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Investigators chase $9.4 billion siphoned into secret accounts – police accused of stealing records disclosing own corrupt funds, Finance Ministry uses accounting trick to bury the bodies
By Nizar Manek and Jeremy Hodge
Protestor looks at poster of then Minister of Defence Abdel Fattah el-Sisi, a day after the now president led the putsch that overthrew Mohammed Mursi (4 July, 2013: Rex Features via AP Images)
One sunny day last March, Egyptian government auditors walked past the concrete barricades surrounding the Ministry of Interior (MOI), which oversees the country's non-military security services. There, they sought to ferret out irregularities from the Ministry's financial records, among them allegations that seven unnamed senior officials at the MOI used state funds to distribute nearly $12 million in bonuses to themselves. Before the auditors could inspect the records, they were thrown off the premises. Eight months later, the audit chief complained to Egypt's new President and Prime Minister that MOI staff burgled a room his auditors used to investigate the Ministry, stealing investigative records and notebooks. In a memo, the audit chief told them the Ministry justified the break-in with Egypt's 'war on terror', claiming that how it spends state cash must be kept a state secret.
What the auditors were looking for turns out to have been the tip of an iceberg. According to previously undisclosed official records uncovered by The Angaza File in months of investigations, at least US$9.4 billion of state funds had been stashed in nearly 6,700 unaudited accounts in the Central Bank of Egypt and, illegally, in a number of state-owned commercial banks, and spent by the end of the 2012/2013 fiscal year. This was one year before Egypt's popular military putsch brought with it an outpouring of Gulf aid into the country, some, it has become apparent in recent months, deposited in army-operated accounts at the Central Bank. Insiders say these accounts are used to stash stolen state funds that are never relayed into Egypt's treasury or national budget, but instead serve as the private piggy banks of generals and other senior officials at state organs across the bureaucracy. This enables them to collect bonuses off-the-books away from the eyes of regulators and their subordinates. Known as 'special funds', President Abdel Fattah el-Sisi asked regulators to investigate soon after he was elected to the nation's high office as the country was suffering from a massive budget deficit. In December, Prime Minister Ibrahim Mehleb followed, announcing a 'new anti-corruption strategy', preparing the way for El-Sisi to fly to the Davos World Economic Forum to court foreign investors.
One fissure which now appears to undermine that 'strategy' involves the Finance Ministry playing an accounting trick (see Box, $5.6 billion accounting trick). By August, Egypt's Minister of Finance Hany Kadry Dimian claimed the total size of the network of slush funds did not exceed $3.8 bn., but failed to explain the apparent $5.6 bn. discrepancy. Interviewed in his office in Cairo, Hisham Genena, who chairs Egypt's Central Auditing Organization (CAO), calls the gargantuan network of funds the 'backdoor to corruption, squandering state funds in the worst way'. These funds stretch from the MOI to the Ministry of Defence (MOD), which El-Sisi headed before rising to the high office, said the audit chief, who had his auditors show up at MOI HQ that day a year ago, but has since given the military a clean bill of health. The MOI has since undergone a change of face at the top: Interior Minister General Mohamed Ibrahim was sacked in March, replaced with retired Major General Magdi Abdel-Ghaffar who headed the National Security Agency domestic intelligence service.
Part of the money allegedly stolen by MOI top brass is said by insiders to have come from a series of secret bank accounts used to stash opaquely administered funds collected directly by the Ministry in exchange for services, from traffic fines to the sale of license plates, and various forms of extortion police mete out to Egyptian citizens. Officially, these funds are used to pay for Ministry expenses, including the purchase of uniforms, food, and equipment. According to insiders, the seven senior MOI officials even stole from police pension funds which officers pay into for themselves through monthly contributions from their meagre salaries of around a hundred dollars a month. One of those MOI staffers told The Angaza File that these accounts are usually managed internally by 'inexperienced, trustworthy people promoted to these positions through favouritism who will bury certain numbers'.
