The Paris-based Financial Action Task Force (FATF) has decided to keep Algeria on its “grey list” of countries “whose laws provide for a high risk of money laundering and terrorist financing.” The list also includes North Korea, Ecuador, Indonesia, and Myanmar.

This is potentially extremely damaging to Algeria’s reputation, and it is likely to discourage the forms of international investment which the country now badly needs to attract. The Algerian authorities will be especially concerned as the move came despite their efforts to reform the relevant laws.

The background to this story dates back to October 2014, when a plenary meeting of the Financial Action Task Force, held in Paris placed Algeria on the “grey list”. Although FATF recognised the steps taken by Algeria to improve transparency and undertake efforts to counter illicit activities, it was noted that “despite its high-level political commitment to work with the Financial Action Task Force to address its strategic gaps, Algeria has not made sufficient progress in implementing its action plan on time and certain strategic deficiencies remain.”

Algeria was therefore given until the next FATF plenary, scheduled for late March, to get its house in order, with late-February being the deadline to make submissions for consideration.  As we reported in Algeria Politics & Security – 23.01.15, the country introduced new legislation on 20 January to tighten up its laws on money laundering and terrorism financing. The new legislation redefined the crime of terrorism financing in line with international standards and reinforced mechanisms for the freezing or seizure of funds belonging to terrorists.

Algeria has not yet been forthcoming as to why the Financial Action Task Force has rejected Algeria’s new measures, and FATF itself only issued a brief press release on 27 March, stating that although the Financial Action Task Force acknowledged Algeria’s “improvement measures” to its legal system, shortcomings remain. No details of these shortcomings were provided, other than the lack of an “action plan” and “persistent failure”.

We are not at all surprised at the Financial Action Task Force’s decision. Although the mainstream media is necessarily more cautious in publishing allegations on money laundering and other illicit activity, the secrecy which pervades and characterises the Algerian regime could provide fertile ground for such activities. At the same time, the legal system’s efforts to investigate such wrong-doing have appeared piecemeal or even selective, as powerful institutions such as the DRS intelligence services – long believed to have either participated in or known about and failed to prevent the kinds of activities which the grey list seeks to highlight – remain impervious to accountability.

The problem has been longstanding, but Algeria is now undertaking efforts to reform. It is nevertheless difficult to ascertain whether these initiatives are cosmetic or substantive. The legacy of this damage to the country’s reputation will be like that of a bad credit record: How far and how deep will change need to go before the slate is wiped clean, and Algeria is given a clean bill of health by organisations such as the Financial Action Task Force? Rather than introducing legislative changes, the regime itself will need to change its practices and personnel before the highest standards of international accountability are satisfied.

Unfortunately for Algeria, the Financial Action Task Force decision could not have come at a worse time, with the economy facing crisis and desperately needing new investment. The question now will be the impact on new foreign business investment in the country, or, for that matter, on any credit facilities that Algeria may need to open or enlarge.

This article was taken from our Algeria Politics & Security publication.