Three years after a revolution against Mubarak-era cronyism, fugitive tycoons are scrambling to buy back their freedom… at knock-down prices.
Wednesday 19 February 2014
As crowds packed streets throughout Egypt during the 2011 uprising that overthrew autocrat Hosni Mubarak, it wasn’t only the politicians and generals in Cairo who were scrambling to protect their interests. With the old regime teetering, business tycoons connected to the regime packed up their bags – and their billions – and fled the country.
One of them was Hussein Salem, who was nicknamed the “Father of Sharm el-Sheikh” for his ownership of multiple hotels in the coastal resort city. Salem made billions of dollars in the energy, arms, and hospitality industry in Mubarak’s Egypt – he was so close to the former president that the two even invested together, according to documents obtained by Foreign Policy. It was a lucrative alliance for Salem: In the early 2000s, Mubarak granted him a monopoly over gas exports to Jordan, Israel, and Spain. Salem used this deal to sell gas at below-market rates for years, according to an Egyptian court ruling, costing the country more than $700 million.
Salem hasn’t been back to Egypt since Mubarak’s fall, and for good reason. As post-uprising Egypt looked to recoup the millions stolen by Mubarak and his cronies, a series of court cases focused on the corrupt business practices of Salem and his family. In October 2011, Salem – along with his son, Khaled, and daughter, Magda – were found guilty of making illicit gains on their gas sales, and sentenced in absentia to seven years in jail. In June 2012, he was convicted of selling gas to Israel at below-market prices, and sentenced in absentia to 15 years in jail, and ordered, along with other defendants, to pay $412 million in fines.
Salem, however, holds Spanish citizenship, which has allowed him to dodge the Egyptian legal system. He is now living in Majorca, Spain, and is wanted by Interpol along with his son and daughter. Spanish courts, however, have refused to extradite him to Egypt because the two nations do not have judicial or legal bilateral co-operation agreements and the courts’ uncertainty about the fairness of Egypt’s legal process.
But for the first time since Mubarak was toppled, Salem’s fortunes – and that of other Mubarak-era businessmen – may be shifting for the better. Since Egypt’s generals ousted Islamist President Mohamed Morsi last July, Salem said he has been ecstatic and is planning his return to Cairo, his lawyer Tarek Abdel-Aziz told FP. The billionaire Mubarak confidant phoned in to a popular television program in January to offer a deal to the new military-backed government: cancel my convictions and I’ll give Egypt millions.
Egyptian officials publicly welcomed the offer.
“Mr Hussein Salem and other noble businessmen … your initiative is really appreciated,” said Hany Salah, a cabinet spokesman, during the phone-in on local channel CBC. “Anyone who proposes a noble and good offer, then the least we can do is listen to him for the best of our beloved country.”
Since the overthrow of Morsi, Salah continued, Egypt is more open to initiatives of “reconciliation” – and he expects other Mubarak-era fugitive businessmen to propose similar deals. Reconciliation deals can either be reached by committees appointed by the prime minister and justice minister, or they can be brokered by the general prosecutor, who is appointed by the president.
Reconciliation, however, seems to mean little more than dropping corruption charges in exchange for cash. During another phone-in on 9 January, Salem offered the government a $3.6 million fund to boost tourism and repair police stations, churches and mosques in exchange for his freedom. That’s actually a drastic decrease compared to his pre-coup proposal: in May 2012, just before Morsi became president, Salem offered at least half his estimated $1.6 billion in wealth in exchange for settling the charges against him, according to Abdel-Aziz.
Three years after protests against the sort of business cronyism that gutted Egypt’s economy, the country is now considering turning to the very people who robbed the country for a financial bailout. Despite protesters’ widespread demands for social justice, post-revolutionary Egypt has witnessed precious few improvements: Transparency International ranks Egypt 114 out of 177 countries on its “Corruption Perception Index,” and its position has actually fallen since 2011.
The relationship between Mubarak-era business tycoons and the Egyptian government appeared to have been severed long ago, as the prosecutions targeting these businessmen were launched by the interim military government that followed Mubarak. But “reconciliation” could allow the new military-backed government to reestablish the same powerful networks of loyal businessmen that flourished under Mubarak.
The process “opens the door for more corruption and escaping justice,” said Ghada Ali Moussa, a political scientist who heads up the Governance Centre, a government agency dedicated to preventing corruption and advancing transparency. “[Salem's prospective reconciliation deal] will be an ideal prototype for others to follow.”
Other businessmen with ties to the Mubarak regime are also lining up their reconciliation offers. Mubarak’s minister of foreign trade and industry, Rachid Mohamed Rachid, is in similar talks with the government and is set to put in another offer, Moussa said. Rachid, who was sentenced in absentia to 20 years in jail and at least $330 million in fines for squandering public funds and profiteering, fled to Dubai during the 2011 uprising.
Army chief Abdel Fattah al-Sisi’s consolidation of power could also increase Egypt’s willingness to cut reconciliation deals. While much normal government business has been on hold under the current interim government, a strongman in the presidential palace and a new parliament could change that.
