EGYPT: POLITICAL IMPLICATIONS OF CORRUPTION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84S00556R000300060004-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 22, 2016
• Document Release Date: January 10, 2011
• Sequence Number: 4
• Publication Date: July 1, 1983
• Content Type: REPORT

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Directorate of
Egypt:
Political Implications
of Corruption
An Iatelhgence Assessment
NESA 83-10160
July 1983
Copy 2 91
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T Intelligence
Egypt:
Political Implications
of Corruption
This paper was prepared b f the
Office of Near East-South Asia Analysis. It was
coordinated with the Directorate of Operations,-
Comments and queries are welcome and may be
directed to the Chief, Arab-Israeli Division, NESA,
Secret
NESA 83-10160
July 1983
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Egypt:
Political Implications
of Corruption F--]
Key Judgments Allegations of high-level corruption in government and business continue to
Information available bedevil Egyptian President Hosni Mubarak and detract from the credibil-
as of 16 June 1983 ity of his regime.
was used in this report.
Although Mubarak appears personally honest, he is vulnerable on the
corruption issue because of his position as Vice President during the Sadat
period, when corruption flourished. To decrease his vulnerability, Mubarak
has been waging a visible but selective anticorruption drive intended to
dissociate himself from the negative aspects of the Sadat regime and divert
public attention from continuing economic hardships. His campaign also
appears designed to exert greater control over the bureaucracy and private
business where independent centers of power are potential sources of
embarrassment or resistance to regime policies.
The public has generally welcomed Mubarak's anticorruption efforts, but
some Egyptians argue that they have not gone far enough. If Mubarak
slackens his anticorruption campaign, he will expose himself to charges of a
coverup and his popularity will dip further. If he were to broaden the
campaign, however, Mubarak would risk alienating his supporters, impli-
cating key officials of his government, and being charged with malfeasance
and ineptitude for not purging these officials sooner.
Mubarak probably will not bow to the demands of Egypt's leftist opposition
for the wholesale removal of allegedly corrupt senior officials. He is most
likely to continue attempts to defuse the issue by pressing ahead with his
limited anticorruption campaign and by issuing periodic warnings to his
critics. If the aggressive muckraking of the country's opposition parties
increases sharply or begins to have a serious impact on popular attitudes to-
ward him, Mubarak may react by closing opposition presses or jailing their
leaders. Such actions, however, would seriously discredit his regime at
home and abroad and probably lead to more dangerous forms of opposition
activity such as public protests or the organization of new underground
groups.
The anticorruption campaign can have only short-term value as a diversion
from social and economic problems. In the absence of real reform
measures, moreover, a zealous crackdown on corruption risks damaging the
safety valves in the Egyptian economic and political system that have
helped maintain stability in recent decades.
iii Secret
NESA 83-10160
July 1983
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The corruption issue has generated some friction in the US-Egyptian
relationship and could create additional problems in the future. Over the
past year scandals have surfaced about irregularities in Egyptian imple-
mentation of US economic and military assistance programs. Charges that
Egyptian officials and businessmen have profited illegally from US aid
programs have embarrassed Egypt's leaders and made them sensitive to
US investigations of these allegations.
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Egypt:
Political Implications
of Corruption
Corruption is a potent political issue in Egypt that has
undercut the legitimacy of two previous Egyptian
governments. The widely held impression that corrup-
tion was extensive under King Faruk provided a major
impetus and rationale for the military coup in 1952.
Under President Sadat, the belief that corruption was
rampant at all levels-and that those closest to Sadat
were the most corrupt-was a contributing factor in
his eventual assassination; the Islamic radicals who
assassinated the President in October 1981 were
critical of his ostentatious lifestyle and his alleged
links to corruption.
