Egypt probes illegal transactions

Gulf News

Egypt probes illegal transactions

Investors to be penalised for acquiring land through unfair means

By Deena Kamel Yousef, Staff Reporter

19 May 2011

Dubai: UAE companies that have invested in Egypt may stand to lose millions of dollars as the state runs an investigation into alleged corruption by former government officials who sold land and assets to investors below market prices, lawyers say.

If investors acquired land through bribery, profiteering, cronyism, from public servants who abused their position or through other illegal means, then under current Egyptian law they will be required to return the land, face a jail term, and pay a fine equal to the benefit they received, Mohamad Al Damaty, Undersecretary of the Egyptian Bar Association, told Gulf News by phone.

"If the investor got land without using illegal means, then the law has nothing on him. But these are a minority. No one gets a measure of land for 50 Egyptian pounds unless they paid under the table," he said.

If the Egyptian government finds the original contract invalid, improper or if there’s corruption involved, then it can take steps to recover the land or assets, provided there is proof, said Paul Turner, Regional Head of Arbitration with Al Tamimi & Company law firm, adding that investors can lose their assets if there is a breach of fair play.

However, some UAE and other investors could also gain from compensation. The Al-Futtaim Group is preparing international litigation against Egypt for $3.5 billion (Dh12.8 billion) in compensation for land it owned in New Cairo, after the government demanded an additional 900 million Egyptian pounds from the Emirati company, according to the Egyptian newspaper Al Masry Al Youm.

When asked for a confirmation on the report, Al-Futtaim said it cannot provide additional information as "this matter is still ongoing."

"We are confident that despite short-term uncertainties, Egypt and Egyptians will weather this storm and convert the uncertainties into long-term opportunities that will help Egypt capitalise on this unique opportunity. We look forward to remaining in the Egyptian market and possibly even growing our business further in the future," it said in an emailed statement.

Al-Futtaim said it invested more than 2.7 billion Egyptian pounds in its Cairo Festival City project in New Cairo and another 5.7 billion pounds in construction.

The political risk associated with the ongoing investigations and expectations of populist economic policies could shake up investor confidence and harm foreign investment in Egypt.

"The demonstrable strategy of the new regime to distance itself from the old one in terms of the investigation of personal and corporate transactions with the former government and the important changes with previous foreign policy both create risks for capital inflow (regardless of the moral or realpolitik basis for these investigations and changes)," stated a recent report by Citibank.

The Egyptian authorities and the future government would not want to have a track record of nationalising investors’ assets because it would discourage new investments. They should consider its actions with existing investors carefully, said Turner.

"The new government should be extremely careful before making allegations that harm the economy unless they have proof," he said.

"If things are done by the book, UAE companies have nothing to worry about."

UAE investors facing charges can make a claim against Egypt with the International Court for Settlement of Investment Disputes (ICSID) under a bilateral investment treaty between Egypt and the UAE, which protects investments by Emiratis in Egypt.

"[It] is deisgned to enable an investor from one country to invest in another country with a certain degree of comfort and security knowing full well that if his investment is interfered with by the government, then claims under the treaty can be made against the government," said Turner.

The outcome of a claim put forward to the ICSID is enforcable, he added.

"Normally a country cannot be sued because it is immune from attack in foreign courts ... By signing up to a bilateral-investment treaty (BIT), countries lose that immunity because they agree to allow claims against them to be referred to arbitration before ICSID."

However, if a claimant goes through the process and obtains an arbitration against the state, he still has to enforce it. That usually means going to the country in question and asking for payment. At that stage, the country could claim that its assets are immune from enforcement.

However in some BIT’s the state agrees to waive its rights to claim its assets are immune from enforcement, so in each case one has to look carefully at what the BIT says, Turner added.

New draft law criticised

Egypt is considering a draft law to reconcile with businessmen and foreign investors over property acquired through illegal means under the former regime.

"This is a stab in the heart of the Egyptian revolution. We are against this law. It sets free corrupt individuals," Mohammad El Damaty, Undersecretary of the Egyptian Bar Association, told Gulf News. The "Freedoms Committee" of the Bar Association is meeting to voice its protest against the proposed law.

The draft law would allow defendants to return the land they acquired below market price by direct allocation rather than public auction and in return the state drops charges against the investor, he explained.

It is intended as a bid to reconciliate with businessmen and encourage foreign investments to return to Egypt, experts say. However, El Dematy criticised the law as intended to release former ministers and ruling family from jail on charges of selling vast quantities of land for cheap prices, he added.

The current law suits brought by the state against some investors will create an honest and fair environment for future investors, free from corruption and obstacles, he added.