Opening the Black Box of Egypt's Slush Funds
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http://www.africa-confidential.com/angaza-file REPORTING AFRICA SINCE 1960 30 SEPTEMBER 2016 Published 26 May 2015 EGYPT Opening the black box of Egypt's slush funds 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 Protester looks at poster of then Minister of Defence Abdel Fatah 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 Fatah 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 infamous Department of Homeland Security. Despite this shake-up, Genena still claims he is being hounded by the MOI. The audit chief appeared on Egyptian television in April, claiming he had been verbally threatened by General Khaled Tharwat, another ex-head of the Department of Homeland Security, or Al-Amn Al-Watani, a security service whose responsibilities include counter-intelligence, surveillance, and border security. 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 Fatah 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 Oman promised 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.