The public perception that corruption is more wide-
spread now than during the Nasir era apparently
stems largely from Sadat's economic liberalization
policies. His "open door" policies created a substan-
tial domestic foreign business and aid presence that
many Egyptians believe increased existing bureau-
cratic corruption. The greater political freedoms al-
lowed by Sadat, moreover, permitted more Egyptians
to become aware of and express themselves about
corruption, foreign influence, and social and economic
inequities. Derisive terms and phrases like the "Sadat
Mafia," "open door fat cats," "rabbits" (millionaires),
and "elephants" (multimillionaires) became common
usage.
The social and economic changes generated by Sa-
dat's policies challenged the concept of social equality
advocated by Nasir.' Sadat's policies fostered a privi-
leged upper class similar to that which existed prior to
1952 and created a new entrepreneurial group, both
of which participated in unprecedented displays of
consnicuous consumption. "Making it" became the
primary preoccupation of a large number of Egyp-
tians, causing others to fear that civil and social
morality was being seriously eroded.
Mubarak's Anticorruption Campaign
President Mubarak's concern about corruption in
Egyptian society appears genuine and consistent with
his personal and professional beliefs. In the early
months of his presidency, Mubarak spoke frequently
of the need to instill discipline-behavioral account-
ability-in Egyptian society. The discipline theme
was well received by most Egyptians following the
Sadat assassination and the unsettling social and
economic changes generated during the 1970s. In
addition, the discipline drive helped Mubarak to
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Mubarak's recent anticorruption campaign, a natural
followup to his earlier discipline theme, appears to
have several political motivations. In one sense it has
become an effort by the President to dissociate him-
self from some of the negative elements of Sadat's
policies without having to initiate radical and disrup-
tive reforms. In addition to preempting some domestic
criticism on this issue, the anticorruption campaign
has provided the regime with a popular diversion from
continuing economic problems
The anticorruption campaign also appears designed to
exert greater control over the bureaucracy and the 25X1
private-business sector where centers of power and
patron-client relationships are potential sources of
public embarrassment and resistance to regime poli-
cies. The trials of a small number of millionaire
businessmen-and the public criticism of others im-
plicated in the process-have taken on elements of a
minor purge and appear to constitute a warning to
other wealthy and powerful individuals
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The custom of paying baksheesh-a tip or a bribe-
to a public official in Egypt has historical precedents.
Prior to the 20th century, many Egyptian civil serv-
ants sold their services for a fee or took a percentage
of revenues collected instead of receiving a salary
from the government. Most modern-day Egyptians
reluctantly accept the fact that baksheesh is required
in order to do business with poorly paid public
officials. Additionally, the offer of tips or gifts when
doing business is traditional throughout the Middle
East. A cultural predisposition, however, is not the
sole cause of corruption in Egypt today. It is largely
the outgrowth of the country's underdevelopment and
existing economic, social welfare, and political sys-
tems.
The emphasis on public ownership and central plan-
ning of the economy which started with President
Nasir created government controls in the production
and distribution of goods and services that encourage
corrupt practices. The longstanding policy of con-
trolled prices and subsidies for basic commodities
helps create periodic shortages of some goods and a
thriving black market. The government, moreover,
controls the distribution of all building materials. It
can take up to three years for delivery of building
supplies if a contractor depends solely on legal
practices, whereas a well-placed bribe can expedite
the process.
Sadat's "open door" economic policies quickened the
pace of commercial activity and eased some trade
and investment regulations. Foreign businessmen and
investors, however, were dependent on middlemen
with "influential" contacts to handle the numerous
levels of bureaucratic red tape that still existed. For
example, the cumbersome Egyptian customs appara-
tus is especially vulnerable to corruption. Business-
men are often willing to pay officials, directly or
through a middleman, to expedite service rather than
face expensive delays that can otherwise occur.
The Egyptian Government has committed itself to a
large array of public welfare services that are beyond
its capacity to deliver, creatingfurther opportunities
for corrupt practices.
poorly paid civil servants rarely fail to levy a.fee from
citizens seeking benefits from social programs.
