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.

Last updated: July 2018
GAN Integrity

Judicial System

Companies face moderately high corruption risks when dealing with Egypt’s judiciary. While companies show moderate confidence in the independence of the judiciary, they indicate low satisfaction with the efficiency of the legal framework when it comes to settling disputes and challenging regulations (GCR 2017-2018). A quarter of businesses identify the court system as a major constraint to their ability to do business in Egypt (ES 2016). One in five Egyptians believe most or all judges and magistrates are corrupt and more than half of those who came into contact with the courts in the preceding twelve months indicate they paid a bribe (GCB 2017). While the judiciary has traditionally had a reputation as a respected institution and judges have shown a high degree of professionality, decades of authoritarian rule have impacted judicial decisions (BTI 2018). Unfortunately, the courts, and particularly special courts such as military courts, are currently being used for political ends, including the supervision of elections, appointment and dismissal of judges, and political timing of lawsuits (BTI 2018). Dispute resolution takes a long time in Egypt and Egyptian courts do not always recognize foreign judgments (ICS 2017). The U.S. Embassy reports that is it aware of at least one instance of a “sham” award being awarded by the Egyptian arbitration system against an American company (ICS 2017).

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). 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.

Dispute resolution processes can be slow and costly; enforcing a contract is almost twice as time-consuming (DB 2018).

Police

Corruption within Egypt’s security apparatus represents a high risk for companies operating in the country. Businesses report insufficient confidence in the reliability of the police services (GCR 2017-2018). The government lacks effective mechanisms to investigate and punish abuse in the security forces; official impunity is a problem in the country (HRR 2017). Those investigations that do take place frequently end in acquittals (HRR 2017). Egyptians have a very low level of trust in the security apparatus due to several instances of abuse of power (Transparency International, May 2015). A quarter of citizens perceive that most or all police officers are corrupt (GCB 2017). However, of those who came into contact with the police in the preceding twelve months, more than two out of five indicate they had to pay a bribe (GCB 2017).  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).

Public Services

Egypt’s public services sector carries a high corruption risk for business. Petty corruption, bribery, embezzlement, and tampering with official documents is pervasive within local government offices; particularly when trying to obtain government approvals and licenses (ICS 2017). Roughly a fifth of firms reports expecting to give gifts when attempting to obtain an operating license and over a quarter of firms expect to give gifts when attempting to get a water connection (ES 2016). Moreover, nearly seven out of ten firms identify corruption as a “major constraint” to their ability to do business in Egypt (ES 2016). Inefficient government bureaucracy and corruption are among the most cited problematic factors for doing business in Egypt (GCR 2017-2018). The use of baksheesh is a part of regular life in Egypt and can be compared to tipping in English-speaking countries (BTI 2018).

Egypt’s regulatory system is not sufficiently transparent and despite attempts at reform, entrenched bureaucratic and private interests have resisted change (ICS 2017). Private investment is hindered by the often arbitrary imposition of bureaucratic roadblocks and the length of time required to resolve them (ICS 2017). However, accounting, legal, and regulatory standards are generally transparent and in line with international norms (ICS 2017). The high degree of centralization of administration in Egypt when combined with a lack of fiscal control of local budget had lead to many opportunities for corruption at the local level (BTI 2018). Former head of Egypt’s Central Auditing Authority Hisham Geneina said in December 2015 that the cost of corruption in 2015 alone had reached over EGP 600 billion (BTI 2018). Geneina was fired after making the comment and charged with “harming the national interest” (BTI 2018). He was sentenced to five years of imprisonment for “spreading news that harmed the armed forces” (Middle East Eye, Apr. 2018).

Starting a business in Egypt is slightly faster and only half as expensive compared to elsewhere in the region (DB 2018). Dealing with construction permits takes significantly more time and steps than the regional average (DB 2018).

