8 - 14 August 2002
Issue No. 598
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Published in Cairo by AL-AHRAM established in 1875 Recommend this page

Corruption shockwaves

The sentences handed down to 31 businessmen at the end of the seven-year trial of the 'loan deputies' case sent shockwaves through the business and banking communities. Gamal Essam El-Din writes

Backed by a two-year record of cracking down on corruption, the Administrative Control Authority (ACA) delivered a strongly-worded warning to the business community. ACA's chairman, Hitler Tantawi, addressing a group of students at Helwan University on Saturday, warned that corrupt businessmen and bankers should pay heed to the recent penalties handed down in the "loan deputies" trial.

"Businessmen who have fled the country to dodge the repayment of bank loans should take the penalties handed down in this case as a warning of the legal measures that can be invoked against anyone who thinks that they can plunder banks without fear of facing penalty," Tantawi said referring to the sentences handed down on 31 July.

Tantawi boasted that it was at the hands of ACA, which acts as the government's white-collar corruption watchdog, that the loan deputies case was exposed in the summer of 1995.

Political and economic observers were astounded by the rulings handed down by the Supreme State Security Court against 31 businessmen and bankers implicated in the loan deputies case. Following a seven-year on-again off-again trial, the court showed no mercy in handing down harsh rulings in the cases of the 15 businessmen and 16 bankers. In each instance, the court gave the maximum penalty, meting out sentences ranging from five to 15 years, all of them with hard labour.

Defendants were found guilty of the misappropriation of bank funds -- to the tune of a total of LE1.256 billion -- profiteering and facilitating the illegal acquisition of public funds. The court also ordered that the defendants be fined a total of LE1.7 million and that 24 of them be removed from their jobs -- 13 indefinitely and 11 for a period of three years.

Because the defendants included five former members of parliament (MPs) from the ruling National Democratic Party (NDP), the rulings reignited the debate on MPs' abuse of parliamentary immunity to secure ill-gotten gains. Among those five defendants were NDP MP Tawfik Abdou Ismail, who had previously held the ministerial portfolios for tourism and civil aviation as well as having been a former chairman of parliament's Budget and Planning Committee and head of the Commercial Bank of Daqahliya (now the United Egyptian Bank).

"It is unjust to describe these criminals as genuine members of parliament. They got into parliament for the purpose for obtaining parliamentary immunity to be able to exploit the people's money in banks," the court said.

The rulings sent shockwaves through the banking and business communities. Some observers speculated that the harsh sentences might have a long-term negative impact on investment prospects because banks are likely to become extremely cautious in providing financing to private business. The observers stressed, however, that the loan deputies case should spur authorities into taking more stringent measures to prevent banking fraud.

Fayeka El- Rifaie, deputy chairman of parliament's Budget and Planning Committee, said that the 'loan deputies' case only reveals the "tip of the iceberg" in terms of corruption in the banking sector. El-Rifaie, a former deputy governor of the Central Bank of Egypt (CBE), argued that "control over the banking sector has long been ineffective which accounts for such unsound decisions", she said referring to the approval of the loans.

"Most of the decisions stemmed from political and personal, rather than economic, considerations. It is no secret that most of the businessmen who borrowed heavily from banks and fled the country without settling their debts obtained access to credit by force of their relationships with politicians in parliament and the ruling party," El-Rifaie said.

The bank fraud phenomenon has included several high-flying businessmen who defaulted on loans and then fled abroad. Eleven of the convictions handed down at the end of last month were in absentia.

ACA's chairman Tantawi said that the number of businessmen who defaulted on loans and then fled the country is actually very small and that the authority is taking preventive measures to stem this tide and cushion banking deposits against fraud.

Sixteen of the convicted -- eight banking officials and eight businessmen -- were sentenced to 15 years with hard labour. Among this group are former MPs Tawfik Ismail, Khaled Mahmoud and Mahmoud Azzam. This group also includes three defendants who fled the country, namely, Aliya El-Ayyouti, former vice-president of the Nile Bank, Hossam Al-Manawi, former executive manager of the Nile Bank and businessman Ashraf Labib.

Another seven of the convicted were sentenced to 12 years with hard labour. Two of them were high-level managers at the Commercial Bank of Daqahliya, while the other five were businessmen involved in construction and importing.

Two people received 10 years with hard labour.

The court sentenced another four defendants, three of them bankers, the other a businessman, to seven years with hard labour.

The final two people, a man and a woman, both of them businesspeople, were each sentenced to five years with hard labour.

All of those convicted have the right to appeal the rulings before the Court of Cassation.

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