CHRONICLES OF THE EGYPTIAN REVOLUTION OF 25 JANUARY 2011 : The Status of the Corruption Cases on Trial

I. The Status of the Corruption Cases Against the Mubarak Family and Some of Their Oligarchs

1. In reality, Egypt’s “Revolution” was a partial regime change. It brought down Hosni Mubarak’s presidency and the rule of his oligarchy, but it did not remove the military regime which has existed in Egypt since July 1952. The military regime consequently played an important role in the transformation of Egypt by making it possible for popular demand to remove Hosni Mubarak from the Presidency as well as his then-recently appointed Vice President, retired General Omar Suleiman, and the political caste that ran the country under Mubarak’s leadership.
2. The popular demand was also for the removal and accountability of the corrupt Mubarak oligarchy, which drained Egypt’s resources in a way that was unprecedented in the country’s history. During the Mubarak 30-year regime, his oligarchy managed to convert Egypt’s publicsector economy into private-sector wealth. They did so either by direct acquisition, by brokering the sale of government-owned industries and properties at nominal prices, and by acquiring substantial portions of Egypt’s prime land in the Sinai, along the Red Sea and the Mediterranean Coast, as well as prime agricultural land, all at practically no cost.

Thus public land was converted into private commercial and industrial projects. During this short period of  time Egypt’s national wealth was converted into private wealth, most of which is believed to then have been transferred abroad.
3. Under Mubarak, the government provided politically connected entrepreneurs with substantial concessions, such as land roads, electricity, water and sewage, for their private-sector projects.
This substantially increased the values of these projects. These entrepreneurs also received significant tax benefits and funding from banks. In essence the state financed the growth of the private sector through structural investments without receiving much in the way of taxes.
4. The ramifications of this wealth transfer have had broader effects on the Egyptian economy.
Bank funding of these projects was based on their total estimated values, including the value of the governmental benefits mentioned above.

In most cases, this doubled or more the value of  the original investment, thereby increasing the amount of the funding from the bank.

If the investment came under the guise that it was a foreign investment, (since the Foreign Investment Authority did not look into the capital source or ownership of the capital of foreign investments), the capital investment funds that operated in the country at least doubled in value as a result of government benefits.

Consequently, when these projects were funded by local banks (at levels up to fifty percent), the loans amply covered the original capital investment
which could then be transferred out of the country in what this writer previously referred to in both official reports to the government and in private reports as “U-turn” investment operations.

5. No one knows today how much of foreign investment projects, as well as domestic investment types owned by the oligarchy and its cronies, have been converted into a contingent domestic liability. In other words, if the original project was capitalized at a certain amount, the added free government benefits and concessions increased its value, and the bank loans allowed the investor to immediately recoup the original capital investment leaving the risk of loss to the local lending bank.
6. Because of the connivance of the Central Bank, private banks and Government ministries, no one knows even today the total value of these loans and the exposure of Egyptian banks. In addition, the Central Bank has guaranteed some of these bank loans as a way of covering up for these transactions and protecting the banks from too much risk exposure.
7. Consequently, Egypt’s private banks remain exposed to an unknown risk of loss if these projects fail. The Central Bank is also at risk with respect to guarantees it may have provided to some of these banks. The likelihood that a number of these projects would be unable to meet  their debt obligations puts additional economic and social pressures on the country’s economic viability and stability. More significant is the fact that in Egypt’s declining economy and depletion of foreign currency reserves, any actual losses arising out of the collapse of these investment projects would have serious repercussions on the economy, not to mention Egypt’s credit standing and borrowing capability.
8. One would have assumed that the governments appointed by the SCAF since March 2011 would have looked into the matter (particularly since this writer has raised the issue with the appropriate authorities both well before and after the fall of Mubarak). But it seems that no one in the SCAF or the government wants to face the unpleasant reality. Succeeding cabinets and ministers of finance have dealt with more immediate problems, probably with the hope that if their head is buried in the sand the danger cannot be seen and therefore does not exist.
9. The SCAF and succeeding governments wanted to get on with the problems of the day and set  as their primary goal public order and stability. They felt it best not to make the issue of corruption and its potential economic consequences a matter of public knowledge and debate.
Instead, a few persons were charged and made to face trial, despite a hasty investigation of their cases. In almost every case, these investigations addressed only a small portion of the facts the persons could have been charged with. These investigations also failed to look at the larger
aspects of institutionalized corruption and the large number of persons involved.
10. The possibility that the prosecutor general’s office could seize proceeds laundered abroad received significant publicity. These proceeds were estimated to be as high as $70 billion (though that estimate was made without any factual basis). For some time common people even
asked how much each person would get back, as if there was going to be a national refund program from the recovered foreign assets. But the prospects of that are dim due to the lack of expertise of Egyptian prosecutorial and banking authorities, and the complicated nature of foreign assets recovery for corruption and money laundering.