Land Administration

The land administration carries a high corruption risk for businesses investing in Egypt. Companies express insufficient confidence in the government’s ability to safeguard property rights (GCR 2017-2018). More than a quarter of firms indicate they expect to give gifts when attempting to get a construction permit (ES 2016). The legal complexity of the property rights law has led to delays in judicial processes concerning property (BTI 2018). The law offers guarantees against nationalization

Registering property in Egypt takes more than twice as long as elsewhere in the region and significantly more steps are required (DB 2018).

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). In another case, Egypt’s former agriculture minister, Salah El Din Mahmoud Helal and his office manager were each sentenced to 10 years of imprisonment in 2016 (Reuters, Apr. 2016). Helal and his accomplice were convicted of taking bribes from businessmen in return for land licenses (Reuters, Apr. 2016).

Tax Administration

The tax administration in carries a moderately high corruption risk for business investing in Egypt. About one in seven companies surveyed indicate they expect to give gifts in meetings with tax officials (ES 2016). A number of tax disputes between foreign investors and the government were recorded in 2016, but the majority were resolved through either the Tax Department and the Economic Court (ICS 2017).

Paying taxes in Egypt is almost twice as time-consuming compared to the regional average (DB 2018).

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). The head of the department charged with preventing tax evasion at the Egyptian Tax Authority was arrested in 2017 for attempting to solicit bribes worth EGP 2 million (Daily News Egypt, Sept. 2017).

Customs Administration

There is a high risk of corruption when dealing with Egypt’s customs administration. Companies indicate that irregular payments and bribes happen frequently during import and export procedures (GETR 2016). Companies also indicate they are not satisfied with the time-predictability and efficiency of the clearance process (GETR 2016). Customs corruption constitutes a burden on free trade (BTI 2018).

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 2018).

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 2017-2018). Roughly one in seven firms indicate they expect to give gifts to secure a government contract (ES 2016). Bids for contracts from domestic contractors are accorded priority if their bid does not exceed the lowest foreign bidder by fifteen percent (ICS 2017).

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) is intended reduces direct contact between businesses and public officials.

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; problems include insufficiently stringent licensing procedures, poor revenue management, and moderate regulatory quality (NRGI 2017).

Legislation

The anti-bribery framework in Egypt is not consistently implemented (HRR 2017). 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 (GCN 2017). The Anti-Money Laundering Law criminalizes money launderingFacilitation payments are commonplace but strictly taken illegal, but in practice, whether they are deemed a bribe on what is custom and appropriate in a given situation (GCN 2017). 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 2017). There are no laws that provide for the protection of whistleblowers in Egypt. There is no comprehensive law governing Public procurement is regulated primarily by Law No. 89/1998 (GTDT Procurement 2017).

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 presents business-related legislation.

Civil Society

Freedoms of press and speech are guaranteed under the Egyptian Constitution, but these freedoms are being undermined in practice. Criticism of al-Sisi is being suppressed; public and private outlets have embraced pro-Sisi and anti-Muslim Brotherhood views (FotP 2017). The authorities employ a variety of tools against journalists which do not tow the official narrative, including prosecution, gag orders, arbitrary detention, and physical abuse in police custody (FotP 2017). Egypt is the world’s third-worst jailer of journalists (FotP 2017). Defamation is a criminal offense and can incur prison sentences of up to five years (FotP 2017).  There is no law guaranteeing freedom of information and no substantive progress was made in 2016 (FotP 2017). Internet freedom in Egypt has declined dramatically in 2017 since the government blocked dozens of critical news sites and cracked down on encryption tools (FotN 2017). The press environment is rated as ‘not free’ in Egypt (FotP 2017).

Egypt’s civil society environment is very restricted and has worsened in the post-revolution period (BTI 2018). A new NGO law enacted in 2017 severely restricts the ability of NGOs to operate; among others, a new administrative body including members of the security forces will oversee all NGOs that receive foreign funding and it may reject registration applications by not responding for 60 days (HRR 2017). The government’s collaboration with civil society in Egypt has been described as superficial and insincere (HRR 2017; ICS 2017). The government rarely cooperates with NGOs and the media faces severe limitations in reporting on corruption (ICS 2017).

Sources

2018-07-23T10:28:23+00:00 Region: Middle East & North Africa|

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