Egypt's free educational system is an example of how
inadequate social welfare programs generate corrupt
practices. Only students from families with reason-
ably good incomes can Gifford the private tutoring
often necessary to pass examinations at the second-
ary and university level. Teachers often supplement
their low incomes by tutoring on the side and selling
course notes. Grossly overcrowded classes guarantee
a demand for such services, especially at the universi-
ty level.
The centralized nature of the Egyptian political
system also has encouraged corruption, according to
observations by several scholars. One academic
source notes that Presidents Nasir and Sadat both
appeared to use planned corruption as a means of
political control. Although neither appeared to be
personally corrupt, both apparently condoned some
forms of corruption in order to isolate elites from
each other and from classes beneath them and to
make these elites dependent on the country's leader-
ship, often through the implicit threat of exposure. F
Nasir feared the free play of political and economic
forces, and he contained them through a complex
series of security, police, and intelligence networks
overlain by bureaucratic procedures. Significant pow-
er was given to the police and security elements. To
ensure that the chiefs of these organizations remained
loyal, Nasir allowed them to exploit their power for
personal, often lucrative, ends.
Sadat, on the other hand, at least initially preferred
to manipulate political and economic interests rather
than suppress them. This approach was reflected in
his economic and political liberalization policies be-
ginning in the mid-1970s. By permitting corruption
and allowing the development of freer markets, he
won the loyalty of important elites and middle func-
tionaries who became clients of the regime.
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Indiscipline, neglect, favoritism,
corruption, or even thievery are
not important. What is impor-
tant is that a man have charac-
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Statistics are not yet available to document whether
the Mubarak government has significantly increased
the investigation and prosecution of cases of corrup-
tion-especially bribery and embezzlement involving
officials-but it appears to be more active in this
regard than was the Sadat regime. One Egyptian
study based on official government statistics noted
that between 1975 and 1980 recorded cases of bribery
and embezzlement had declined significantly from the
levels of former years. According to the study, during
1960-65 there were about 2,700 reported cases, while
between 1975 and 1980 they totaled about 1,000. The
interpretation of the data offered in the study suggest-
ed that the decline in recorded cases of bureaucratic
corruption reflected reduced government control un-
der Sadat and the abolition of a major oversight
organization. The study further noted, however, that
the monetary magnitude of crimes, prosecuted mainly
at the lower end of the bureaucratic scale, had
increased significantly.
Mubarak remained committed to an aggressive
campaign against corruption, es eciall by public
officials. there are
three major organizations authorized to investigate
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President Mubarak addressing Camera Press
Egypt's parliament in early
corruption-the Central Audit Organization, the Tax
Evasion Department, and the Administrative Control
Organization. The Central Audit Organization,
roughly comparable to the US General Accounting
Office, investigates both the government and the
private sector. The Tax Evasion Department, subordi-
nate to the Ministries of Finance and Justice, is
responsible for uncovering tax evasion by any Egyp-
tian citizen.
The Administrative Control Organization, abolished
by Sadat in the late 1970s, was reestablished by
Mubarak in 1982. It is an autonomous organization
that has responsibility for monitoring the fiscal and
administrative behavior of government officials and
military officers. there
is a representative of the organization in every govern-
ment department whose major purpose is to act as a
deterrent to crime, but who also keeps records on
employee activities.
The recent highly publicized corruption trials in
Egypt have been prosecuted under the authority of
Sadat's so-called Law of Shame passed in 1980. The
Law of Shame set up a system of state security courts
(popularly known as Courts of Ethics) that are sanc-
tioned in the constitution of 1971. These Ethics
All my life, even before I entered public service, I
never hated anything as I hated those who extend
their hands to take from the funds of others.
Interview in Al-Musawwar
October 1981
I shall fight exploitation even if it is practiced by a
member of my family.... I will not protect him
against the state ... if he exploited or defrauded. We
are a developing state and cannot tolerate the official
body tampering with state funds.
