Facilitation payments, Long arm jurisdiction - are you subject to the law?, MENA (Middle East & North Africa) - Written by on Thursday, May 26, 2011 2:56 - 0 Comments

Doing business in Egypt? Corruption risks before & after the Bribery Act

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By Sharkawy & Sarhan Law Firm, Cairo & Barry & Richard

The headline this week that former president Mubarak is to stand trial on charges of corruption and ordering the killing of protestors in Tahrir Square put Egypt firmly back on the map.

The Egyptian Revolution of January 2011 and the subsequent corruption probe into members of the former regime have the potential to throw up some issues for those doing business in Egypt.

At the same time the general awareness of corruption has increased considerably.  The imminent entry into force of the UK Bribery Act has played a large part in this and when in force will impact those looking at Egyptian opportunities.

Historically Egypt has had a poor reputation for corruption.

So – what is the position if you are, or are thinking of, doing business in Egypt?

The UK

The corruption country risk under UK law is two fold.

First, from a technical perspective, bribery (including making facilitation payments) is outlawed today – and will be after the entry into force of the Bribery Act.

Activities in Egypt (before or after the entry into force of the Bribery Act) are potentially caught under UK law with possible serious ramifications under the UK’s existing money laundering regime.

Second, as a practical matter, corruption allegations in Egypt against the former ruling party are broadly that the former regime was steeped in corruption.  The Director of the UK’s SFO, Richard Alderman, has said that he anticipates learning of corruption (and impliedly bringing prosecutions) as a result of the ‘Arab Spring’.

Corporates and individuals involved directly or indirectly in corruption in Egypt historically and going forward may have potential exposure pre and post the entry into force of the Bribery Act.

Egypt

Egyptian law has a wide definition of bribery.  However, historically enforcement has not matched the breadth of the law.

This is changing.

The most likely potential risk to foreign investors today appears to be that they are caught up in the crossfire of a corruption probe into someone tied up with the former regime.

While in the cases to date it appears that prosecutors were prompted to take action as a result of a perceived conflict of interests between the Egyptian government and certain individuals a number of deals between international and local entities and the Egyptian government have been investigated – and in some cases cancelled – by the courts.

The justification for these cases has not so far been bribery per se but rather breaches of due process in the way that natural resources, and in particular land, have been transferred.  However, with the prosecution of Mubarak (which has been predicted for some time) it is possible that some on the sidelines will be drawn in.

The Egyptian Penal Code defines a bribe taker as any public servant who requests (for himself or for a third party) or accepts a promise or a donation or a gift (a Benefit) before he performs any of the duties of his position or as a reward after performing his duties. There need not be any causal connection between the exercise of the public duty and the bribe – it is simply enough that you had any dealing with a public servant and that you offered or provided a Benefit to him. Both the bribe taker and the briber are subject to the same sanction of lifetime imprisonment (25 years) and payment of a fine of up to the amount of the bribe.

Importantly as a general rule, only a natural person can be subject to criminal responsibility. There is some comfort for corporations here.  A company cannot be convicted of the crime of bribery.

However, this comfort is limited. Any fraud in securing a government contract leads to invalidating such contract even if the project is at a very advanced stage. The company also gets blacklisted.

On the other hand individuals are very exposed.  Any individual who committed, or participated in, the criminal action, even if doing so in the name of and for the sole benefit of the company (e.g. an employee or a board member), will be criminally liable in person for his action.

The new US Middle East policy has singled out corruption as a key target and has singled out Egypt as a priority in the new US foreign policy approach.

Meanwhile in Egypt, a new draft law has been drawn up post January 25 governing (and criminalising) conflict of interest for governmental officials.

Egypt offers huge opportunities.  Together, we are advising clients who are taking advantage of them and minimising country risk.

 

 

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