Egyptian Money Abroad Exposed Through Swiss Leaks

The files at the foundation of the Swiss Leaks articles are based on data secreted away by Hervé Falciani, a former HSBC employee-turned-whistleblower. He turned the data over to the French government in 2008 and its tax authority launched an investigation. The French newspaper Le Monde obtained a version of the data, which covers accounts of more than 100,000 clients (individuals and legal entities) from more than 200 countries. The newspaper shared it with the International Consortium of Investigative Journalists (ICIJ) with the agreement that it would assemble a global team of journalists, one of them being the Egyptian Hesham Allam of Al-Watan newspaper, to explore the data and produce this reporting project. The data comes from three types of internal bank files, all from different time periods. One reflects clients and their associated private accounts at the Swiss branch of the bank mostly from 1988 to 2007. Another is a snapshot of the maximum amounts in the client accounts during 2006 and 2007. The third is of notes on clients and conversations with them made by bank employees during 2005.

Egypt is ranked 20th among the countries with the largest dollar amounts ($3.5 billion) in the leaked Swiss files. The maximum amount of money associated with a client connected to Egypt was $856M. 806 client accounts opened between 1970 and 2006 and linked to 1,478 bank accounts according to the ICIJ. The leaks show that former minister of trade and industry Rasheed Mohamed Rasheed was a beneficial owner of a client account under the name “Lexington Investments Limited” that listed 10 bank accounts. Together they held as much as $31 million in 2006/2007. Rachid did not respond to ICIJ’s repeated requests for comment. Among the other Egyptian clients are the Mubarak family, Mansour family, Hussein Salem, Khadija El-Gammal and other famous businessmen. The exact details of their accounts are to be unveiled in the coming weeks, according to Hesham Allam.

There is no concrete evidence that this money comes from the engagement in illegal activities, yet the account holders always intentionally concealed it away from official tax authorities. As mentioned earlier, the holders of said accounts refused to respond to repeated requests to comment on the sources of this money. It is noteworthy to mention that the leaks only covered HSBC. It is highly anticipated that the main figures of the Mubarak regime hold accounts in other tax havens such as the Camen Islands, British Virgin Islands, Cyprus, Bermuda, and other Swiss Banks among many others. For perspective of how much this money means for a country like Egypt, the average income in Egypt in 2007 was a mere $1.8K according to the World Bank.

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Osama Diab, a prominent journalist who was betrothed in a year investigation on the case of tax havens, found that most large and particularly foreign companies in Egypt engage in this suspicious practice. Official figures published by the Egyptian Ministry of Investment show that the 6th largest foreign investor in the Egyptian economy is the Camen Islands, a country that has a population of a few thousand people. The Camen Islands is also an investor in 85 Egyptian companies. Osama Diab draws our attention that such small countries, which are also tax havens, are shareholders in approximately 479 Egyptian companies. The reason behind this is that Egyptian and non-Egyptian businessmen register their companies in those countries in order to evade taxes as well as conceal the personal information of the real owners of the companies, including their nationalities. Global Financial Integrity estimates that nearly 132 billion dollars of illegitimate money fled Egypt during the period 1981-2011.

An interesting story, covered by Madamasr, demonstrated how profits generated on Egyptian soil are transferred to tax havens is Al-Qalaa. Heikal is founder and chairman of Qalaa Holdings, an African investment fund with US$9.5 billion on its books. The European Commission says he represents a company that has become an “African success story”. It is undoubtedly successful, yet Qalaa’s business model raises a series of questions about whether it signifies the sustainable and inclusive growth that the EU claims it wants to champion in Africa. An investigation by the Illicit Finance Journalism Programme (IFJP) shows Qalaa has paid extremely low levels of corporation tax since it was established over 10 years ago, and depends heavily on some of the most secretive financial jurisdictions in the world, namely the British Virgin Islands. Though there is no suggestion that Qalaa has done anything illegal, the document clearly shows that while the company has made LE1,316,750,000 in post-tax profits since it was founded over 10 years ago, it paid just over LE2,720,000 in corporation taxes.This insinuates an effective corporation tax rate of 0.2 percent. When asked to clarify fully its tax contribution, the firm refused to do so. It also did not respond when asked whether its claimed US$300 million tax contribution included taxes paid by employees. According to Madamasr,  “Qalaa is also a heavy user of tax havens. Its latest annual accounts show that out of 130 subsidiaries, almost a third are in tax havens. The company has 38 incorporated in the British Virgin Islands (BVI), five in Mauritius and one in Luxembourg”.

There is no quick fix to the issue of tax haven. It is a worldwide phenomenon. According to Global Financial Integrity one third of global wealth (30 trillion dollars) lies within the borders of just 80 tax havens. Unfortunately, the Egyptian government did not learn the lesson. The government claims the economy is in dire need for FDI to revive it and inject sufficient cash to get the wheel spinning again. Thus, the government is taking what it thinks are necessary measures to attract “foreign investors” and create a conducive environment for business. Business as usual entails significant tax breaks as well as other much needed measures to overcome the bureaucratic hurdles businesses usually encounter in Egypt. The new investment law, for instance, will entail a 15,000 pound exemption for every job created according to the minister of finance. It does not seem that Egypt will tie investors to any specific long-term socio-economic goals in terms of employment, wages, technology transfer, managerial know-how or the expansion and upgrading of the industrial establishment. The government is providing economic invectives for the very same creators of the problem. Despite the evidence of their engagement in suspicious business activities, there is no economic evidence that FDI has added value to the Egyptian economy and improving peoples’ livelihoods despite their heavy presence.

Yet, there are a number of actions Egypt could take in order to curb the forfeiture of such business behavior. Country by country reporting is perceived to be one effective tool to combat this business practice. Under the model, the multinationals would have to break their information down by country of operation – including in each tax haven – so that citizens and authorities can see what the corporations are doing in their countries.

Another measure that could be taken is the implementation of Unitary Tax. This would involve taxing multinational corporations according to the real economic substance of where they actually do business. Corporation and information exchange with developed nations with superior accounting practices and competent tax authorities is also highly desirable in this context.

Furthermore, it is of paramount importance to disclose the actual owners of the conglomerate, that is ensuring that every human who has a stake in a corporate structure – a ‘true beneficial’ owner – has his or her identity available on a searchable, low-cost public register. One possible solution with the ambition to motivate corporations to be responsible in paying taxes is offered by a group of Czech lawyers led by Ondřej Vondráček and Czech MEP Tomáš Zdechovský (EPP). They call it a “taxparent” solution (“Taxparency”), which “is aimed at the corporations which are lowering their tax obligations to the very minimum by shifting profits outside the EU to non-transparent tax havens. Therefore the EU budget is deprived of up to €300 billion annually,” Zdechovský explains.

Under the proposed solution, a conglomerate present in at least two EU member states could decide to pay at least 11.25% of its global profit in corporate tax and make its corporate ownership structure public on its website. In such a case, it would get the “taxparent mark” to boost its public image. Corporations paying under 11.25 % would have to face increased information obligations and would be under the scrutiny of tax authorities. Other measures comprise making tax evasion a criminal offence, restrictions on capital movements as well as reducing the reliance on FDI unless tied to specific developmental goals.