Interview in Kuwaiti newspaper,
A1-Siyasah
November 1982
There is corruption everywhere in the world. We
perhaps have six, seven, or ten cases of corruption
compared with hundreds of cases in other parts of the
world.... What is important is that we should not
cover up or encourage corruption.
Interview in Al-Sharq Al-Awsat
(London)
January 1983
Courts try those who have allegedly committed politi-
cal crimes-departures from the values of society-as
opposed to those charged with criminal offenses.
The Ethics Courts are not bound by traditional legal
evidence and can prosecute cases more quickly than
the criminal courts. They have the power to impose
political ostracism, limited prison terms, and seques-
tration of property. The Ethics Courts appear to have
a wide mandate to hear cases related to bribery,
embezzlement, illegal political activity, and threats to
national security. Any Egyptian citizen who has been
tried in the Ethics Courts may still be subject to
prosecution for the same offenses in criminal courts if
he has violated existing laws.
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Under Mubarak, the corruption cases tried in the
Courts of Ethics have focused on millionaires who
made their fortunes and committed their alleged
transgressions during Sadat's rule. The accused mil-
lionaires allegedly committed offenses such as evading
tax and customs regulations, importing inferior goods,
violating government price controls, and dealing in
the black market. The first two trials, those of Rashad
Osman, a lumber dealer from Alexandria, and Esmat
Sadat (Anwar Sadat's half brother) and his sons,
resulted in one-year prison sentences and sequestra-
tion of their fortunes. Rashad Osman, who has com-
pleted his sentence, is attempting to regain some of his
wealth through the courts. The Sadats are now ap-
pealing the court's decision. A third millionaire, Taw-
fiq Abd al-Hayy, fled the country and was tried for
fraudulent activities in absentia. His assets and those
of his family were sequestered for five years. Accord-
ing to the US Embassy in Cairo, a fourth millionaire,
Kamal al-Kafrawi, is presently being held for trial on
charges of extorting some "4 million [presumably
Egyptian pounds] in rent payments."
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Esmat Sadat (right) with sons Tarek (behind bars)
and Talast (left, laughing) await sentencine dur-
A number of other prominent businessmen and for-
mer or current high-level government officials have
been implicated during these corruption trials. Many
have been publicly criticized by the Ethics Courts for
poor judgment or for greater offenses. In the Esmat
Sadat case, three current ministers and a former
Prime Minister were implicated. Mubarak dismissed
two of the three ministers, and criminal charges
against one of them are still pending, according to
press reports. The Ethics Courts also have charged the
present Minister for International Investment and
Cooperation Dr. Wagih Shindi with responsiblity for
an ill-advised loan to Tawfiq Abd al-Hayy while
Shindi was chairman of the Arab Investment Bank.
Minister of Economy and Foreign Trade Mustafa al-
Said will probably be cited by the court for question-
able activities stemming from his former close associ-
ation with Kamal al-Kafrawi. Both Shindi and Said
were Mubarak appointees in the cabinet shuffle of
August 1982.
In early May 1983 the Ethics Courts reviewed the
first formal accusation about misuse of US Agency
for International Development (AID) funds. Three
high-level Ministry of Agriculture officials were ac-
cused of receiving bribes from an Egyptian-American
contractor involved in setting up an AID fish farm
project. Two of the officials were exonerated, but the
court ruled that the contractor and a third official be
fined and serve three years in prison. This case
confirmed the suspicions held by many Egyptians that
US economic aid is being pocketed by their public
Domestic Reaction
Mubarak's anticorruption campaign has been widely
popular among Egyptians, according to reporting
from the US Embassy in Cairo. In part, it has
provided a diversion from a bleak domestic period
under Mubarak. More importantly, it has given Egyp-
tians hope that Mubarak is attempting to restore the
social equity and justice that many Egyptians believed
were lost during the Sadat years. An informal survey
of university students by the US Embassy in Cairo
revealed that Mubarak's anticorruption campaign has
been effective in mobilizing greater support for the
regime.
