khalifa tore a hole in the public treasury. Hundred of thousands of Algerians lost their Khalifa accounts — accounts which were offering interest rates of up to 17 percent before the bank's seemingly inevitable collapse. The government has insured the accounts, but only up to 9,200 euro (US$13,495). The majority of Khalifa Bank accounts were held by public institutions and state-owned companies. Thus the financial collapse reached not only Khalifa Bank customers, but all Algerian taxpayers.
The money is believed to have been siphoned from the Khalifa Bank accounts to fund the crumbling Khalifa business empire, which a leaked French intellegence report estimated was losing 500 million euro (US$733 million) a year. After suspicious Algerian regulators restricted money transfers from Khalifa Bank, Khalifa executives were left with less reliable methods of illegally moving money to their European subsidiaries, setting the stage for the dramatic airport arrest.
In April 2003, the authorities began their investigation. Of the 4,000 people who were investigated in some way, only 104 were officially charged. Two of those defendants — Abdelwaheb Keramane, former governor of Khalifa Bank, and his brother, Abdenour Keramane, former Algerian Industry minister — refused to stand before the court in the trial, saying the charges against them were politically motivated.
Even the lesser defendants in the case had relatively high profiles. Among them were executives of state-owned real estate agencies, general and national secretaries in the Algerian general labor union, officials from the national welfare office, employment-benefit and national-security organizations and celebrities from the arts and sports worlds.
The testimony was star-studded, with a parade of previous and acting ministers in the Algerian government called to the stand. The most prominent witnesses were Mourad Meddilsi, former Financial minister and the acting Foreign Affairs minister and Karim Djoudi, acting Financial minister. Two high-power witnesses who were called by the court but did not testify were former Housing Minister Abdelmadjid Taboune and Aboudoujora Sultani, leader of the political party Movement of Society for Peace.
After more than three months of very complicated proceedings, the court issued a sentence of life in prison for Khalifa and sentences ranging from one year to 20 years for others.
Afterward, the court was criticized for neglecting to charge enough of the key players in the construction of Khalifa's financial empire — dubbed the "big fish" by the Algerian press. Among those critics was Algerian lawyer Saad Djebbar. "It is certain that big fishes escaped the net of Algerian justice," he said. "Consequently, these sentences aren't the end in this affair. Other prominent people were behind Khalifa's cartoon empire, among them generals in the intelligence community."
At the same time, relatives of the defendants expressed their disappointment in the sentences and in the lack of transparency of the trial, drawing a parallel to the trial of deposed Iraqi President Saddam Hussein. "Our relatives were tried quickly and in a less-than-open way. We don't know about the progress of the trial. In this way, ours will go... as was done for President Saddam." One of the defense attorneys criticized the court for breaking judicial procedure laws by opening the case in the Blida court and by limiting the window for appeal to three months.
The Khalifa trial became known as the "trial of the century" in Algeria. Considering the results, it has been a real test for the Algerian justice system and the rule of law, as well as a revealing look at the corruption reform begun four years ago.
Read more about Algeria...
Thursday, April 10, 2008
The Ugly Death of an Empire
Tuesday, February 19, 2008
Internet Censorship: A Comparative Study
Using data from the Global Integrity Index, we put a U.S. court's recent order to block access to anti-corruption site Wikileaks.org into context. In summary: The Wikileaks.org shutdown is unheard of in the West, and has only been seen in a handful of the most repressive regimes. Good thing it doesn't work very well.
Starting in 2007, Global Integrity added specific questions about Internet censorship to the Integrity Indicators, which are a set of 304 questions addressing the practice of anti-corruption in national governments. We have always held that a free and critical media is an essential component of good governance; adding an analysis of Internet censorship was an overdue refinement.
We asked our local research teams to investigate two questions:
The Many Flavors of Internet Censorship
A few countries, however, are deeply committed to trying to make censorship work. On this list in 2007 are Algeria, China, Egypt, Kazakhstan, Russia and Thailand. Each has it's own flavor to the repression of online speech -- Internet censorship is still in an experimentation phase, and even the most aggressive approaches don't seem to work very well.