Soon after the president flew back to Egypt from Switzerland in January, El-Sisi himself was drawn into scandal when an audio recording was leaked from his time as Defence Minister in early 2014. The recording seems to provide evidence that he was conspiring to divert billions of dollars in Gulf aid that came into the country in the weeks and months following the 2013 putsch by transferring such aid into special 'army accounts' held overseas (#Sisileaks). This means the aid could be entangled in the web of 'special' funds, potentially increasing their size exponentially. In a series of highly-publicised tweets, Saudi Prince Saud Bin Seif Al-Nasr, asked why officials he accused of wasting Saudi funds were not being held responsible? 'No one knows the nature of this aid – a gift, a loan, or anything else,' the prince said. A study of two of these secret recordings uploaded to YouTube ('Sisi loots the Gulf; we have taken from the Gulf more than 200 billion (Egyptian) pounds' – duration 4:43; and 'Sisi despises the Gulf – new leak from Sisi's office' – duration 2:11) by British forensic speech and acoustics experts JP French Associates concludes: 'Our opinion is that the evidence provides moderately strong support for the view that the questioned speaker is Abdel Fattah El-Sisi.' 'All the indications are that the speaker in each of the questioned conversations is the same man,' says the 26-page report signed on March 20 2015 by Prof Peter French and Dr Sam Hellmuth, and prepared on instructions of Mursi's London-based lawyers ITN Solicitors. The report, reviewed by The Angaza File, finds features common in El-Sisi's colloquial Cairene Egyptian Arabic.
Shortly afterwards, El-Sisi travelled to Riyadh to meet with the new Saudi monarch Salman bin Abdulaziz Al-Saud ahead of Egypt's much-publicised investment summit in mid-March on the shores of the Red Sea. There, Saudi Arabia, the United Arab Emirates, Kuwait, and Omanpromised Egypt another $12.5 bn. in aid and investment. The UAE said it would make a $2 bn. deposit to the Central Bank. In tears and amid rapturous applause at the conclusion of the summit, Mehleb said agreements worth over $36 bn. had been signed – including with corporate titans General Electric, Siemens, and British Petroleum – in addition to more than $18 bn. for financed projects and some $5 bn. in loans. Out of all projects, top priority was given to the foreign currency-generating, army-affiliated Suez Canal Development Project, which officials expect to represent a third of future investments coming into the country. The World Bank and International Monetary Fund attended alongside two-dozen regional and international organisations, more than 2,000 investors, and two-dozen heads of state, and dignitaries including United States Secretary of State John Kerry, telecoms magnate Naguib Sawiris, Britain's Foreign Secretary Philip Hammond and the IMF's Christine Lagarde. Before posing for selfies with young organisers, El-Sisi made a speech saying Egypt needs $200-$300 bn. to develop. Mehleb closed: 'We need to fight corruption, negligence, and all that stands in our way'.
|Where do the funds go? (Special funds memos)
This story is the first systematic journalistic investigation into 'special funds'. According to our findings, some of these are intertwined with ministries and state enterprises including the Suez Canal Authority that presented investment opportunities at the summit. This investigation is based on dozens of previously undisclosed memos from Egypt's Central Bank, Finance Ministry, and CAO, bank statements, and corroborative interviews with dozens of current and former officials and people close to the regulatory process over several months. Our analysis further reveals that the $9.4 bn. figure we uncovered, an official estimate by the CAO based on financial information from the Central Bank and Finance Ministry for the end of the 2012/2013 fiscal year, appeared to drop $4.7 bn., from $14.1 bn. during 2010/2011 fiscal year, according to the previously undisclosed Central Bank records, which bear the official seal of the Central Bank.
According to memos we reviewed, monies within special funds are often transferred into and held in accounts at state banks in violation of Egyptian law. This makes it effectively impossible for the entirety of their content to be inspected by government auditors, the Central Bank, Finance Ministry, or other often overlapping state institutions involved in combating corruption. 'The monopoly on information is the main issue,' says a person close to the Central Bank who assisted in our analysis of the memos. Like all unnamed sources in this story, he spoke on condition of anonymity, because a leaked draft law prepared under the El-Sisi administration seeks to criminalise all forms of dissemination of information about the military, considered as 'secrets related to national security', and because he was not authorised to talk. He says that the generals in the MOI and MOD, and senior bureaucrats elsewhere, are 'free to siphon off national budget funds.'
Central Bank officials, including Hatem Ibrahim, the General Manager of its Risk Management Department since 2010, say they have no details on how much generals receive in bonuses, nor who monitors such payments, and would not comment on non-public information. When contacted, the MOI's Major Mohamed Al Serty said Egypt's courts were investigating the allegation that CAO auditors were harassed and thrown out of the building. He would not identify the court, judge, or lawyers handling the case, nor provide any details. On three occasions, he told The Angaza File that the ministry's official spokesperson Major General Hany Abdel-Latif was 'too busy' to clarify the allegations against the seven senior MOI officials or answer our questions. When asked to schedule an interview, Finance Minister Kadry Dimian referred us to his staff who did not respond. His predecessor Ahmed Galal told The Anagaza File that he knew nothing about the subject of special funds.