Nevertheless, many Egyptians remain skeptical about
the depth of Mubarak's commitment to reduce cor-
ruption. Students who were interviewed in the US
Embassy survey believed that the Rashad Osman and
Esmat Sadat cases were only the tip of the iceberg.
Few were confident that the Mubarak government
would carry its prosecutions much further. A young
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teacher in a small delta town was reported to have
complained cynically, "How can there be a serious
government-inspired campaign against corruption?
To do so, the government would have to indict itself!"
members of
the legal leftist opposition, including numerous intel-
lectuals and professionals, believe that corruption in
government is as prevalent today as it was in Sadat's
time. They criticize Mubarak for maintaining close
ties with corrupt members of the so-called Sadat
ruling elite.
mafia who continue to hold key posts in the cabinet,
the National Democratic Party (NDP), and the Peo-
ple's Assembly. They further believe that Mubarak's
campaign has so far only skimmed the surface, and
they have aggressively published muckraking articles
in party newspapers both to spur the government to
undertake additional prosecutions and to discredit the
Mubarak's Vulnerabilities
President Mubarak's honesty-an apparent out-
growth of both pragmatic and moral convictions-
appears to be genuine. Although he may be immune
from direct charges of corruption, Mubarak is poten-
tially vulnerable because of his position as Vice
President during the Sadat period. He may already be
in a no-win situation over corruption. If Mubarak
slackens his anticorruption campaign, he could be
subjected to allegations of a coverup by opposition
elements who have frequently leveled charges of
corruption against members of Sadat's inner circle. If
Mubarak were to widen the scope of his campaign,
however, he would risk implicating key members of
his cabinet and the NDP and thus face charges of
malfeasance and ineptitude by regime critics as well
as risk alienating his own supporters.
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 Mubarak so far has avoided prosecuting several mem-
bers of President Sadat's inner circle who have been
the subject of government investigation or scrutiny by
the opposition press. Sadat's widow Jehan has been
the target of several corruption allegations involving
investment schemes and charitable organizations. Os-
man Ahmed Osman, a contracting tycoon related to
Sadat by marriage, has been the focus of an intense
campaign by the leftist opposition for a number of
allegedly illegal business deals. One major charge
against Osman is that he illegally took possession of
state land worth over $10 million. Another of Sadat's
in-laws and former speaker of the parliament, Sayed
Marei, allegedly evaded paying $1 million in taxes
over the past several years.
Numerous rumors and allegations of corruption
among Sadat-era politicians who remain in office
under Mubarak have included Prime Minister and
NDP Secretary General Fuad Muhi al-Din, and
parliamentary speaker Sufi Abu Talib. Potentially the
most serious scandal, however, involves both the
Minister of Defense Muhammad Abd al-Halim Abu
Ghazala and Minister of Foreign Affairs Kamal
Hasan Ali. Some US journalists have alleged that
while in their former positions under Sadat-Abu
Ghazala was Defense Attache in Washington and Ali
was Minister of Defense-they pocketed illegal prof-
its made by the Egyptian-American Transport and
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Services Corporation (EATSCO), which had received
the Egyptian Government contract to ship US arms to
Egypt. Under pressure of publicity in the US media,
Mubarak ordered an Egyptian investigation of these
charges that by late 1982 had found the officials
innocent of wrongdoing.
The EATSCO affair touched on several sensitive
issues that may still cause serious embarrassment and
negative political consequences for Mubarak and his
government. In the broadest sense, we believe it
deepened public suspicions that senior Egyptian mili-
tary officials might have profited illegally from the
US military assistance program. More specifically, we
also believe the EATSCO affair probably is partly the
cause of Mubarak's hesitancy about appointing Abu
Ghazala as his Vice President. In addition, the
EATSCO affair touched Mubarak more closely than
any investigation so far since his brother-in-law,
Munir Sabet, was rumored to be involved in corrupt
practices as procurement officer at the Egyptian
Embassy in Washington in the late 1970s.