- Algeria has no firewalls or filters, but outlaws hosting content critical of the government, and monitors chat rooms for political speech. [source]
- China is home to 1.3 billion people and has a highly scalable technological approach based on extensive content filters known satirically as the Great Firewall of China. China is also uses technology to discourage content creation, deploying cute animated police characters (pictured above) to remind Internet users they are being watched. [source]
- Egypt has limited technical means to discourage content creation, so it relies on an old-fashioned technique -- harassment, beatings and arrests. Hala Al-Masry used to publish in a blog entitled "Cops Without Boundaries" until the government harassed her, "unknown people" beat her father, and she and her husband were arrested and signed a commitment to shut down the blog. Similar techniques have shut down websites of opposition parties. [source]
- Kazakhstan has little Internet capacity. The government uses this to mask censorship -- rather than block sites, it slows them down, frustrating the users of political content into looking elsewhere. The KNB (formerly the KGB) has a special program called Bolat, which slows down, but does not stop, access to sites of terrorist organizations. Popular opinion holds that it is used to slow opposition party sites as well. [source]
- Russia has a mixed bag of state persecution and neglect, allowing a rare opening for free expression in a country with highly restricted media. However, the sophistication of the attacks that do occur is frightening, with hackers singling out individual online targets. For instance, the website of Ekho Moskvy, a liberal Moscow radio station critical of the Kremlin, was brought down by a DDoS attack last year. [source]
- Thailand's military junta moved aggressively to shut down message boards and the formerly-ruling party Thai Rak Thai website after taking over the country in 2006. But the junta's censorship cops work to keep the thinnest appearance of tolerance -- message boards were allowed to reopen under the condition that they did not "provoke any misunderstandings." Message received. [source]
The court order that muzzled Wikileaks.org (covered here) was prompted not by the government but by a bank registered in the Cayman Islands. The bank used American courts and a compliant domain registrar to scrub the wikileaks.org URL from the Internet. It is extremely unlikely that this decision will stand up in an appeals court, but the larger point is that there is no reason this case should even be fought. Wikileaks should not need a legal team to explain to the courts that the First Amendment requires freedom of speech.
The whole event seems to encapsulate the constant criticism of governance in the United States: that the government has been captured by corporate interests, and that the world-leading rule of law and technocratic mechanisms in place can be hijacked to serve as tools for narrow, wealthy interests.
Online Censorship: Sounds good, but it never works.
While there is much diversity in the style of Internet censorship among the world's worst offenders, one common thread unites them: Internet censorship doesn't work. Cut off one site, and a thousand more pop up. In China, censorship online is sparking criticism that off-line censorship has rarely seen.
So Wikileaks.org went offline, but Wikileaks mirror sites hosted overseas hold the same content, and the original site is still up and running from Sweden (http://88.80.13.160) without its easier-to-type URL. As it turns out, shutting down Wikileaks-the-website has focused our attention on Wikileaks-the-idea, which is spreading at the speed of light.
UPDATE: for more reading on anti-corruption, governance and censorship, try the Global Integrity Report. For more on online censorship, try the Electronic Frontier Foundation or the Open Net Initiative.
Wednesday, February 6, 2008
Will the Real Yemen Please Stand Up?
An email from one of Global Integrity's contributors -- apparently censored by government email servers -- prompts us to reexamine the "progress" in Yemen's movement towards open political discourse. Message 1: Message 2:
Yemen is a fascinating country when it comes to governance and corruption issues. A 2006 Global Integrity assessment for the country (published in January 2007) rated Yemen overall as "very weak" with a score of just 49, a disturbingly low total for any country. Serious weaknesses were cited in Yemen's media climate, judicial accountability, rule of law, and procurement practices.
Prior to our 2006 assessment, the Millennium Challenge Corporation (MCC) had suspended Yemen's participation in its Threshold program -- small grants designed to stimulate targeted reforms that then qualify the country for the really big MCC grants (MCC "compacts," in the company's parlance). The relatively negative 2006 Global Integrity assessment seemed to support that decision, taken in late-2005.
