JORDAN GOVERNMENT DISSOLVES BOARD OF CENTURY

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 001621

SIPDIS

USTR FOR SAUMS
USDOC 4520/ITA/MAC/ONE/COBERG

E.O. 12958: DECL: 03/19/2008
TAGS: EINV ETRD BEXP JO
SUBJECT: JORDAN GOVERNMENT DISSOLVES BOARD OF CENTURY
INVESTMENTS

Classified By: Ambassador Edward W. Gnehm. Reasons 1.5 (b) and (d)


1. (c) Summary. The Jordanian Minister of Industry and
Trade has dissolved the Board of the Century Investment Group
following accusations of financial and managerial
improprieties made by some stockholders. Century is a
leading investor in QIZ companies and an outstanding example
of business cooperation between Jordan and Israel. Omar
Salah, Century's founder, claims that he is being victimized
because of his Israeli connection. That allegation cannot be
substantiated. The Ambassador has discussed with Minister
Bashir his actions against Century and the two important U.S.
interests at stake: the impact on U.S. investment in Century
(and ultimately the investment climate in Jordan) and the
possible negative impact on the QIZ initiative. End Summary.


2. (c) In a decision effective earlier this month, Minister
of Trade and Industry Salah al-Bashir dissolved the Board of
Directors of Century Investment Group (CIG),a holding
company for Qualifying Industrial Zone (QIZ) companies, and
called for new board elections to be held on March 23. In
the intervening period, a committee of government officials
and shareholders' representatives is overseeing the company.
According to the committee's head (Amer al-Hadidi, the MOIT's
Director General for Industry),the committee's mandate is to
arrange the extraordinary board elections and to ensure that
the holding company continues to operate on as normal a basis
as possible. Management of the joint venture QIZ companies
in which Century has invested is not affected by the
Minister's decision.

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Minister al-Bashir: Acted to Protect Shareholders
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3. (c) Al-Bashir told the Ambassador on March 12 that he
took the step of dissolving CIG's board under the authority
of Article 168 of the Companies Law (number 22 of 1997).
(There is at least one recent precedent in the dissolution of
the board of the Jordan Petroleum Refinery Company in 2002.)
According to Bashir, his action was preceded by an
investigation by the ministry and an audit of Century's
finances conducted by the local Ernst and Young affiliate.
Both the investigation and the audit found discrepancies.
Article 168 states that in cases "of financial or
administrative disorders or serious losses" or if a board of
directors and/or management "exploit their powers and
position in any manner that achieves for their or another's
account any benefit in an illegitimate manner," "the Minister
shall... dissolve the Company's board of directors and form a
committee... to manage the Company for a period of six months
renewable twice... (and) the committee shall invite the
General Assembly to elect a new board of directors for the
Company."


4. (c) The Minister said he took this step after more than
a year of discussions between his Ministry and Omar Salah,
the CEO of the company and a leading shareholder. Those
discussions failed to resolve complaints by a number of other
shareholders about mismanagement of the company. In
particular, the complaints alleged that as CEO Salah had made
significant decisions without necessary board approval and
that there had been bookkeeping improprieties (such as
booking capital gains from the sale of assets as current
revenue). Salah, he said, agreed in February to call a
special board election to resolve the differences. However,
Bashir said he acted to dissolve the board when he learned
that in a late February board meeting Salah had suggested
that his CEO contract be renewed for three years with a large
cancellation penalty. Bashir saw this as a blatant attempt
by Salah to reap personal windfalls as well as to influence
the new board elections. The Minister said he had to act
quickly to prevent this from happening.

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Omar Salah: Conspiracy Theory
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5. (c) For his part, Omar Salah claims that he is the
victim of a political conspiracy of "anti-normalizers" that
is punishing him for his pioneering efforts to take advantage
of the QIZ initiative and to build business relationships
between Jordanian and Israeli companies. He also believes
that some officials in the Jordanian government are angered
by his efforts to encourage the creation of a USG-financed
"enterprise fund" that would invest in Jordan and other
countries in the region. Those officials feared that the
U.S. might finance such a fund using ESF money that was
critical to GOJ priorities. Thus, Salah asserts that the
charges against him are either trumped-up or technical
transgressions easily corrected through internal adjustments.
He strongly denies that he attempted to secure a last minute
CEO contract, saying that the idea had been discussed at the
board meeting, but dropped for the reason the minister cited
(that it not be seen as an attempt to manipulate the
election).


6. (c) The Minister asserts that he acted fully and
appropriately within the law. On the other hand, Salah
believes that Minister Bashir acted inappropriately in
invoking Article 168 and should instead have referred the
matter to the judicial system, as was the recommendation of
one of the internal GOJ committees that first examined the
shareholder complaints. Salah claims Bashir is "afraid" to
go to court because, before becoming minister, Bashir had
been CIG's lawyer and had thus given legal advice on some of
the issues in contention. Nevertheless, it is worth noting
that Salah has not invoked his own right to take legal
action, such as by seeking a court order that would suspend
implementation of the minister's decision. (Bashir takes
this as proof that Salah knows his claims are baseless.)