After the uprising that swept Mohamed Hosni Mubarak away four years ago, there were calls to end corruption, regulate opaque funds and incorporate them into the national budget to help close the country's ever-widening budget deficit, which by the beginning of this fiscal year stood at $34.2 bn. It was soon discovered that the unregulated accounts existed within nearly all-state bodies. 'Many special funds are just fronts for corruption,' says Samir Radwan, Egypt's first post-Mubarak Finance Minister who had also been a long-term member of the Mubarak's ruling National Democratic Party (NDP), whose affiliates loom large in the pool of candidates for Egypt's now postponed parliamentary elections that give El-Sisi more time to rule by executive fiat. 'You have a slush fund. People can spend from it, and distribute amongst themselves.'
During Radwan's brief spell as Finance Minister until being relieved of his position, reportedly due to his previous NDP membership, he crunched official statistics with the Governor of the Central Bank, Farouk el-Okdah, who declined to comment on the matter when reached. 'We used to see the numbers but we didn't know what the hell they were,' says Radwan, now an adviser to the Supreme Planning Council of Oman, recalling when he stepped into the ministry. 'We had no control over these funds.'
After their own investigations conducted throughout early 2011, the pair concluded that the total sum of special funds was Egyptian pounds 36.4 bn. ($5.2 bn.). This figure is close to other estimates put forth by Egypt's parliament in the months following the uprising, in the EGP30 bn.-EGP40 bn. range. A similar estimate of the size of Egypt’s special funds was made in a 50-page report produced by the European Union's Court of Auditors in June 2013. It sought to track the whereabouts of €1 bn. in aid the EU provided to Egypt in the period between September 2007 and the same month in 2012. The report concluded that EU auditors were unable to trace or account for anywhere between 60 to 80 per cent of the aid provided to Egypt during the five-year period, but also mentioned EGP36 bn. (€4 bn.) discovered in a series of unauditable 'special accounts' existing outside the state budget.
Both this estimate provided by the EU, and the similar number proposed by Radwan, grossly underestimate the figures contained in records we have reviewed. Karl Pinxton, in charge of the Court of Auditors' report, told the press in Brussels that June, that the EGP36 bn. figure put forth in the report by the Luxembourg-based Court of Auditors was likely an underestimate. He said the way Egypt's special funds were spent was unclear and 'may even have increased recently'. The CAO’s own annual report for the 2012/2013 fiscal year puts the size of Egypt's special funds at $9.4 bn. – but neither this figure nor the CAO's report were ever made public.
While the Court of Auditors itself appears to have never learned of the $9.4 bn. figure, their June 2013 report states that a lack of transparency within the CAO is one of chief obstacles stopping its auditors from accurately assessing how EU funds were spent. 'No progress has been made in reforming external auditing,' the report said. The CAO reported directly to Mubarak, and its audit reports are 'largely secret', with a lack of reform and transparency being 'a serious impediment to improving its public finance management'. The disclosure by The Angaza File for the first time of figures in the CAO's own 2012-2013 fiscal year report suggests the EU's initial fears over a lack of accountability and transparency within Egypt could be far worse than previously expected.
|Abdel Fattah el-Sisi and Saudi Arabia's King Salman on the sidelines of an Arab League summit in Sharm el-Sheikh soon after a leaked audio recording seemed to provide evidence Sisi was planning to divert billions in Gulf aid into 'army accounts' (March 28, 2015: AP Photo/MENA)
El-Sisi's aide calls
During an interview last June, Genena told The Angaza File that reports he filed on government corruption languished on shelves gathering dust, and memos he filed to previous parliaments and competing anti-corruption bodies over special funds (see Box, Sisi's special spook), were ignored. But in August, Genena would receive a telephone call from an unnamed aide conveying a message from the newly-elected El-Sisi. The message concerned a new maximum wage law capping monthly income for all state officials at $6,000, including all bonuses and benefits. The presidential aide told Genena he shouldn't exempt any individual or government agency from his investigations.