11. A large number of widely known oligarchs who have exploited the nation and its resources remain at large. Anyone in the streets of Cairo can name at least 10 or more persons who should have been investigated and prosecuted for the enormous wealth they have accumulated in a short period of time through their political influence with the Mubarak regime. The decision by the SCAF to bring only a few poorly investigated token cases to trial may have been a political choice, in part, to move the country from a state of revolution into a state of normalcy by preserving public order and maintaining stability. No one would disagree with the validity of that objective, but many reject the notion that the pursuit of this objective is incompatible with the accountability of those who have committed enormous crimes of corruption and abuse of power in the acquisition of private wealth to the detriment of the Country’s economy and the people of Egypt.
12. The economic and social difficulties that lay ahead should, if nothing else, justify the pursuit of accountability against those who have committed vast crimes of corruption and abuse of power. The consequences of these crimes will be long felt, and Egypt’s economy is not likely to rebound in a short period of time.
A. Summary of Cases

1. HOSNI, ALAA AND GAMAL MUBARAK AND HUSSEIN SALEM
1.1 Hosni Mubarak and his two sons

13. The Egyptian Public Prosecution charged former Egyptian President Hosni Mubarak with three crimes. In addition to the accusation of premeditated murder against protesters during the uprising against his reign, Mubarak stands accused of two separate cases of financial corruption.

14. The first corruption charge concerns a 161,000-square-foot seaside mansion in the Sinai resort of Sharm al-Sheik which Mubarak obtained as a kickback from his friend, the businessman Hussein Salem. Mubarak obtained the mansion after he exploited his influence to facilitate Salem’s purchase of a large tract of prime land in the Sinai at a deeply discounted price, formally as part of a privatization deal.

Salem also provided the former president’s two sons with another four luxury villas worth EGP 14 million ($2.4 million). The two sons, Alaa and Gamal, are charged with profiteering by abusing their father’s power in receiving these four villas as part of the same kickback.

15. The second corruption charge concerns a separate deal for the sale of natural gas to Israel. This deal has been the subject of rumors and suspicions in Egypt for years and caused widespread anger among Egyptians because gas was exported to Israel at very low prices while Egypt suffered a natural gas shortage. In this count, prosecutors charged Mubarak with having sold national gas from the Egyptian government to the East Mediterranean Gas Company, in which Salem owned a large stake, at below market rates. The East Mediterranean Gas Company may have then resold the gas to Israel at a substantial mark-up, thus enriching Salem at the public’s expense, although the prosecutors’ statement is unclear on those details.

It is clear that Salem made huge profits out of the deal, which resulted in $714 million in lost revenue for Egypt. As more media attention was focused on the gas deal and Salem’s role, he sold his stake in the East Mediterranean Gas Company, thereby earning $2 billion in profit. The charges brought by prosecutors did not address the former president’s interest in the gas exportation deal, focusing instead on his role in helping enrich Salem through exercising his influence.
16. If found guilty, the former president could face sentences ranging from five years in prison to the death penalty.2 Alaa and Gamal Mubarak face sentences of 5 to 15 years in prison.
1.2 Hussein Salem

17. Hussein Salem is a notorious business magnate known for his close ties to Mubarak. He has been described in Egyptian mainstream media as “one of the most secretive businessmen in Egypt”. Salem fled Egypt with his son and daughter on February 3, 2011 at the height of the Egyptian revolution, a week before Hosni Mubarak was forced to resign. Salem was arrested in a wealthy Madrid suburb in June last year over charges of money laundering brought against him by Spanish authorities. Around $47 million of his possessions were frozen and houses worth $14 million were seized, including some in the jet-set resort of Marbella. The money is said to have been obtained in Egypt through illegal means and sent to Salem’s family accounts in Spain.

