Egypt

Egypt Corruption Report

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Snapshot

Egypt_249x165.pngCorruption is an obstacle for businesses in Egypt. Briberyembezzlement, tampering with official documents and extortion are among the forms of corruption encountered. A culture of nepotism and favoritism has tainted Egypt’s economy and its investment climate. Baksheesh, literally meaning bribery, is part of Egyptians' everyday life. A poor legal framework and a widespread culture of corruption leave businesses reliant on strong connections and the use of middlemen (known as wasta) to operate, and well-connected businesses enjoy privileged treatment. Egypt’s Penal Code criminalizes several forms of corruption such as active and passive bribery and abuse of office, but existing legislation is unevenly enforced, leading government officials to act with impunity. Facilitation payments and gifts are an established part of "getting things done," despite these practices being criminalized under Egyptian law.  

March 2016
GAN Integrity

Judicial System

Companies may face corruption risks when dealing with Egypt's judiciary. Quite a low percentage of companies identify the courts as a major constraint to doing business in Egypt (ES 2013), yet two-thirds of Egyptians perceive the judiciary to be corrupt (GCB 2013). In addition, the independence of the courts has been challenged by several political conflicts, particularly since the 2011 Egyptian Revolution (BTI 2014). Business executives believe the courts are only moderately independent (GCR 2015-2016).

Businesses describe the legal framework as being moderately efficient in terms of settling disputes and protecting property rights (GCR 2015-2016). Dispute resolution processes can be slow and costly; the average cost required to resolve insolvency is higher than the regional average, while enforcing a contract is almost twice as time-consuming (DB 2016). The legal framework regarding the settlement of disputes in Egypt is in place; for instance, the country has ratified the International Centre for the Settlement of Investment Disputes Convention (ICSID). Nonetheless, courts do not always recognize foreign arbitration judgments, so companies are advised to include clauses in their contracts specifying provisions for binding international arbitration (ICS 2015). The Cairo Regional Centre for International Commercial Arbitration provides access to arbitration laws and to information and services for companies seeking international arbitration solutions to commercial disputes.

Police

Corruption within Egypt's security apparatus represents a high risk for companies operating in the country. Most citizens perceive the police to be corrupt (GCB 2013), and one-fifth of surveyed citizens report to have paid a bribe to police officials between 2011 and 2013 (Afrobarometer, Nov. 2015). Egyptians have a very low level of trust in the security apparatus due to several instances of abuse of power (Transparency International, May 2015), and there exist high levels of impunity among police officials (HRR 2014). Businesspeople do not believe the police reliably enforce law and order (GCR 2015-2016), and more than one-third of surveyed companies identify crime and disorder as a major constraint to business in Egypt (ES 2013). The Egyptian Ministry of Interior, responsible for law enforcement in Egypt, is described as very opaque and its operations as void of any financial transparency and political oversight (Transparency International, May 2015). 

Investigations into alleged abuse rarely result in any punishment (HRR 2014). The head of Egypt’s Central Auditing Organization (CAO), Hesham Genena, has faced critical media coverage and two court cases, including one for insulting judges, after uncovering corruption within the Egyptian police, intelligence agencies and the judiciary. Most corruption cases have not been investigated, and Genena claims that security agencies have barred his staff from inspecting the agencies’ documents (Mail One, Apr. 2014). In 2016, the Egyptian Public Prosecutor imposed a gag order on publishing any news related to the corruption report issued by the CAO (Middle East Monitor, Jan. 2016). A lawsuit has been filed against Genena, calling for his exemption from office; the case is ongoing (Al Bawaba, Feb. 2016).

Public Services

Egypt's public services sector carries a high corruption risk for business. Petty corruption and bribery within local government offices are pervasive (ICS 2015). The use of connections, known as wasta, in business operations is common (CiE 2012). Most businesses expect to give gifts to officials to obtain an operating license, while almost half of firms expect the same when acquiring electricity (ES 2013). Businesses rank inefficient government bureaucracy as the second largest obstacle to doing business in Egypt (GCR 2015-2016). Burdened and overcrowded government offices serve a system that permits state employees to extract bribes, a situation that has grown worse since the 2011 Revolution because of lax law enforcement (Reuters, Apr. 2012). 

Land Administration

The land administration carries a high corruption risk for businesses investing in Egypt. More than one-third of surveyed firms expect to give gifts to officials in return for a construction permit (ES 2013). Furthermore, high-levels of corruption and legal complexity give rise to violations of property rights in Egypt's land authorities (BTI 2014). Businesses rate the protection of property rights as weak (GCR 2015-2016), and regulation enforcement is a problem in the sector (CNN World, Feb. 2013). Costs in registering property are very low in Egypt compared to the MENA regional average, but the process is very time-consuming, taking more than twice as long as the regional average (DB 2016).

Hesham Genena, the head of the Central Auditing Organization (CAO), revealed that around USD 3 billion was misappropriated in land deals by corrupt police officers, intelligence agencies, judges and prosecutors. However, no investigation was opened into the revelations (Mail Online, Apr. 2014).

Tax Administration

The tax administration in carries a low corruption risk for business investing in Egypt. Poor wages contribute to making low-level tax officials vulnerable to corruption (GP&A 2012). Nonetheless, only a small percentage of surveyed companies expect to give gifts to tax officials (ES 2013). Furthermore, very few companies believe tax rates and regulations are important obstacles to business (GCR 2015-2016). Dealing with taxes is more time-consuming and costly than the regional average (DB 2016). 

