The current financial crisis in Cyprus has thrown a harsh light on that island’s economic system, and in particular on its financial irregularities. Along with allegations of fiscal mismanagement, much has been made of Cyprus’s policy of providing a safe harbor and a tax haven for ill-gotten gains within the Eurozone. Western media attention has focused on Cyprus’s relationship with Russia, especially that country’s fabulously rich oligarchs, and the financial streams leading from Moscow and St Petersburg to Nicosia, the Cypriot capital. But Egypt is another country whose profiteering statesmen and businessmen have benefited greatly from Cyprus’s loose banking rules.
In the aftermath of the 2011 Egyptian revolution, a flurry of newspaper articles reported on the hunt for ousted President Mubarak and his family’s wealth. The first interim military administration and a number of foreign governments sympathetic to the revolution promised to aid the search for the Mubaraks’ offshore money, estimated in the media at the time at seventy billion dollars (although the Egyptian courts subsequently set the value of the Mubaraks’ wealth at around 1.3 billion dollars). In the first weeks and months after the revolution, Mubarak assets were quickly traced to, and frozen in, Britain and Switzerland. But a number of key holdings, including an investment company through which certain of the Mubaraks’ smaller, more public assets are held, have been traced to Cyprus.
Just what those interests are and whether they will be returned to Egypt is an open question. The Egyptian authorities’ track record in recovering illicit assets since 2011 has been poor. The second interim administration, installed after President Morsi was ousted by the military on 3 July, is focusing on new targets; in mid-July, Egyptian banks were ordered to freeze the assets of twenty-one Islamists, including leaders of the Muslim Brotherhood.
The First Clues
Early searches for the Mubarak wealth centered on London because of the family’s strong ties to Britain, and to London in particular. Suzanne Mubarak, former first lady, is of Welsh stock, and the former president’s son Gamal worked in London at the Bank of America in the 1990s. When he left that bank, Gamal and two investors set up an investment company in London, Medinvest Associates.
In the hunt for the Mubaraks’ assets, one well-documented discovery is the townhouse at 28 Wilton Place in Knightsbridge, a well-heeled neighborhood in central London. In 2011, neighbours told a New York Times reporter that they had seen Gamal Mubarak visit the house not long before the revolution. Ownership of the house has been harder to trace; records obtained from the Land Registry for England and Wales show that the house was bought in 2009 by Ocral Enterprises, a company incorporated in Panama and based at the property. But records for Medinvest Associates list that address as Gamal’s place of residence. Strikingly, despite Gamal’s prominent position on the European Union sanctions list for Egypt and the British equivalent, no freezing order appears on the property records.
According to a 2012 BBC report for the Newsnight program, so far the British government has frozen only eighty-five million pounds of Egyptian assets. This is a comparatively small amount in terms of the estimated family wealth. Unsurprisingly, the Egyptian authorities have criticized the British approach to asset-recovery, suggesting that Britain may be dragging its heels to avoid risking the stable investment climate that the City of London has worked hard to foster.
In Switzerland, Egyptian assets worth nearly 470 million pounds have been frozen. Switzerland has long suffered the reputation as Europe’s safe harbor for the treasure of authoritarians and high-end criminals, and the Swiss rules on fiscal probity and transparency are famously out-of-kilter with the Alpine country’s neighbours. But if its assets-recovery record on the Mubarak wealth is any indication, that might be changing.
A new Swiss law, passed in 2011, is designed to help investigators in the restitution of the assets of “politically exposed persons.” The law has been cynically nicknamed lex Duvalier because it was passed hurriedly after the Swiss courts blocked an attempt to reclaim assets belonging to the imprisoned former Haitian president, Jean-Claude “Baby Doc” Duvalier, only hours before a massive earthquake struck the Caribbean island, killing more than 200,000 Haitians and leaving the country in dire need of funds. The effectiveness of lex Duvalier remains to be seen. However, the notoriously weak Swiss federal authorities have leveraged all their power in the hunt for the Mubaraks’ funds, marking the recovery of Egyptian assets an administrative priority. Even if none of the frozen assets have so far been restored to Egypt, Switzerland has made the right gestures and so far has avoided the wrath the Egyptian authorities have displayed toward Britain.
Gold Pens and Handbags
The hunt for the Mubaraks’ assets has been as much hindered as it has been helped by those Egyptian authorities commissioned with the task. In the immediate aftermath of the 2011 revolution, the Egyptian illicit gains authority, under the chairmanship of Assem El-Gohary, was instructed by the minister of justice to track down the proceeds of Mubarak-era corruption. The mandate was short-lived: in September 2012, citing the failure of foreign powers, particularly Britain, to facilitate the return of Egyptian assets, El-Gohary announced that the illicit gains authority’s investigations had concluded, with limited results and (as yet) no successful repatriation of assets from overseas.
In the wake of El-Gohary’s statement, opposition Dostour Party luminary Hossam Eissa, a vocal critic of Britain’s sluggishness to cooperate, was appointed by President Morsi as co-chair of a cross-party judicial commission for asset-recovery. But six months later, in March 2013, Eissa resigned from the Dostour Party, citing disagreement with fellow party officials. It is unclear whether he has continued in his role on the asset-recovery commission.