“There will be a climate for such reconciliation to materialise,” Ibrahim el-Henedy, Egypt’s deputy justice minister and head of the Illicit Gains Authority, the body in charge of investigating corruption, told FP. “It’s all about the offer of reconciliation: which is better for Egypt, to reconcile or not?”
Even though Salem was “among the worst” of the country’s corrupt businessmen and has been ordered to pay some of the biggest fines, Henedy said, the government was still interested in striking a reconciliation deal.
Salem’s lawyer, Tarek Abdel-Aziz, also believes that the time is ripe to settle his client’s disagreements with the Egyptian government. He told FP he is working on an official reconciliation offer, which will be submitted to the authorities now that Morsi has been ousted. His client is “very optimistic,” the lawyer said.
“Now, thank God, there is an existing system that takes care of all Egyptians,” Abdel-Aziz said. “Today we have a new regime – hopefully a just regime that will move things forward.”
Abdel-Aziz denied that Salem was tied to Mubarak and said the charges were politically motivated. However, a leaked document from the Illicit Gains Authority shows that the Salems and the Mubaraks – together with other businessmen tied to the old regime – invested together in an offshore fund registered in the Cayman Islands, a Caribbean tax haven.
The investment fund, which was called the Egypt Fund, invested in 18 Egyptian companies in the cement, banking, real estate, steel, oil, food, and agricultural industries. The head of investor relations at EFG Hermes bank, Hanzada Nessim, wrote in an e-mail that her bank set up the Egypt Fund in 1997. When asked whether EFG Hermes was aware of the investors behind the fund, Nessim wrote that the bank was fully informed of the investors’ identities and that no allegations of wrongdoing had been levied against them at the time.
While Salem and Mubarak were not personally listed as contributors, the fund included companies owned by their children: Clelia Assets Corporation, owned by Khaled and Magda Salem, invested $3 million; and Pan World Investments Corporation, owned by Gamal and Alaa Mubarak, invested $250,000. The offshore fund would have provided significant tax breaks to its investors, as well as allowing them to shield their investments from prying eyes.
Salem not only bilked Egypt – he also stole from the United States. In 1979, his company, the Egyptian American Transport and Service Corporation (EATSCO), was granted a contract to ship military goods from the United States to Egypt. The deal came in the wake of the Camp David Accords, when US military sales started to flood in to Cairo, making shipping a potentially lucrative business.
Salem, however, tried to boost his profits by charging the US Defense Department for inflated shipment costs. Between 1979 and 1981, according to US court documents, EATSCO submitted false invoices for 34 shipments, which overcharged the Pentagon by $8 million. In 1983, Salem pled guilty to felony charges in the US District Court in the Eastern District of Virginia. The fines and civil claims settlements paid by Salem and the companies involved in the scheme totaled more than $4 million.
Most of Salem’s millions came from sweetheart deals in Egypt, where he received preferential treatment from his allies at the top echelons of government. In April 2011, Mubarak-era spy chief Omar Suleiman testified before an Egyptian prosecutor that Salem’s company, the East Mediterranean Gas Company, was handed the monopoly over gas exports to Israel, Jordan, and Spain in the early 2000s, bypassing the usual bidding process. Suleiman was asked to testify as Egypt’s intelligence services were allegedly involved in brokering the gas deals.
Suleiman said Salem had been friends with Mubarak for more than 20 years, and that his experience in business dealings with Israel was the reason he was chosen for the deal.
“[Salem] had dealt with the Israelis before with MIDOR,” Suleiman said, referencing Salem’s time as chairman for the Middle East Oil Refining Company, an Israel-Egyptian project established in 1993 to build a joint refinery on the North coast of Egypt and to extend an oil pipeline to Israel.
Seven years later, Salem sold 37% of the East Mediterranean Gas Company for $4.2 billion, according to the Israeli business news website Globes.
It’s not hard to see why Salem is pushing so hard for reconciliation. If Egypt refuses to cut a deal and negotiates an extradition agreement, it could win back his frozen assets in Switzerland, Hong Kong, and Spain. The extradition would allow Egypt to convict Salem in person, and many countries – including the ones where Salem stashed his wealth – require such a final verdict if they are to return his stolen assets.
If successfully extradited back home, Salem would also be obliged to pay more than $4 billion in fines and restitution, and he would serve 22 years in prison based on his combined sentences by Egyptian courts.
A reconciliation deal, on the other hand, would not only place Salem back in the good graces of the Egyptian government, it would also effectively end foreign investigations into whether his wealth is the result of illicit gain.
“It would be very difficult for the Swiss authorities to continue prosecution against Hussein Salem if the Egyptian authorities drop any charges against him,” said Olivier Longchamp, officer for international financial relations at the Swiss NGO Berne Declaration. “Money can only be seized if it has been proven to be of illegal origin.”
Now, three years after a revolution against Mubarak-era cronyism, Salem appears closer to his goal than ever before. In an ironic turn, he is now hailing the military-backed government for combating the same underhanded business dealings of which, for many Egyptians, he is the symbol. As he put it in January, “the era of corruption and injustice is gone now.”
This feature first appeared in Foreign Policy on 7 February 2014. It is republished here with the authors’ consent.