Outlook and Conclusions
The continuing investigations of millionaires and the
increased monitoring of the bureaucracy have to some
extent reestablished the symbols of social equity and
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justice that were undermined in the 1970s. Mubarak
also has dampened enthusiasm for the conspicuous
consumption that discredited the Sadat regime. He
appears to have reaffirmed values inculcated after
1952 that wealth would not be the major source of
political power or political power a source of wealth.
As a diversion from social and economic problems,
however, the anticorruption campaign has only short-
term value for Mubarak.
It is unlikely that Mubarak will move to satisfy
completely the demands of the leftist opposition for an
even more aggressive anticorruption campaign. Nor is
he likely to tolerate indefinitely its muckraking. He
may find himself caught in the same sort of ugly
confrontation with the opposition that damaged Sa-
dat's presidential image. Mubarak's public attack on
the opposition in a speech on I May could indicate
that such a confrontation has already begun. Even
more serious, however, is the possibility that Mubarak
eventually could feel compelled to silence the opposi-
tion groups by closing their presses or jailing their
leaders. Such actions would be compared to the
widely criticized suppression of the opposition carried
out by Sadat a month before his assassination. It
probably would also generate more dangerous forms
of opposition activity. We believe Mubarak is aware
of these risks and is unlikely to resort to such extreme
measures without additional and more serious provo-
cation by opposition elements. Over the near term,
therefore, he probably will continue his modest anti-
corruption efforts while attempting to dampen criti-
cism on this issue by issuing periodic warnings to the
opposition.
In the final analysis, much of the corruption in Egypt
is a direct outgrowth of the country's cultural, eco-
nomic, and political heritage. A zealous crackdown
risks damage to the safety valves that have helped
maintain stability in recent decades, particularly if
unaccompanied by real political and economic re-
forms. Both Nasir and Sadat condoned, and in some
instances inspired, a certain level of bureaucratic
corruption in order to reward and tie individuals and
groups to the regime. At the lower levels of the
bureaucracy, "baksheesh" can be cut down but not
eliminated unless Mubarak is willing to clamp down
hard while providing salary increases his government
can ill afford. The Egyptian public generally has come
to accept a modest level of bureaucratic bribery as a
fact of life. Continued instances of large-scale corrup-
tion at high levels of government and business, howev-
er, would weaken Mubarak's credibility and strength-
en his critics.
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The US Factor
The widely held Egyptian perception that bureaucrat-
ic corruption became excessive because of Sadat's
economic liberalization policies and his turn to the
West carries the inherent notion, however subtle, that
the United States shares responsibility.
Islamic fundamentalists believe
the United States is partly to blame for the increased
consumerism that they argue has eroded traditional
Islamic principles. Leftists have argued in public that
the United States had a hand in corrupting local
middlemen in order to benefit US corporations. Gov-
ernment investigation of profiteering and bribery
cases connected to the US military and economic aid
programs has served to reinforce public suspicions of
bureaucratic corruption generated by the US pres-
The corruption issue has already created some friction
in the US-Egyptian relationship, and more is likely to
occur in the future. Charges that Egyptian officials
and businessmen have profited illegally from US aid
programs have embarrassed Egypt's leaders and made
them sensitive to US investigations of these allega-
tions. ome Egyptian
officials believe the EATSCO affair demonstrates
that the US Government is pressing Mubarak to carry
out an overzealous crackdown on corruption. Other
Egyptians, however, apparently believe Washington
does not want Mubarak to conduct a thorough anti-
corruption campaign for fear it would frustrate US
interests and embarrass US officials. Both perceptions
detract from the US image in Egypt by suggesting US
involvement in Egyptian domestic affairs.
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