10 - 16 January 2002
Issue No.568
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Al-Ahram Weekly Online 10 - 16 January 2002 Issue No.568 |
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Cleaning up the money market
The 11 September attacks have forced the government to crack down on dirty money and terror funds. Gamal Essam El-Din reports
Responding to international pressure to squeeze illegal funds, especially those related to terrorist activity, the Egyptian government is pushing a long-awaited series of laws and regulations dealing with money-laundering on to the legislative fast lane.
Over the past few years, parliament's religious and social affairs committee has been flooded by follow-up reports on the financial performance of different kinds of NGOs (currently numbering almost 14,500) submitted by the Central Auditing Agency (CAA). The CAA reports concluded that many NGOs, even religious ones, are rife with corruption and financial irregularities.
Despite the large amounts of donations that NGOs receive, there is no reliable way of monitoring how their money is used. MPs debating the CAA reports fear their resources may have helped fund the acts of terror which traumatised Egypt in the 1990s.
Mindful of the connection to terrorism, the Ministry of Social Affairs recently finished drafting a new law aimed at increasing government oversight of donations, charities and money given as zakat (alms). The 26-article draft law will make banks the only authorised recipients of zakat donations. The banks, in turn, will be obliged to record all zakat money pledged through them.
It is no secret that, until the summer of this year, the government appeared to be backing away from the international battle against money laundering. But, "Following the 11 September terrorist attacks in the US, the Financial Action Task Force (FATF) -- an anti- money laundering body set up by the G7 group of industrialised nations -- met to blacklist countries that fall short in their efforts to deal with money-laundering operations," explained Mahmoud Abul-Oyoun, first governor of a fully independent Central Bank of Egypt (CBE), in an interview with Al- Ahram newspaper. The FATF wasted no time listing Egypt as one of 19 countries that were "non-cooperative" in efforts to combat money laundering and terror funding, said Abul- Oyoun.
An FATF senior official commented that "the consequences of 11 September are amazing in terms of countries reinforcing anti- money laundering controls worldwide." He added, however, that "there are still many countries in the world that do not have the correct measures in place." At a meeting in Washington last October, the FATF discussed whether new measures could include instructing financial institutions in the organisation's 29-member states not to deal with other countries deemed deficient in their approach to terrorist funding.
Egypt's cabinet responded by meeting on 20 October to discuss the first draft of the anti-money laundering law, drawn up by a special committee formed two months ago under the chair of Prosecutor-General Maher Abdel-Wahed. In the last week of November, the 21-article draft law was debated and approved by the ruling National Democratic Party's economic and legislative committees. Although the debate over the law was raised in parliament, its official draft has yet to be submitted to the People's Assembly by the government.
A second government attempt to tighten its control of NGO finances came on 18 November. Just seven days after his appointment as the first governor of a fully independent Central Bank of Egypt (CBE), Mahmoud Abul-Oyoun decided to suspend for three months the use of documentary collection receipts as a means of paying for imports. Although Abul-Oyoun's decision is aimed primarily at curbing imports, it will also inhibit money transfers which may be used for money-laundering.
In an interview with Al-Ahram, Abul- Oyoun said the CBE suspects that documentary collection receipts are being used to launder money. "The CBE is responding to this by moving in every possible direction to clamp down on all suspected sources of money laundering," said Abul-Oyoun. "We began by issuing the "Know Your Customer" rules, which encourage banks to find out the true identity of their customers as well as the origin of their funds. We also discovered that documentary collection receipts may be being used to transfer money abroad," said Abul- Oyoun. He claimed that the receipts are ostensibly used to buy goods from foreign companies, but that often no goods are delivered and money is simply flowing out of the country.
The CBE decided that the best way to ensure that documentary receipts are being used to pay for imports and not launder money is physically to open documentary letters of credit. These can then be checked against goods coming into the country.
But importers have strongly opposed this move and, as a result, it has been indefinitely shelved.
The recent moves against money-laundering have opened rifts between economic pundits and businessmen. Some businessmen argue that enacting an anti-money laundering law will scare foreign investors away from Egypt. Economic pundits have responded by saying that a separate anti-money laundering law in Egypt is now a necessity.
Rashad Abduh, chairman of the NDP economic committee's division for financial and monetary policies, commented, "There is a pressing need to enact this law, especially now that the FATF has threatened countries which do not cooperate with penalties." He added, "Above all, it is a law aimed at guarding the national economy from dangerous international crime and protecting Egypt's reputation in international financial circles."
While delivering a statement last week to the economic committee of parliament on the impact of the 11 September assault against the US, Prime Minister Atef Ebeid argued that "the enactment of an anti-money laundering law in Egypt will not negatively affect the flow of foreign investments in Egypt."
Egypt is coming under heavy international pressure to harry money laundering operations. A United Nations Security Council resolution was passed last month to throttle the sources of financial and logistical support for terrorists. In order to monitor the progress of Egypt's new law, the Security Council is now in contact with Cairo every two weeks, while the United States speaks to the government weekly, said Ebeid.
People's Assembly Speaker Fathi Sorour also joined the debate by explaining that the UN Security Council resolution was adopted under Chapter Seven of the UN Charter. "This Chapter provides for economic and diplomatic sanctions or the use of military force against countries which fail to comply with council decisions," Sorour said.
Sorour and Ebeid were responding to a question raised in parliament by businessman and MP Mounir Fakhri Abdel-Nour, the parliamentary leader of the liberal opposition Wafd Party. Abdel-Nour asserted that "the size of money laundering operations in Egypt is not serious enough to call for a separate law dealing with them."
The draft law lists a number of companies which have been used by criminals and corrupt politicians to hide cash and launder money for purposes including drug trafficking, kidnap, theft and prostitution. The bill also aims to set up an independent unit to combat money laundering. "The Anti- Money Laundering Unit (ALU) will be affiliated to the Justice Ministry," states the bill's second article. The task force operating the unit will be provided with special judicial powers. Its members will be authorised to ask the prosecutor- general to act against money launderers, by, for example, freezing or sequestrating their assets.
Articles eight and nine will require all financial institutions (banks, forex offices, insurance firms and mutual funds) to hold account registers listing information about account holders, such as the name of the account holder and when the account was opened. This should help investigators track suspicious money flows and cut the financial channels used by money launderers and terrorists. An estimated four billion dollars- worth (approximately five per cent of Egypt's GDP) of criminal money circulates in Egypt each year
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