EGYPT: MORE CORRUPTION CHARGES, AD HOC RESPONSE

C O N F I D E N T I A L CAIRO 001988 SIPDIS SIPDIS NEA FOR ELA INL FOR CLINE/VERVILLE UNVIE FOR SOLOMON E.O. 12958: DECL: 06/26/2017 TAGS: ECON KCOR PINR EG SUBJECT: EGYPT: MORE CORRUPTION CHARGES, AD HOC RESPONSE REF: 2006 CAIRO 7190 Classified by Counselor for Economic Affairs Catherine Hill-Herndon for reasons 1.5 b and d. ¶1. (C) Summary: A recent report of a Shura Council member arrested for smuggling, corruption accusations in the People's Assembly by a Muslim Brotherhood (MB) legislator against businessmen affiliated with the National Democratic Party (NDP),and suspicions about the bidding process for a government satellite tender reflect the continuing prevalence of concerns about corruption in Egypt. Whether these concerns arise from actual graft or opaque, inefficient transactions that create the appearance of corruption, they reinforce the perception among Egyptians that they can't trust their government and fuel a potent political issue for the opposition. END SUMMARY. -------------- Smuggled Cell Phones, Shady Land Deals -------------- ¶2. (U) On June 4, airport customs officials stopped Shura Council member Hosam Abdul-Mohsen Mekawy, a farmer from Gharbia province in the Delta, on arrival from Dubai carrying 1,000 cell phones and 8,000 memory cards worth LE 3 million (USD $525,000). Mekawy's parliamentary immunity was due to expire at the end of June, according to press accounts, although immunity has been withdrawn in similar cases (reftel). Mekawy agreed to pay all taxes and fines in return for waiving prosecution. ¶3. (SBU) The take from Mekawy's efforts would have been modest compared to the cost to the Egyptian treasury of sweetheart deals for government land. On June 9, Saad al-Husseini, a leader in the MB bloc of Parliament, charged that Ministry of Housing land sales to NDP-affiliated magnates including Ahmed Ezz and Mohamed Farid Khamis at below-market prices cost the Egyptian treasury LE 59 billion (USD $10.4 billion),compared to the value of the land if it had been auctioned per standard practice. ¶4. (SBU) While that figure seems inflated -- it would equal 36 percent of all government revenues in the most recent budget -- few Egyptians question that prominent businessmen profit from their connections to the NDP. In fact, a recent Zogby poll commissioned by US CENTCOM found that corruption was second only to unemployment among Egyptians' top domestic concerns. -------------- �A;NileSat Deal Rigged For The French? -------------- ¶5. (SBU) American business contacts also suspect corruption behind some GOE practices, such as a recent convoluted tender for satellite services. In April 2007, NileSat, an Egyptian majority government-owned company that operates satellites providing television, radio, and data services, unexpectedly canceled an August 2006 request for proposal (RFP) for a contract for a new communications satellite, despite NileSat's assurances to the Commercial Counselor that this would not happen. U.S. company Orbital, one of the bidders for the RFP, requested USG advocacy support, expressing concern that the RFP would be reissued in a manner favoring the French company Alcatel, the main competing bidder. Orbital's total bid was tens of millions of dollars less than Alcatel's when the bids were publicly disclosed on November 5, 2006, in a tender that would eventually have been worth approximately $400 million in U.S. exports to Egypt. ¶6. (SBU) Information Minister Annas Al Fiqqi told the Ambassador April 23 that reissuing the RFP would ensure a "completely transparent process" and generate lower-priced bids, and that the new RFP would mirror the original. However, NileSat issued a new RFP on May 20, 2007 that significantly differed from the original and essentially restricted the bidding field to one viable bidder - Alcatel. For instance, certain "optional" specifications in the first tender became "required," leading to a higher-priced solution that favored Alcatel. Prior to the second tender, Orbital had reportedly been advised that its solution was sufficient. Additionally, the local Orbital representative said that whereas the original RFP called for a turnkey proposal to include satellite, ground, launch vehicle, and insurance, under the new RFP NileSat will procure the launch vehicle and insurance itself. This change, he said, removes the cost savings that Orbital could bring under its turnkey solution. The Ambassador raised these concerns with Al Fiqqi again on May 28 but with no substantive response. -------------- "Mr. President, Did You Know?" -------------- ¶7. (SBU) USAID is supporting several efforts to promote transparency in GOE operations and increase the capacity of NGOs to monitor corruption. USAID Egypt's offices of democracy and economic growth are working with the Ministry of Finance on a new budget law designed to improve the transparency of the national budget, while Transparency International is currently in negotiations with USAID to establish a program in Egypt that would, in part, increase the capacity of NGOs to analyze the new budget. USAID is also in discussions with the Center for International Private Enterprise on a program to increase the capacity of the business community to monitor and lobby against corruption. ¶8. (U) The most active anti-corruption NGO is AHERO, also operating as Shayfeencom (We are Watching You),which received USG democracy funds to publicize its campaign to encourage the GOE to implement the UN Convention Against Corruption (UNCAC, reftel). AHERO has since received a small grant from the Middle East Partnership Initiative (MEPI) to advocate for the passage of a Freedom of Information Act and prod the Capital Markets Authority to impose corporate governance regulations and international accounting standards for companies traded on the Egyptian stock exchange. ¶9. (SBU) By promoting transparency and accountability, the organization is targeting practices that may have more to do with poor governance than graft and bribery. For example, the organization purchased a small number of shares in corporations traded on the exchange and used its shareholder rights to urge improved corporate governance. As a result, she said, the Suez Canal Bank was compelled to acknowledge its holdings of bad debt, resulting in a steep drop in its share price, while the National Cement Company was compelled to make use of funds it had reserved, but not spent, to provide for worker housing. ¶10. (SBU) The organization now plans to launch a viral marketing campaign via cell phones and other media on the theme "Mr. President, Did You Know..." The campaign will compare public promises made by President Mubarak to expenditures in the national budget, noting for instance that the GOE has made no provision to finance the president's promise to create a place in daycare for every Egyptian child who needs one. -------------- Ad Hoc GOE Response -------------- ¶11. (C) AHERO has succeeded in attracting more media attention to the problem, and the GOE did publish the UNCAC in the official gazette in early 2007, giving the treaty the force of law in Egypt. But the GOE response has remained ad hoc. For example, Egypt is obligated under the UNCAC to establish an independent anti-corruption body, but the most recent such effort faltered in January when the cabinet opted against creation of a new anti-corruption "observatory." Instead the Prime Minister's office created a new anti-corruption coordination committee under the Ministry of State for Administrative Development, which Hadid said will lack the bureaucratic clout necessary to operate effectively. ¶12. (C) COMMENT: The new committee may satisfy one of Egypt's obligations under the UNCAC, but it will likely do little to ease public concerns about corruption or quiet opposition politicians eager to capitalize on those concerns. RICCIARDONE