In February 2007, MCC reinstated Yemen to Threshold status, citing major reforms undertaken in the wake of the 2005 suspension -- a freer media, judicial reforms, and improved procurement practices were all specifically highlighted by MCC as areas where progress had been made.
I mention this because I received the following email message from one of our Yemeni colleagues this week who worked on the 2006 assessment. He had been trying to email me to congratulate Global Integrity on the release of the Global Integrity Report: 2007, which among other Key Findings warned against confusing cosmetic governance reforms for the real thing. His message, which he agreed I could publish, is below. Will the real Yemen please stand up?Dear Nathaniel:
Here is further proof of your conclusions on "Democratically Elected Governments." This is how Yemen views freedom of speech and the press: I have sent you the following two mesages and both bounced back (the regime is tightening up on all efforts to communicate any opposing contents by literally closing out any flow of news content or
opinion or any organizations or outsourced news item (they even closed out the Yemenportal.net. site)):
Dear Nathaniel Heller:
Thanks for the latest output from Global Integrity. Look forward to participating
in your continuous efforts to instill political sanity in this world.
Best regards,
[omitted for safety]
Dear Nathaniel
I just looked into your web site and found the GI website and found your GI report on Yemen for 2006. Would you mind if we delve into the Report on Yemen in a detailed article for the Yemen Times sometime later this week?
Thanks,
[omitted for safety]
I have just learned that they have in fact blocked all my outgoing messages via my mail.yemen.net.ye account, which is a government owned server. I am not sure if it is just me or everyone else, but this has been going on for the last three days. It is unlikely to be a technical error.
Saturday, February 2, 2008
How the Middle East lost its Internet
Last Wednesday a ship's anchor cut two undersea fiber-optic cables, crippling Internet access for 75 million people in the Middle East and South Asia. This wonderfully executed data graphic from TeleGeography.com shows how it happened (click the image for full size).
UPDATE: The Egyptian government now says that no ships were present over the fiber-optic cables when they were cut near Alexandria. The actual cause of the cable failures is unclear. Unlike the conveniently timed "failure" of an undersea cable that severed Burma's connection to the outside world during pro-democracy protests last year, there's no obvious political incentive for this cable failure.
VERY LATE UPDATE: Deliberate sabotage speculation on the rise.
Wednesday, January 30, 2008
Clean Elections No Guarantee of Strong Democratic Society
New Report Assesses Anti-Corruption Mechanisms and Government Accountability in 55 Countries, Including First Investigation of
(Washington D.C.) – Although elections are often touted as the linchpin of governance reform efforts around the world, a new report finds long-term benefits offered by elections are often undermined by a lack of government accountability and the absence of strong anti-corruption mechanisms. The report, a major investigative study of 55 countries, was released today by Global Integrity, an international nonprofit organization that tracks global governance and corruption trends.
“We have to stop using elections as a simplistic litmus test for a government’s commitment to democracy,” said Global Integrity’s Managing Director Nathaniel Heller. “We now know there is little linkage between elections and the much tougher reforms that must be made, especially in countries at political crossroads such as Pakistan, Ukraine, Georgia, and Kenya.”
The Global Integrity Report: 2007 covers most of the Group of 8 (G8) countries as well as dozens of the world’s emerging markets and developing nations, from Argentina to China to Zambia. Rather than try and measure corruption directly, the report investigates and assesses the government accountability mechanisms and transparency measures needed to prevent corruption and promote good governance.
Many of the findings of the report should be sobering for policy makers and investors alike. The weaknesses found in China’s anti-corruption framework, for example, raise questions as to the true risks facing investors rushing to capitalize on the country’s economic boom– and to the risks Chinese investment funds pose to Western markets. “China’s lack of strong anti-corruption mechanisms could soon be to foreign investment what subprime mortgages have been to the U.S. economy,” stated Heller. “The message from our report to investors should sound a lot like ‘buyer beware’.”