Mohamed Mahsoub, who was appointed by President Morsi as minister of parliamentary and legal affairs, was granted special responsibility for running the asset-recovery process. He resigned in December 2012, citing differences of opinion as to how to unify Egypt. And Kamel Girgis, director of international cooperation at the office of the Egyptian prosecutor-general, has criticized the intransigence of his colleagues in the illicit gains authority and the foreign ministry as a key impediment to the return of assets from overseas.
Where domestic Egyptian investigations into Mubarak-era corruption have been successful, the value of the assets involved has been low. One prominent, but relatively insignificant, corruption investigation is the “Al-Ahram gifts” case, in which public officials were found to have accepted gifts—including gold pens, leather bags and jewellery—from staff at the state-owned Al-Ahram news organization. The investigating authorities have tended to offer clemency and mitigated fines and other settlements to alleged profiteers as a way of resolving cases quickly and recovering at least some funds. This approach has done little to assuage the anger of the Egyptian people, but some commentators, including two lawyers at the American law firm Lewis Baach which specializes in international asset tracing, see negotiated settlements to asset-recovery cases as a pragmatic and potentially effective approach to righting the wrongs of Mubarak-era corruption.
A Divided Island
Cyprus is where the Mubaraks have squirreled away a significant proportion of their wealth, and where the investigators should shine their light. Gamal’s Medinvest Associates is owned by an international securities fund based in Cyprus, Bullion Company Limited. According to the New York Times and EFG-Hermes, the biggest investment bank in Egypt, Bullion is half-owned by Gamal himself. His older brother Ala’a Mubarak sits on its board of directors. Bullion, together with EFG-Hermes, has established a private equity fund, EFG-Hermes Private Equity, in which Bullion owns a thirty-five percent stake. The fund has raised over two billion dollars, investing in diverse sectors, such as oil and gas, food and agribusiness. Through Bullion, therefore, the Mubaraks have their fingers in many rich pies around the world. Bullion is certainly worthy of asset-recovery investigators’ close scrutiny.
In the fevered speculation that broke out at the height of the Cyprus financial crisis, much was made of the island’s geopolitical significance: This includes the freshwater conduit to be laid in pipes from Turkey to northern Cyprus; the natural gas deposits off the Cypriot coast, coveted by Israel and others; and British military bases on the island, including RAF Akrotiri, and their proximity to war-torn Syria. Rumors abounded that Russia—not the Eurozone—would bail out Cyprus in return for a long-lease, deep-water military harbor in the Mediterranean. Such a base would compensate if the Kremlin-backed Assad regime is overthrown and Russia’s existing naval station in Tartus, Syria, is shut down. In the end this scenario was avoided because the Eurozone countries paid out to make Cyprus solvent again. Angry to have been forced into yet another expensive bail-out, Western commentators have been quick to point the finger of blame at (and delight in the misery of) Russian investors in Cyprus, especially those who, it is claimed, have been laundering their ill-gotten funds on the island.
Cyprus has, in many ways, benefited from its close relationship with Russian investors, even if the current crisis can be laid in part at the door of the island’s “tax haven” policy. The Cyprus bail-out has inevitably come with strings attached: the International Monetary Fund and the Eurozone institutions are free to intervene in Cypriot fiscal affairs. As a member state of the European Union, Cyprus must adhere to the Egypt sanctions; and with its increasing dependence on the European Union after the bail-out, Cyprus would do well to embrace the spirit, and not just the letter, of the law. This would involve investigating and freezing any illicit assets, and then actually sending them back to Egypt. After all, it is in Cyprus’ interests to do so because a forthright policy of repatriating stolen Egyptian assets would go some way to boosting the island’s desired reputation as a sound investment destination.
Cyprus has made some small steps towards complying with its obligations under the European sanctions. When a delegation from the Egyptian illicit gains authority visited in June 2012, it was met warmly and given encouragement that Cyprus would process its requests for mutual legal assistance. That was an improvement on the limp response of the Cypriot attorney general, Petros Clerides, when asked by the Cyprus Mail in 2011 about Gamal Mubarak’s Cypriot holdings: “This is the first I hear of it.”
The hunt for the Mubaraks’ wealth overseas has borne little fruit so far. This is due in part to the intransigence, or the slow-moving asset-recovery procedures, of Britain and Switzerland, where assets belonging to the Mubaraks have been frozen, but also because of the disarray in which the Egyptian asset-recovery authorities find themselves. It is clear that there are good grounds for investigating the Mubaraks’ assets in Cyprus, and the Cypriot government—newly bailed out of an ongoing financial crisis by the Eurozone—can be expected to display fulfilling proactive fulfilment of its obligations under the European Union sanctions regime. Cyprus has the chance to be the first country in Europe to actually return frozen assets to Egypt, which would be a boost for the nation’s image, and for the hapless Egyptian authorities too.