He was arrested after Interpol issued an international arrest warrant. He is wanted in Egypt and Spain for various charges of corruption and money laundering. His son and daughter, who were arrested in Spain last summer, are also accused of laundering some two billion Euros.

18. Salem faces charges in four different cases in Egypt. He is currently being tried in absentia in the same trial as Mubarak and his sons Alaa and Gamal in what is known as the “trial of the century”. The verdict will be delivered on June 2, 2012. Salem is also being prosecuted in absentia along with former Minister of Petroleum, Sameh Fahmy, for the above mentioned purchase of Egyptian natural gas at low prices, and sale to Israel at a substantive markup. Last October another Cairo criminal court sentenced Salem, his son and daughter in absentia to seven years in prison and a fine of $4 billion on charges of money laundering and profiteering. The court found Salem guilty of laundering more than $2 billion in the Egyptian-Israeli gas deal. In a fourth case, a Giza criminal court sentenced Salem to 15 years in prison for the illegal acquisition of public property—the nature reserve al-Bayadeyya in the Upper Egypt city of Luxor.4 Hussein Salem was the owner of the Crocodile Tourism Project Company which acquired the island. His son Khaled, who was the managing director of the company, received the same sentence.
19. Although Mr. Salem also holds Spanish citizenship, Spain recently informed the Egyptian ambassador in Madrid of a Spanish court’s decision to extradite Hussein Salem, his son Khaled and his daughter Magda to Egypt on the condition that they do not face the death penalty―a standard condition made by all EU countries in extradition decisions. Salem and his children have appealed the decision allowing their extradition, and a final decision is expected soon.
20. The charges do not involve Salem’s previous embezzlement in 1983 of U.S. aid funds for Egypt as described by this writer in an interview with Rania Badawy in Al-Masry Al-Youm on 19 Oct. 2011.6 In addition, the charges do not address the questionable concession that he obtained from Egypt to export Sinai Gas to Israel.
2. SAMEH FAHMY

21. A Cairo criminal court recently adjourned the trial of former Minister of Petroleum, Sameh Fahmy, and other officials for their role in exporting gas to Israel. In addition to the former minister, the indictment includes former Vice-President of the Egyptian General Authority for Petroleum
for the Processing and Manufacturing of Gas, Mahmoud Latif Mahmoud Amer; former Vice-President of the
Egyptian General Authority for Petroleum and Production, Hassan Mohammed Akl; former

Vice-President of the Egyptian General Authority for Petroleum and Planning, Ismail Hamid Ismail Karrara; former Chairman of the Egyptian Natural Gas Holding Company, Mohammed Ibrahim Youssef Tawila; former Chairman of the Egyptian General Authority for Petroleum, Ibrahim Saleh Mahmoud; and, fugitive businessman Hussein Salem. Each of the defendants is accused of playing a role in squandering public money through allowing Hussein Salem to purchase Egyptian natural gas at below market prices, which he later sold to Israel at a substantial mark-up. Prosecutors accused the defendants of squandering public money, profiteering, damaging the country’s economic power and wasting natural resources.
22. The Public Prosecution stated that Fahmy, who was assigned by the government to negotiate with the Government of Israel over the gas exportation deal, deliberately conducted these negotiations against the interests of Egypt and signed a Memorandum of Understanding with the Israeli government which paved the way for exporting gas to Israel for 15 years (with a renewal for a subsequent 5 years) at prices whose minimum limit did not exceed the cost of production and maximum limit was not commensurate with global prices. The Memorandum stipulated that prices were to be fixed during the long period of the agreement, and provided for a penalty clause for Egyptian alone to ensure its implementation of its obligations. Fahmy is also accused of selecting Salem’s East Mediterranean Gas Company to export gas to Israel without following the necessary procedures set forth in the procurements and bidding law.
23. Aside from Sameh Fahmy and Hussein Salem, the other defendants are top officials of the petroleum sector who are accused of setting the low gas prices and concluding the agreement which contained prejudicial terms to the interests of the Egyptian State, and which unlawfully enriched Salem with more than $2 billion. The gas price differential is estimated to have caused the Egyptian economy a loss of $715 million.
3. YASSIN MANSOUR

24. The Prosecutor-General Abdel Meguid Mahmoud referred businessmen Yassin Mansour, Chief Executive Officer and Chairman of the second-largest real estate company in Egypt, Palm Hills Developments (PHD), to criminal trial over charges of profiteering and unlawfully acquiring public property.

