How bad is dirty money?

By Sahar El-Bahr

A Ministry of Justice committee, which was preparing a draft law aimed at combating money laundering, has postponed its deliberations because of conflicting views among its members over the need for such a law in Egypt.

Opponents say there is little evidence of money laundering operations related to drug trafficking or other illegal dealings, and claim that the existing financial regulations suffice to obstruct any money laundering attempts. They argue that the bill's negative effects, if it is passed, would outweigh the positive because it would deter investors.

"What harm will an investor's money do if it comes from an illegal source, as long as it funds investment projects which contribute to the economy's growth and create employment opportunities?" said the Minister of Justice's Assistant for Legislation Affairs Emad El-Naggar. "If we keep asking investors where their money comes from, they will eventually invest in other countries."

Some even reject the principle that laundered money should be made illegal. "Discriminating against laundered money will only hinder investments," says former Minister of Economy Hamed El-Sayih. "The president is appealing to foreign investors, and our laws facilitate investments. How, then, can we advocate more restrictions on investors?" says El-Sayih, adding that "there are $70 billion in funds owned by Egyptians abroad who are afraid to invest in Egypt. These people should be encouraged rather than deterred."

Mahmoud Abdel-Aziz, head of the Federation of Banks, says: "There is no need for new laws since existing regulations make banks exercise stringent supervision over the funds they receive." But not all agree that money laundering practices should be overlooked, as several studies indicate that such exercises are widespread in Egypt.

"Money laundering operations in Egypt amounted to LE10.2 billion in 1994, out of LE16.3 billion, the total figure for illegal income," says Hamdi Abdel-Azim, dean of El-Sadat Academy in Tanta, who prepared a study on money laundering operations in Egypt.

According to Ministry of Interior statistics, drugs are the main source of illegal income in Egypt. In 1995 alone, there were some 16,000 drug trafficking cases. Abdel-Azim estimates the drug money being laundered at LE7.5 billion.

"Accepting dirty money under the pretext that it is needed for economic development can be devastating," says Fouad Shaker, the Central Bank's general manager for banks' supervision. "Investing this dirty money will taint the investment climate and lead to unfair competition with other legally-funded projects. It will deter foreign and local investors who will be unable to deal with the atmosphere of bribery, violence and threats created by the owners of illegal projects."

Abdel-Azim says that unchecked money laundering can have detrimental effects, such as "an increase in consumption and in prices, and a decrease in savings, if the laundered money is used to buy goods and real estate, rather than investments."

Although discussions of the draft law have been postponed until the end of the summer, the idea has not been dismissed.

"The committee will study the different viewpoints in order to come up with a law that suits the economic climate geared towards attracting investors," says El-Naggar.