It was after receiving El-Sisi's apparent carte blanche support that Genena began stepping up his attempts to publicly expose the MOI, accusing it of allocating $2.7 bn. of its $3.3 bn. budget to salaries and bonuses in the 2013/2014 fiscal year, spending only $600 million on equipment, clothes, and food for its officers. Information the CAO gathered came inadvertently, according to Genena. In one example, one security chief within a municipal government collected more than $7,000 per month from both a mining and quarrying fund and sanitation special fund. 'This obviously isn't related to his line of work,' he told Al-Tahrir, a news agency founded by high-profile media personality Ibrahim Eissa, whom senior officials said in an audio recording leaked in January purportedly from El-Sisi's office, had been working for the army even before the elections that brought El-Sisi to power. 'This isn't information we obtained from the ministry,' said Genena, according to one of two Al-Tahrir interviews now deleted from the agency's website. Auditors found out about this incident 'accidentally' after auditing the finances of various local governorates.
|Hisham Genena, the head of Egypt's auditing body, calls the gargantuan network of funds the 'backdoor to corruption.' (April 16, 2014: AP Photo)
Genena said his auditors had not run into obstacles in conducting audits of the Armed Forces and MOD. 'Sisi was the first to provide me with the information needed to audit his salary. I can confirm he doesn't take home more than the legally mandated maximum.'
Robert Springborg, an expert on Egypt's military at the US Naval College, views such wholesome praise with a touch of scepticism. He thinks Genena himself may be part of an evolving mechanism of control for El-Sisi to use against rivals and challengers to the military within the state apparatus, like the MOI. Such suspicions are rooted in history: wary of potential coups, post-colonial presidents from Gamal Abd el-Nasser to Mubarak sought to build the MOI into a counterweight to the armed forces. In contrast, El-Sisi has now built his own version of the security state in which the MOD and its intelligence-gathering apparatus steadily encroach on ground traditionally reserved for the MOI. According to Genena, during the conversation, the aide asked him to inform the president of any obstacles his agency encounters, including who cooperates and who refuses.
It is also possible, says Springborg, that El-Sisi's apparent anti-corruption agenda ultimately serves to distract attention from the military's accumulation and consolidation of economic control since El-Sisi led the putsch that deposed Mohamed Mursi, Egypt's first civilian president since independence.
As head of a previously gutted regulatory agency, since El-Sisi's rise Genena's role has steadily evolved amid the web of informants that sustain Egypt's security state. He sends effectively secret reports directly to the president, and is legally-bound to submit two annual reports to a still non-existent parliament. His investigations have evoked the ire of powerful Mubarak-era officials, including the newly sworn-in Minister of Justice Ahmed el-Zind, chairman of Egypt's Judges' Club who previously has filed lawsuits to have Genena sacked. (The suits are pending.) In January, Genena responded by submitting a judicial order to the Supreme Administrative Court saying Egypt's military-backed constitution entrusts him with the same political power accorded to ministers, meaning he must be made immune from impeachment. The audit chief has now begun filing libel suits against his detractors in the judiciary and press. In an attempt to smear Genena, some of these detractors have gone so far as to claim that he is a member of the now outlawed Muslim Brotherhood. Genena attempted last year to fight back against these claims and prove his worth to El-Sisi’s regime, declaring that Mursi took home an unaccounted for $113,960 during his year office, beyond the $6,410 he said was legally mandated.
Since his presidential campaign, El-Sisi has remained silent on speculation about the size of the military's so-called 'economic empire'. 'Would the military budget be supervised during his presidency?' television presenter, Ibrahim Eissa, asked him during his campaign. El-Sisi maintained an impenetrable stare; the section was cut from the broadcast. Little has been forthcoming in official statistics on Egypt's military's undisclosed, untaxed budget, nor about the scale of its special funds.
But by late 2011, the reach of that empire went on display. In December of that year, Egypt's Central Bank announced that its foreign currency reserves dropped to $15 bn., compared to the $36 bn. it possessed before the uprising, risking a balance of payments crisis. Shortly afterwards, an emergency meeting was convened among the country's top 19 Generals, attended by El-Sisi, then Director of Military Intelligence. It ended with the Supreme Council of the Armed Forces (SCAF) announcing it loaned one billion dollars' worth of foreign currency to the beleaguered Central Bank.
No explanation was given as to why the military held so much foreign currency and the Central Bank so little. But the memos we have reviewed show that by June the Central Bank did in fact have more than a billion dollars' worth of foreign currency slushing about in a set of 820 separate undisclosed, unaudited special funds accounts held in its own vaults. According to the memos, those accounts contained US dollars, British pounds sterling, euros, Saudi riyal, Kuwaiti dinar, Japanese yen, Swedish krona, Danish kroner, Swiss francs, Canadian dollars, and Emirati dirham. There was a key problem, according to people close to the Central Bank, those accounts were illiquid and impossible to disentangle because they belonged to various state organs that operate like fiefdoms running their own budgets. They were among the almost 6,700 other special funds accounts at the heart of a system of paying Egypt's bureaucracy, according to the records. Major General Mohammed el-Assar, Deputy Minister of Defence for Armament Affairs and SCAF member, declined to comment, saying he was not authorised to talk to the press. Army spokesperson Colonel Ahmed Ali declined to answer our questions, including how the military accumulated this off-budget foreign currency.