Tax evasion is a serious problem for the Egyptian government. During 2015, the public prosecutor’s office recovered approximately USD 73 million in evaded assets and hundreds of real estates and state land, some of them owned by renowned businessmen and allies to the ousted regime (Mada Masr, July 2015). Estimates suggest that Egypt has lost more than USD 37.6 billion to illicit financial flows in between 2003 and 2012 (Mada Masr, July 2015).

Customs Administration

Corruption at Egypt's borders and burdensome customs procedures are identified as major problems for business, and companies rate the transparency of Egypt's border administration as low due to the pervasiveness of bribery and facilitation payments in exports and imports (GETR 2014). The cost and time required to import goods are more burdensome in Egypt than in the rest of the Middle East, while it is easier in terms of cost and time to export goods (DB 2016).

Public Procurement

Companies in Egypt face a high risk of corruption in the procurement sector. Businesses believe that public funds are often diverted to individuals and companies due to corruption and perceive favoritism to be widespread among procurement officials (GCR 2015-2016). Egypt receives a medium score on compliance regarding transparency, efficiency and uniformity indicators, and a low score on compliance with competition and integrity indicators in the public procurement sector (PPSA 2013). Low participation in tenders is a serious issue for Egypt, and this is mainly due to the low trust of businesses in the transparent execution of procurement processes. Indeed, procurement laws are not effectively implemented and evidence suggests that contracting entities apply only minimal standards of transparency in the procurement process, further heightening the risks of corruption in the sector (PPSA 2013). Companies convicted of corrupt practices are excluded from future bidding. The Government Procurement Portal (in Arabic) reduces direct contact between businesses and public officials and is the first of its kind in the region.

In one corruption case, the French power and transportation company Alstom was fined over USD 772 million to settle its case involving bribes to government officials in several countries, including Egypt, up to USD 75 million, in addition to the falsification of books and records involving power, grid and transportation projects in Egypt, among other countries. The company reportedly employed middlemen to carry out the operations and to bribe officials. One of these middlemen, Asem Elgawahry (the general manager of an entity working on behalf of the state-owned Egyptian Electricity Holding Company), was sentenced in late 2014 to 42 months in prison and ordered to forfeit more than USD 5.2 million in proceeds for fraud, conspiring to launder money, tax fraud and accepting kickbacks from Alstom (Department of Justice, Nov. 2015). Companies are recommended to use a specialized public procurement due diligence tool to help mitigate corruption risks associated with public procurement in Egypt.

Natural Resources

Transparency in Egypt's natural resources sector is poor (Natural Resource Governance Institute). Fuel subsidies are a significant source of corruption in Egypt; almost EGP 95 billion in subsidies goes to fuel, providing ample opportunities for corruption; insufficient data and audit systems makes it difficult to estimate the true scale of corruption in this field (GP&A 2012).

Legislation

Egypt's Penal Code criminalizes active and passive bribery, attempted corruption, gifts with the intention to influence, abuse of office and the use of public resources for private gain; extortion and the bribery of foreign officials are not criminal offenses (GP&A 2012). The Anti-Money Laundering Law criminalizes money launderingFacilitation payments are commonplace but illegal (International Law Office, Sep. 2010). Egypt suffers from a weak rule of law, so legislation is inconsistently enforced (FitW 2015). Public officials are subject to financial disclosure laws upon taking and leaving office and every two to five years during their mandate (Transparency International, May 2015). The Law on the Regulation of Prohibition of Conflict of Interest (in Arabic) bans public officials from holding any interest in areas over which they exercise power (HRR 2014). There are no laws that provide for the protection of whistleblowers in Egypt. Public procurement is regulated by Law No. 89/1998 (in Arabic). 

Egypt has ratified the UN Convention against Corruption, although compliance with the Convention has been inconsistent since the 2011 Revolution. Egypt is not a party to the OECD Anti-Bribery Convention or the AU Convention on Preventing and Combating Corruption. The government's Business Services Portal (mostly in Arabic) presents business-related legislation.

Civil Society

Freedoms of press and speech are guaranteed under the Egyptian Constitution, but several legal restrictions undermine these freedoms in practice. The situation grew worse during 2014 (FotP 2015). Authorities repressed any criticism of the government, leading to an environment of strong self-censorship among media outlets (FotP 2015). Defamation is a criminal offense and can incur prison sentences of up to five years. Journalists face intimidation, harassment, physical attacks, arrests, imprisonment and murder, and overheard conversations in the public sphere have also led to arrests (HRR 2014). There is no law protecting freedom of access to information, and the government is generally unresponsive to citizens' requests of access to information (HRR 2014). Despite some exceptions, the government generally does not restrict access to the internet; nevertheless, Egypt's society and its press environment are considered "not free" (FotP 2015).

Egypt's civil society environment is very restricted and has worsened in the post-revolution period (BTI 2014). The government’s collaboration with civil society in Egypt has been described as superficial and insincere (HRR 2014). The Central Agency for Auditing and Accounting, the government’s anti-corruption body, does not actively collaborate with civil society (HRR 2014). A presidential decree passed in mid-2014 bans all foreign funding to NGOs that is deemed "harmful to the national interest" (FotP 2015). 

Sources

Topics: Middle East & North Africa