Former Housing Minister Ahmed al-Maghraby, who is Mansour’s cousin, was also referred to criminal trial in the same case, in addition to former Chairman of Akhbar Al Youm news corporation Mohamed Acahdi Fadli, and Emirati businessman and Chairman of Rakeen Egypt Company Waheed Metwally Atallah. Yassin Mansour was in the United Kingdom at the time of his referral to court.
25. The Public Prosecution alleges collusion between PHD, owned by Yassin Mansour and in which al-Maghraby is a shareholder, and the
UAE-based Rakeen Company in purchasing a 113-acre piece of land in the 6th of October City that was initially allocated to Akhbar Al Youm news corporation. The Prosecution accused al-Maghraby of unlawfully selling the land, which was owned by the State, to Akhbar Al Youm news corporation at prices below their true value. Akhbar Al Youm, in turn, allegedly sold the land to PHD through Rakeen Egypt, without fully paying its price to the State or implementing the project initially tied to the sale. Metwally allegedly used Rakeen Egypt as a ‘veil company’, purchasing the land with the intent of allowing Yassin Mansour to eventually acquire the company and the piece of land it purchased. According to the collusion of the defendants, al-Maghraby alone was able to illegally gain EGP 159 million.

26. On July 5, 2011, the court acquitted all defendants. Following their acquittal, the Prosecution lodged an appeal with the Court of Cassation, Egypt’s highest court, in order to quash the court’s decision and refer the defendants to another circuit for retrial.
4. MOHAMED MANSOUR

27. Mohamed Mansour comes from one of the most successful business families in Alexandria. The Mansour Group represents nine of the top Fortune 500 companies in Egypt and employs nearly 40,000 people. Born in 1948, Mansour received a Bachelor’s degree in engineering from North Carolina State University in 1968, and a Master’s degree in Business Administration from Auburn University in 1971, where he taught until 1973.
28. Shortly after the revolution, several news reports emerged accusing Mansour, a businessman and guru of transport vehicles who headed the Ministry of Transportation from 2006 to 2009, of having engaged in corrupt practices during his tenure as Minister and in collaboration
with his cousin, Ahmed al-Maghraby, the former Minister of Housing. Mohamed Mansour is the elder brother of Yassin Mansour.
He was forced to step down as Minister of Transportation in October 2009 in the aftermath of a train crash which claimed the lives of 18 people and left 36 more injured. The accident triggered a barrage of criticism against his performance.
29. News reports accuse the former minister of doubling his fortune after assuming office by unlawfully gaining pieces of land owned by the State, and refusing to pay loans from Egyptian banks worth more than EGP 2 billion which he had obtained between 2006 and 2008.

30. Following the revolution, a group of workers at the Railways Authority lodged complaints with the Public Prosecution that Mansour and businessman Sherif al-Gabaly (brother of former Minister of Health Hatem al-Gabaly) had wasted more than EGP 4 billion of the Authority’s funds by failing to collect debts owed by several public and private entities to the Railway Authority.

Among these companies are Accor Hotels, which is owned by the minister’s cousin Ahmed al-Maghraby.
31. Mansour also established El Mansour and El Maghraby Investment and Development Company with his cousin Ahmed al-Maghraby. The company grew exponentially, triggering accusations of profiteering. The family partnership precipitated the indictment of Mansour for his involvement in some of the corrupt practices of which his cousin al-Maghraby was accused. Among these accusations is that al-Maghraby sold a 230-acre piece of land to the Mansour and Maghraby Group at a very low price.
32. Other accusations revolve around his role as Minister of Transportation. News reports accuse the former minister of wasting public funds as he spent an estimated EGP 100 billion during his tenure which failed to bring much improvement to the transportation sector. They also mention that Mansour allegedly conducted deals between the Ministry of Transportation and his General Motors company for the purchase of defect tractors worth EGP 2 billion.
33. However, the Public Prosecution has not pressed charges against Mansour over any of the aforesaid allegations. Now that a number of his family members, business associates and friends are behind bars, Mansour has retreated from public life, and faces an ambiguous future.

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