|Headquarters of state institutions identified in special funds memos (Angaza File research)
According to the Central Bank memos, an additional 208 special funds were owned by groups referred to as 'economic authorities' in the 2010/2011 fiscal year. These accounts are stated to have collected $4.9 bn. in credit activity that year. According to a local expert on Egyptian military affairs and a former senior advisor to the Finance Ministry these entities, from the Suez Canal Authority (SCA) to Egyptian General Petroleum Corporation and a secretive body called the Arab Organisation for Industrialization (AOI), are usually run by former generals with a parallel system of budget approval. Evidence that at least some monies linked to the Suez Canal Authority (SCA) have been tied up in special funds is given in the Central Bank memos. They state that $42.48m of 'damanat' (which translates as 'guarantees' and/or 'securities') provided by the Finance Ministry to the SCA are among the total $4.9bn balance of special funds belonging to economic authorities. Further breakdowns for 'economic authorities' are not provided in the memos.
The Suez Canal Authority, the crown jewel of Egypt's investment summit offered 18 projects worth $40bn to create a new industrial and logistics zone and attracted interest from Chinese investors. It saw revenues increase $1.4mn to $434.8mn in January.. El-Sisi previously said a new canal being constructed on the 145-year-old waterway would help increase SCA revenues to $13.5bn by 2023. At the summit the head of the authority, Vice-Admiral Moheb Mamish, said the project will require $15bn to be spent on utilities, and that Egypt would establish an authority to oversee the Suez Canal Zone on behalf of the state under a recently amended law for special economic zones. That oversight body would issue state permits, excluding those related to the Defence Ministry or judicial system. The SCA's spoils from special funds could be set to rise. 'We have no corruptions here, not any, any!' Mamish, an ex-Commander-in-Chief of the Egyptian Navy and ex-SCAF member, told The Angaza File, claiming the SCA accumulated 'zero' undisclosed debts. This follows a non-public official report provided to Egypt's cabinet saying some state enterprises had off-balance sheet debts, some entangled with unnamed entities that refused to disclose debts.
Established four decades ago as a joint venture between Egypt, the United Arab Emirates, Saudi Arabia and Qatar, the AOI economic authority started as a military entente between member states to counter perceived threats posed by Israel. It soon became one of the pillars of production in Egypt's military-industrial complex, operating its own factories and companies. In 1976, a law was passed granting the AOI a series of 'immunities', and 'privileges', including the right to 'hold any type of foreign currency and open accounts in any currency it wishes both domestically and abroad.' According to the law, these accounts could not be taxed or audited, and AOI documents would be handled with 'utmost secrecy', even involving symbolic or coded messages and special briefcases delivered under a cloak of diplomatic immunity. Members of the AOI's High Committee and Board of Directors, both Egyptian and foreign who could not be reached for comment, were granted judicial immunity and tax exemptions on all AOI salaries, benefits and bonuses.
But by 1980 shortly after signing Egypt's peace treaty with Israel, President Anwar el-Sadat amended the law to introduce a tax on all payments associated with the AOI, although articles preventing AOI funds from being audited were not amended at the time. The local military affairs expert said the amendment was never applied in practice, and the AOI's payments never taxed. A year later Sadat was assassinated.
After the Egyptian-Israeli treaty, the three Gulf state members declared the AOI and its funds liquidated, but Egypt's then Defence Minister General Kamal Hassan Ali refused and it continued to operate as an exclusively Egyptian organisation. According to the expert, the AOI still is able to establish overseas bank accounts holding foreign currency. One example came in a 1995 dispute between a British aerospace company and the AOI heard before the High Court of England and Wales, Queen's Bench Division, in which the Egyptian government operating through the AOI claimed to be the 'true owner' of deposits at six banks with offices in London.
The most recent apparent example is the alleged leaked conversation in February in which the then Defence Minister is heard talking with Major General Abbas Kamel, his chief of staff, funnelling gulf aid into private accounts operated by the armed forces abroad in the Gulf and outside the purview of the Central Bank of Egypt. 'We need ten placed in the army account,' El-Sisi said, according to the recording, which El-Sisi tacitly alluded to in a pre-recorded televised speech in February, but did not deny its authenticity. 'Those ten will be for the state. We need another ten from the UAE and ten more from Kuwait.' El-Sisi never specifies where the latter two 'tens' are intended to go. (Middle East media reports have interpreted 'ten' as meaning $10 billion.) Kamel, seemingly taken aback by El-Sisi's brazenness, asks: 'This is a large amount, how will they be able to send it?' To which El-Sisi responds: 'Why don't we open our own office there?' Kamel: 'And they can deposit directly into the account?' El-Sisi: 'Yes.'