Other major findings of the report include the following:
· The US and other G8 countries suffer from many of the same corruption challenges as developing countries, especially in election and campaign financing. While many observers tend to assume that wealthier countries have developed to a point where corruption is no longer a problem, Global Integrity’s 2007 data for the United States, France, Italy, Japan, and Canada paints a decidedly different picture.
· Despite the conventional wisdom that changes in governance and anti-corruption performance take many years to manifest themselves, several countries exhibited significant improvements or backsliding from 2006 to 2007. The biggest gainers in the past year were Bulgaria, Nepal and Azerbaijan; Nigeria and Georgia were the countries that experienced the greatest declines.
· Poor ratings for several close allies of the United States highlight the challenges the U.S. faces in promoting democratic reforms in countries where it has competing security interests. The report found that countries like Pakistan and Georgia posted ‘weak’ or ‘very weak’ ratings for many of the anti-corruption, accountability and transparency indicators.
· A widespread lack of government accountability among foreign aid recipients presents serious dilemmas for Western and multilateral aid agencies. Despite a growing awareness by aid donors of the need to direct aid to non-governmental stakeholders, like civil society groups, aid agencies continue working primarily with the very same executive branches that are often hindering democratic reforms.
“This report should be a roadmap for change and a wake-up call to policy makers, investors, and aid donors around the globe,” said Global Integrity’s International Director, Marianne Camerer. “It’s also a take-action toolkit for public officials and citizens who want to fight corruption and increase government accountability.”
The report is the product of months of on-the-ground reporting and data gathering by a team of more than 250 in-country journalists and researchers who prepared more than a million words of text and 20,000 data points for their respective countries. Twenty-four countries were repeated from Global Integrity’s 2006 assessments, while 31 were newly assessed.
To access the Global Integrity Report: 2007, please visit http://report.globalintegrity.org. For more information about the organization, visit http://www.globalintegrity.org. Global Integrity is an independent, non-profit organization tracking governance and corruption trends around the world. Global Integrity works with local teams of researchers and journalists to monitor openness and accountability. Its data and reporting are used routinely by aid donors, governments, grassroots advocates, and investors to prioritize governance challenges in countries and develop roadmaps for reform.
Global Integrity is grateful to the Legatum Institute for Global Development ( www.ligd.org) for its continued support of Global Integrity’s work. LIGD is an independent policy, advocacy and advisory organisation within the Legatum group of companies (www.legatum.com). The Institute’s mission is to research and promote those principles that drive the creation of global prosperity and the expansion of human liberty and well-being, including the rule of law, transparency, and accountable government as the pillars of a prosperous and free society. Other supporters of the Global Integrity Report: 2007 were the Australian Agency for International Development, the Wallace Global Fund, and the World Bank.
Wednesday, January 23, 2008
The War Card: Orchestrated Deception on the Path to War
Global Integrity co-founder Charles Lewis is not one to let untold stories slip from sight. At the moment, the popular mood has turned against the Bush administration's rush to war in Iraq. But history is slippery and subject to revision, where truth becomes a game of that's-your-opinion, and 'balance' means giving the truth equal time with carefully orchestrated lies.
Unless, of course, single-minded journalists like Lewis stake down the truth in such clear and meticulously researched language that there is no room for spin. Their result is unequivocal:
President George W. Bush and seven of his administration's top officials, including Vice President Dick Cheney, National Security Adviser Condoleezza Rice, and Defense Secretary Donald Rumsfeld, made at least 935 false statements in the two years following September 11, 2001, about the national security threat posed by Saddam Hussein's Iraq. Nearly five years after the U.S. invasion of Iraq, an exhaustive examination of the record shows that the statements were part of an orchestrated campaign that effectively galvanized public opinion and, in the process, led the nation to war under decidedly false pretenses.Read the report at The War Card, published by The Center for Public Integrity.
We are proud to have Charles Lewis as a member of Global Integrity's advisory board.
Sunday, January 20, 2008
New Blog Design
With the help of some talented programmers who offer their work to the open-source community, as well as some good old fashioned poking-around-with-code, we have a new layout for the Commons. Not all features are up to speed yet, but the outline is here.