Feb 12 2013
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Towards asset recovery
Negotiation with Mubarak regime officials accused of financial misappropriation should be viewed as being of a piece with the greater asset-recovery puzzle, write Eric Lewis and Waleed Nassar
In the two years since Hosni Mubarak's fall, the political news coming out of Egypt has proliferated internationally in a fast and furious manner. Constitutional decrees have been issued and rescinded; parliament has been disbanded, reconstituted, and then disbanded once more; and numerous officials have been appointed and removed.
Even the comparatively mundane arena of asset recovery from Mubarak-era officials has not been immune to political turbulence. After several months of orchestrating largely symbolic bureaucratic meetings between Egyptian officials and foreign diplomats, President Mohamed Morsi appointed Mohamed Mahsoub as minister of parliamentary and legal affairs, charging him with the management of the asset-recovery process.
However, this never came to full fruition as Mahsoub tendered his resignation in December 2012, partially citing his frustration with the failure to command the full authority to properly spearhead this massive undertaking.
News has now come out of Egyptian prosecutors exploring settlement agreements with ex-regime officials, offering clemency in exchange for a portion of the misappropriated funds. For example, Egyptian prosecutors have apparently agreed in principle to settle with Mubarak-era official and former prime minister Ahmed Nazif by accepting cash compensation in exchange for settling charges relating to the "Al-Ahram gifts case", where officials were accused of accepting luxury gifts purchased with public funds from Al-Ahram newspapers.
The government is also reportedly considering entering into discussions with long-time Mubarak ally Hussein Salem, who stands accused of receiving high-value concessions from Mubarak. Salem seeks to have the corruption charges dropped against him in exchange for his forfeiture of over 50 per cent of his properties that have been located in Spain and elsewhere.
As is the case with most sophisticated legal investigations, the practical reality is that deals may need to be made with arguably culpable individuals if this serves the greater interest of justice. Despite the objections of some purists, Egypt is correct to explore the possibility of obtaining concessions and engaging in negotiations with these people, but it must do so in a coherent and strategic manner. It must take great care to weigh what deals will serve the greater goals of recovery and will dispense some measure of justice upon individuals who illegally profiteered at the expense of the country, rather than simply grasp at the low-hanging fruit of short-term cash flows at the expense of what may be exponentially higher future recovery.
Pragmatists rightly argue that obtaining the disputed funds is a complicated undertaking that will take years to accomplish and in all likelihood at great expense to the country, yet the country must be careful to steward this long-term process in a responsible fashion. Egypt's current economic situation is undoubtedly dire, and beyond the return of the money it needs to signal to the international community a coherence in approach that many analysts believe has not been exhibited to date.
A haphazard approach to asset recovery must be avoided, and serious thought must be given to what the regime is trying to accomplish with each successive negotiation. The government should consider each potential settlement as a piece of the greater recovery puzzle, which will allow it to get closer to its goals of first understanding the scope of what has been stolen so as to allow it to pursue a proper strategy of recovery, rather than engage in pure stand-alone deals meant to achieve some modest injection of cash.
To date, Egypt has failed to acquire much of the key information and many of the documents that it will need to recover both the funds that have been frozen internationally as well as the majority of the funds that are suspected to have proliferated abroad. Information is absolutely essential for proper recovery, and the deals should initially focus on those that will uncover this key information. Stand-alone deals without extensive and enforceable cooperation agreements will be of little value either in getting to the bottom of the Mubarak-era kleptocracy or in recovering significant funds.
Given the sophisticated advice that Mubarak associates received and the widespread use of shell companies and offshore vehicles in secrecy jurisdictions, information from those who engineered this strategy is far more important than recovering a few houses or yachts. The Egyptian authorities should prioritise those who can offer useful information to assist in their recovery efforts abroad. In return for clemency, Egypt must insist on disclosure of vital information from inside players that will provide it with a blueprint of how the schemes operated, which parties and institutions may have assisted in the carrying out of frauds, and information on the trail of where the money ultimately went.
If Egypt can achieve such disclosures, pursuing strategic settlements is likely to be extremely constructive.
Armed with crucial information received from key individuals, Egypt will be in a better position to maximise recovery efforts, and it may be able to cut through the years that will be required to navigate the various foreign legal processes necessary to retrieve the information needed to achieve greater recovery.
However, the pursuit of settlements is not the full solution to the daunting task facing Egypt. The Egyptian authorities must be certain that those with whom it concludes settlements offer full cooperation and full and verifiable asset disclosure. Hussein Salem must provide documentation and information regarding his relationships with Mubarak-era officials, the advisors and accounts used, the jurisdictions in which they operated, and all information that experienced financial prosecutors would demand before entering into any sort of immunity or settlement agreement.
The financial information individuals such as Salem provide must also be treated with natural scepticism.
Looking at the rumoured Salem deal as an example, while an offer of 50 per cent of his total assets may sound fine in theory, without proper exploration of the total pool of his illicit assets it is hard to place a real value on the offer. Full disclosure and independent forensic investigation must be carried out in order to determine the total worth of his assets, an extensive endeavour that goes far beyond appraisals of his houses and other known assets.
The Egyptian authorities have yet to perform their own serious international forensic investigation in order to uncover the full scope of the stolen assets, nor have they dedicated the proper time and resources to uncovering the trail of the illicit assets. To be sure, Egypt has many pressing challenges, but failing to investigate and address the thefts of the past 30 years in a prompt and comprehensive way is bad policy and bad economics. The prospective settlements will not allow Egypt to cut this corner, as it still must invest the proper energy into the investigation of the full scope of the frauds alleged to have occurred under Mubarak. Without this knowledge, Egypt will be forced to negotiate in the dark, making the prospect of recovering significant portions of these funds guesswork that will most assuredly leave the country short-changed.
There has been little indication as to whether the talks with the ex-regime figures is considered a necessary move to serve Egypt's greater interests, or whether it is seen as a full solution to the country's asset-recovery problems. Without such an understanding, it is hard to formulate a reasoned view on whether the decision to negotiate with these individuals is in the country's best interest, or whether it is a short-sighted stop-gap measure that is not.
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