In Sadat's shadow
Special funds, or in Arabic al-sanadeeq al-khasa, were created by presidential decree under El-Sadat, who pursued a policy of economic liberalisation allowing various state organs to operate their own budgets independently and develop a system of financial autarky. The program expanded under Mubarak. Khaled Abdel-Aziz, who joined the MOI in 1984 as a Police Captain, said that then the MOI had two special funds. Later, when he joined the Central Security Forces, another fund was created, he says. 'Now, I hear there are fifteen to twenty funds,' says Abdel-Aziz, who left the MOI for the United Nations in New York, and is now a senior partner at a Cairo law firm. Loosely defined and unregulated, special funds, particularly those opened in state banks, quickly became a source of rampant corruption. So much so that Mubarak passed a law in 2006 making it illegal for state bodies to operate funds in state banks.
Special funds held by various agencies and ministries administer compulsory contributions by bureaucrats for pension schemes and health insurance, and expenses for funerals, marriages, and healthcare. Others contain funds collected from citizens in exchange for public services, from tuition for over a dozen state universities from Cairo University to Ain Shams, to hospital fees.
Still other income for special funds involves procurement, which can result in foreign companies and investors being pulled unwittingly into a vortex of corruption. Markus Müller, the German manufacturer Utsch's MENA region sales director, told The Angaza File that the Finance Ministry placed an order in 2008 with Utsch to produce and deliver materials and machine tools. That same year, Egyptians were astonished to learn that 26 million vehicle licences would be forcibly issued with no change other than the word 'Egypt' written in English to accompany the Arabic.
Two months after Mubarak fell, a set of transactions connected to the licence plates were the subject of a Cairo court case. Mubarak's Interior Minister Habib el-Adly, Finance Minister Youssef Boutros-Ghali, and Prime Minister Ahmed Nazif were accused of purchasing nine million vehicle registration plates at an inflated price from Utsch in an illegal no-bid contract, and the court handed El-Adly a five-year prison sentence for squandering over $15 mn. of state funds. 'As far we know, the Finance Ministry then sold the ready-made plates to the MOI, and then the MOI sold the plates to car owners,' said Müller. He said Utsch did not know about what profits the MOI made with these plates or how these profits were spent.
According to one CAO memo, dated September 2009, two special funds accounts held by the MOI boasted a combined total balance of $2.48 mn. and were connected to sales of car licence plates. The memo provides bank account numbers, and says both were interest-bearing accounts at two of Egypt's largest state-owned commercial banks, the National Bank of Egypt and Banque Misr. Although there was no reason to think Utsch paid bribes for the deal, Müller told The Anagaza File that it had commissioned a KPMG audit of its books which proved it did not pay kickbacks to officials or third-party agents. NBE's chief executive at the time Tarek Amer declined to comment, and Banque Masr's then CEO Mohamed Kafafi could not be reached. El-Adly and Nazif were cleared of corruption charges in the 'licence plates' case in February and in March, El-Adly was released from prison, according to Egypt's official MENA state news agency.
Other MOI accounts mentioned in the same CAO memo which haven't attracted much scrutiny include its 'Lands' Projects Fund,' valued at $81 million, 'Improvement of Social Welfare and Health of Police Officers and Family Members Fund' ($242m), 'Civil Development Fund' ($52m), and 'Police Hospital Services Improvement Fund' (over $50m). According to witness accounts from people who have spent time in Cairo's jails, whenever a new inmate is processed, officers collect fees usually between three and six dollars per inmate. They are told the money will go into a fund.
General Hussein Emad Eldeen, who served 36 years as director of the MOI's Anti-Public Funds Crimes Department, said it's 'impossible' for owners of special funds to avoid being regulated by the CAO and Finance Ministry, which are legally bound to regulate those funds. Like other police officials we interviewed, Gen. Emad Eldeen, who retired a year before allegations surfaced about the seven senior MOI officials paying lavish bonuses to themselves, declined to discuss any details about special funds, nor would he discuss MOI pay structure, bonuses, or pension packages. (It is not alleged that General Eldeen is an MOI official who has improperly diverted funds to himself).