7. (c) According to material provided by Salah, the Century
Investment Group (CIG) is a holding company formed in 1995 to
"capitalize on the peace process dividend." U.S.-source
investment in CIG amounts to $2.1 million, or 21% of total
investment. Along with foreign partners, CIG has invested in
six QIZ companies. The total foreign sales ($112 million in
2002) of these companies accounts for about one-quarter of
QIZ exports and their 5,500 employees for about one-quarter
of Jordanian employees of QIZ companies. Companies with
which CIG has entered into joint venture QIZ partnerships are
Clal Ltd., Clal Industries and Investments, and Prudential
Capital. Partners with CIG in QIZ companies include Delta
Textiles (New York),Bagir International (New York),Standard
Textile (Ohio),and two Chinese companies, Paz Chen Jewelry
Company and the Tee Yung Group. Salah says that the total
U.S.-source investment in the joint ventures amounts to $11.1
million.

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Salah's Allegations do not Hold Water
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8. (c) The March 23 elections will determine the fate of
CIG and whether its founder, Omar Salah, will be able to
maintain control of the company. Currently, Salah believes
he has the support of 44% of the shareholders, including his
family's 16%. The swing vote, he believes, is that of the
Social Security Corporation, which holds 6.5% of CIG stock.
Salah has asked for the embassy's support to encourage the
Social Security Corporation to vote with him. Otherwise,
consistent with his assertion of a conspiracy, he believes
the SSC and a majority of the shareholders will vote to expel
him from the board.


9. (c) The embassy has heard rumors of financial problems
within CIG for the past year and a half. (For example, a
Pakistani subcontractor of a CIG company recently fled the
country with bills unpaid complaining that Century had not
paid him for work done on its behalf.) We find it quite
likely that Salah is not an effective manager and that there
may have indeed been some improprieties. It is difficult for
us to judge, though, whether the scope of the sanction
imposed by Minister Bashir fits the alleged transgressions,
or whether it would have been more appropriate for aggrieved
shareholders to find redress in the courts.


10. (c) On its face, Salah's claim that he is being
conspired against because of his work with Israel might seem
plausible. Upon closer scrutiny, it does not wash. His
downfall would no doubt please the so-called
"anti-normalizers" -- who oppose Jordan's peace treaty with
Israel and Salah's high-profile attempts to build Jordan's
economic relationship with Israel. (In fact, Salah says he
was once at the top of an anti-normalizer "death list.") In
point of fact, however, Salah's main accuser on company
management issues is Gen. Ihsan Shurdom (ret.). Shurdom
holds about 5.5% of the company and is the antithesis of the
anti-normalizer. As a former Chief of the Royal Jordanian
Air Force and brother of the current Public Security chief,
Gen. Shurdom is widely known as a leading, socially prominent
proponent of Jordan's relationship with Israel.


11. (c) The idea that Salah is being punished for his
support for an enterprise fund, however, seems more
plausible. His solo efforts in Washington and Israel to
establish such a fund and, implicitely, a role for himself,
definitely alienated several key ministers in the government.
The Minister of Foreign Affairs told the Ambassador that
Salah's activities had troubled him and the government
greatly, but he was adamant that the action taken had a sound
basis and was not arbitrary or a result of Salah's efforts to
promote an "enterprise fund."

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Put Focus on U.S. Interests, Not Salah's Personality
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12. (c) Omar Salah, the CEO of Century Investment Group, is
a prominent young entrepreneur who is well known in the
business community. His reputation is that of an active and
creative businessman willing to take bold and even risky
business decisions. His strong points are an engaging
personality, ability to articulate both plans and dreams in
extremely appealing terms, and the boldness (mentioned above)
to enter into new initiatives. His strong points are often
the cause of his difficulties. He is prone to act without
close consultation with his partners. The risks that he is
willing to face are often beyond the toleration point of
others. He is a consummate self-promoter and a manipulator
of information to serve his purposes. We have seen this last
trait ourselves in recent weeks when he approached the
Ambassador for assistance, then decided it would not be
helpful to his cause, and asked that we not engage. He then
proceeds to contact others to intervene, perhaps knowing that
they would not be as conversant as the Embassy with the fine
points of the current troubles. In any case, as popular as
Salah may be with Americans and Israelis, USG focus should
not be on personality but on U.S. interests.


13. (c) In a meeting March 12 with Minister Bashir, the
Ambassador focused on U.S. interests at stake: 1) protection
of U.S. investments and an overall positive investment
climate to support Jordan's continued economic success. The
Ambassador pointed out that key to investment confidence was
"due process" and the opportunity for current and prospective
investors to defend their interests. The Minister needed to
clarify to all interested investor parties the basis of his
actions and ensure that the rights of all parties were
protected. 2) Secondly, it was crucial to protect the
reputation of the QIZ's. The QIZ's are very successful; they
have established an excellent reputation among U.S. importers
for meeting deadlines and providing quality products. There
was every reason to expect their success to continue. That
success, however, would be severely impacted if government
actions against a company, like Century, with such a large
QIZ investment, led to QIZ factories to miss delivery
deadlines. The Ambassador expressed the hope that the GOJ
considered this aspect of the problem when taking action
against Century's board.


14. (c) Comment: Century's CEO, Omar Salah, is well known
to many Americans and Israelis and is using those contacts to
solicit support and interventions. We need to keep the focus
of our interventions on the valid U.S. interests described
above. Our interests may or may not coincide with Salah's;
but our interests are valid and the Embassy will remain
engaged to encourage the GOJ to follow due process and
transparency in resolving corporate issues.
GNEHM