Like the unaccounted for EU aid to Egypt pursued by the EU Court of Auditors, there are other funds that have collected revenues in the form of grants and loans from multilateral institutions. The Central Bank records we have reviewed show the OPEC Fund for International Development providing Egypt $40mn in loans in December 2007 to finance construction of its El-Tebbin Electric Steam Power Plant. The memos show total funds in an account at end June 2010 as money re-lent to 'various special accounts' belonging to the Egyptian Electricity Production Company (EEPC), the national electric-supply monopoly that owns most electrical power generation, transportation, and distribution companies in Egypt. The memo provides no further details. Hassan Younis, Minister of Electricity and Energy under Mubarak, told The Angaza File that the money from the loan was spent on a 'variety of projects', but wouldn't elaborate.
At the investment summit, international financial institutions including the Islamic Development Bank, European Investment Bank (EIB), European Commission, and European Bank for Reconstruction and Development, pledged over $4.5bn in loans to Egypt's government to fund a number of energy and private sector projects, including the expansion and development of Sharm el-Sheikh's airport, the Egyptian-Saudi Electricity Connection, and Assuit Refinery Project. In a speech there, the World Bank's Managing Director, Sri Mulvani Indrawati, said the Bank would increase its $5.5 bn. portfolio by $1 bn. One of these institutions, the EIB, previously lent $320 mn. to EEPC to construct two electric power plants in al-Atf' and Sidi-Karir, which ended up diverted into a series of special funds, according to an undated entry in the Central Bank memos. Younis told us the El-Tebbin plant is still in operation, but declined to discuss details or the other plants.
As the funds from the OPEC Fund for International Development and EIB flowed in, US court documents reveal two Japanese and French power services companies paid $5.2 mn in kickbacks to offshore bank accounts controlled by US-Egyptian citizen Asem Elgawhary to win contracts including for the El-Tebbin and Sidi-Karir plants. In a plea agreement last December, Elgawhary admitted that from 1996 to 2011 he was assigned by the US-headquartered Bechtel Corporation as general manager of a Cairo-based joint-venture between it and the state-owned Egyptian Electricity Holding Company. An earlier affidavit by US Internal Revenue Service Criminal Investigation Special Agent Clare Rossini said Elgawhary had access to and influence to key decision-makers who had responsibility for selecting companies that contracted with the state company, but does not say whether the $5.2 mn. was also used to bribe these officials. When he was sentenced this March, the US Federal Bureau of Investigation said the French multinational, Alstom SA, and a Swiss subsidiary, plead guilty in December to violating the US Foreign Corrupt Practices Act over a scheme to bribe foreign officials, including Elgawhary.
Additional reporting by a local reporter whose name is being withheld for security reasons.
*Unless otherwise indicated, currency conversions at $7.02 per Egyptian pound, the rate at the end of the 2013/2014 fiscal year, i.e. end June 2014. (In January 2015, Egypt's central bank allowed the pound to weaken to an official rate of 7.49 per dollar at a dollar auction.)
$5.6 billion accounting trick
Estimates put forth by Egypt's former Parliament and the Finance Ministry on the size of 'special funds' have hovered around the EGP25 billion ($3.56 bn.) to EGP40 bn. ($5.69 bn.) range, close to the total balance of 'special funds' by both the beginning and end of the 2010/2011 fiscal year. These figures show year-end balances accumulated over several decades, ignoring revenues collected by and spent from the funds throughout the year. A more accurate indicator for the size of special funds, and their potential to help close Egypt's ever-widening budget deficit is the funds' total credit balance. This is the amount of annual revenue the funds collect, which could be incorporated and spent as part of Egypt's budget, and spent either on corrupt payments or state development.
In 2010/2011, this number was $14.1 bn., according to Central Bank records, but appeared to drop $4.7 bn. to $9.4 bn. by the 2012/2013 fiscal year, according to Central Auditing Organisation (CAO) records that are based on financial information from the Central Bank and Finance Ministry.
Balance of 'special funds' at beginning of 2010/2011 fiscal year: $4.522 bn.
Total credit activity of 'special funds' for 2010/2011 fiscal year: $14.058 bn.
Total debit activity of 'special funds' for 2010/2011 fiscal year: $13.922 bn.
Total left over from 'special funds' credit activity for 2010/2011 fiscal year: $136 mn.
Total balance of 'special funds' by the endof 2010/2011 fiscal year: $4.671 bn.
Total credit activity of 'special funds' for 2012/2013 fiscal year: $9.4 bn.
Ministry of Finance estimate of total size of 'special funds', August 28 2014: $3.8 bn.
In January 2012, Egypt's Finance Ministry issued a decree calling owners of special funds to transfer 'what they could' from the funds' monthly activity into the state budget. The following year, Egypt's parliament passed the 2013/2014 public budget law, which called on 10 per cent of all funds' monthly revenue to be transferred to the budget. It remains unclear whether owners complied with these measures. But by August 2014 the new Finance Minister Hany Kadry Dimian claimed the total size of special funds was $3.8 bn. He didn't specify whether this was an estimate for a year-end balance or annual credit activity. If the latter, this means $5.6 bn. worth of special funds were transferred into the budget during the 2013/2014 fiscal year, based on the $9.4 bn. figure provided by the CAO for the previous fiscal year. This is highly unlikely given the low benchmarks parliament had set for the government through the public budget law.
Also according to our exclusive recorded interview with CAO chairman Hisham Genena, even these benchmarks were not met. 'Some accounts were identified and appropriated, but very few,' he told The Angaza File. 'The percentages put forth in the public budget law weren't applied in practice. The scale of the funds is massive; applying the percentages requires more capacity than the government could muster.' To prove the vast success the Finance Ministry's public calculations now indicate, the Abdel Fattah el-Sisi administration need only make public all relevant reports by the CAO and other relevant bodies, as Egypt's military-backed constitution requires, and Egypt's new 'anti-corruption strategy' supports.
|Special funds' total credit balance, or the amount of annual revenue the funds collect, appeared to drop $4.7bn in the fiscal year that followed Egypt's uprising against Mubarak (Special funds memos)
Sisi's special spook
Before proclaiming Abdel Fattah el-Sisi's patronage, Hisham Genena publicly lamented the negligence and malaise of an ostensible anti-corruption body established five decades ago, whose mandate includes fighting corruption in the state and private sectors. The body, called the Administrative Control Authority (ACA) reports to the president, like the CAO. Genena declared a year ago that he filed nearly 300 complaints to the ACA, but over half were ignored, while nearly 20 were dismissed. Although purportedly an anti-corruption agency, our analysis of the Central Bank memos suggests the ACA had its own special funds, whose purpose is left a mystery.
These funds provide an apparent link to El-Sisi's reputed mentor, the shadowy General Mohamed Farid el-Tohami, who first crossed paths with El-Sisi when Tohami was General Director of Egypt's Military Intelligence and Reconnaissance Unit, responsible for foreign espionage operations. Tohami served eight years as Hosni Mubarak's appointed ACA Chairman until being removed nearly three years ago by Mohamed Mursi. This was around the time Mursi appointed Genena to a four-year term to head the CAO. The ACA is one of three bodies within the sprawling State Administrative Authority (SAA) whose mandate includes administering Egypt's civil service and state entities. In the 2010/2011 fiscal year, the memos show the SAA had 201 special funds at the Central Bank.
At their peak, these accounts held $880 million, representing their total balance and revenue, but no breakdown is included for the ACA. Hisham Mehanna, the deputy chairman of a separate body, the Administrativ Prosecution Authority, which investigates cases of financial and administrative corruption in state bodies, now says senior officials are committed to covering up corruption cases. An internally conducted statistical analysis shows an increase in irregularities in certain places and at certain times, he told Egypt's leading daily Al-Masry Al-Youm, and this is behind a lower number of cases now being reported to it. It's particularly grave when these irregularities come from senior officials, he said, because it means 'squandering billions from state funds'.
A subordinate investigator working under el-Tohami at the ACA, Lieutenant Colonel Moatassim El Fathi, appeared in mid-2012 on a programme on Al-Mahwar channel publically accusing Tohami of sabotaging evidence to protect members of the Mubarak regime. The claims led to Tohami being criminally indicted on charges of corruption and removed by Mursi, who was credited with personally pushing forward the case after firing Tohami. One day after El-Sisi led a coup d'état ridding the country of Mursi. One year later, he appointed Tohami Director of the Mukhabarat, the Egyptian General Intelligence Directorate, which reports directly to the Office of the President.
Then the corruption case against Tohami mysteriously vanished. The charges levelled against El-Sisi's intelligence chief, who could not be reached for comment, included stashing evidence implicating businessmen connected to the top Generals of the SCAF in selling illegally siphoned subsidised fuel, and using ACA budget funds to purchase gifts worth about $15,000 per year for the SCAF chief, Field Marshal Mohamed Hussein Tantawi. The intelligence chief departed in December, with state media citing unspecified health reasons. Shortly later, by presidential decree Tohami was awarded one of Egypt's highest honours: the 'First Class Order of the Republic'.
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