REGIME CHANGE IN TUNISIA, EGYPT AND LIBYA: A STIMULUS FOR THE PROSECUTORIAL AUTHORITIES

Bill Waite, Group CEO, and Martin Stone, Head of Middle East and North Africa
February 2011

We are often asked at anti-corruption conferences what stimulates prosecution activity. If one looks at the recent history of bribery prosecutions one answer becomes readily apparent: regime change.

The global asset traces which took place after the death of Sani Abacha, the string of prosecutions arising from the investigation into the oil-for-food programme in Iraq, and the most recent Serious Fraud Office prosecution of Julian Messent, all came about because of significant political disruption.

The reasons for this are reasonably straightforward. First, there are often cases to investigate. Where “new rulers”, as in the case of Abacha, have a great deal of power or “old rulers”, such as Mubarak and Ben Ali, have accumulated power over a long period of time, history demonstrates that they, their families and associates accumulate very significant amounts of wealth. Aside from raiding national coffers – Abacha treated the Central Bank of Nigeria as his personal chequing account – wealth is accumulated through corruption; both direct (being paid to allocate contracts to specific entities) and indirect (being given equity interests by businesses seeking to exploit either local natural resources, or the market).

Second, a new regime has an interest in recovering national wealth and in discrediting its predecessor. Third, from a purely pragmatic perspective, both the allegation and access to the evidence becomes identifiable and accessible by prosecutors. New governments are more than content to leverage their investigation and prosecutorial capabilities by bringing in third parties to help.

So, while the geopolitical consequences of recent events will be stimulating a great deal of analysis by officials at the Foreign Office and the State Department, their fellow civil servants at the Serious Fraud Office and the Department of Justice and other prosecutorial offices will be sharpening their pencils and waiting for the new regimes to ask for help.

THE CURRENT SITUATION IN EGYPT AND TUNISIA

Since Ben Ali’s departure from Tunis, the new government has set up an independent panel to investigate corruption. Its prime targets are members of the Ben Ali family and the Trabelsi family of the ex-president’s second wife, Leila. So far, more than 30 people have been arrested and face a wide range of corruption-related charges.

As the Ben Ali-Trabelsi nexus accounted for up to 40% of the Tunisian economy, and ranged from banking to insurance, car assembly, airlines, transport, textiles, cement, property, pharmaceuticals, supermarkets and real estate, anxiety is spreading among the families’ many foreign business partners. Already the new government has announced plans to recover the families’ assets and return goods and land appropriated on their behalf by the former administration, and there are worries of asset freezes and further arrests.

It seems inevitable that the investigations will uncover irregularities that will at least embarrass – and at worst inculpate – some of the families’ foreign partners. While overt bribery was rare, any business visitor to Tunis frequently heard reports of land being illegally confiscated and illegal payments being made by local partners to smooth the path of joint ventures.

The situation in Egypt is more complex. In an apparent attempt to distance itself from some of its most controversial supporters, the outgoing Mubarak regime froze the assets of several former ministers and senior ruling National Democratic Party (NDP) members, banned them from travelling abroad and placed most of them under investigation for theft of public money, profiteering, fraud and corruption.

The highest profile such figure is Ahmed Ezz, the chairman of the Middle East’s largest metals producer, Ezz Steel. A controversial former member of parliament, Ezz was a noted supporter of Mubarak and a friend of his often-criticised son, Gamal. Like many of the new wave of Egyptian businessmen, Ezz made his fortune through the government’s privatisation programme and through numerous international links. Others facing scrutiny include the former housing minister and real estate mogul, Ahmed al-Maghrabi, and the ex-tourism minister, Zuhair Garana.

Both the British and French governments appear to be cooperating closely with Egyptian officials who have taken over control of the government since Mubarak’s resignation in early February.

The tables now appear to have been turned on Mubarak. Since his resignation in early February, the Swiss government announced that it had requested banks in the country to search and block any assets belonging to the former president and ten members of his family.

The UK and EU have also announced that they are prepared to cooperate in freezing Mubarak’s accounts, though they require a formal request from the Egyptian government to do so. The most recent reports suggest the Serious Fraud Office has opened an investigation.

While the situations in Tunisia and Egypt remain fluid, a continuation and widening of the official investigations into official and business corruption seem assured. In Tunisia we expect the enquiries to generate a steady stream of allegations of corruption – possibly leading to charges or investigations – of companies linked to the Ben Alis and Trabelsis, which might implicate their foreign partners.

In Egypt, the scrutiny of the business interests of disgraced former ministers and NDP members seems set only to escalate, as the new government seeks to distance itself from unpopular characters seen to be corrupt. As Egypt’s business world was so tight-knit, the list of potential targets is small and features figures that are household names across the Arab world.

WHAT NEXT FOR LIBYA?

As we write, Gaddafi remains in power – but it would be a reckless assessment to suggest that his tenure is secure. Until the lifting of UN sanctions in 2003 and US and EU sanctions in 2004, much of Gaddafi’s accumulation of wealth followed the philosophical approach that what was his was his and what belonged to the country was also his. Following the lifting of sanctions and the significant direct inward investment into the country, his opportunities, and those of his cronies, to accumulate wealth expanded. It is the significant transactions since this date that will give rise to most interest in prosecutors’ offices – and perhaps most energetically at the Department of Justice. The US would wish to do all that it can reasonably do to damage the Gaddafi regime and the memory of it. Aggressive criminal enforcement would be a useful tool in this regard.

What should foreign investors do in this situation? The most obvious lesson of the past is the critical importance of being fully aware of a foreign partner, agent or intermediary’s political, or ruling family connections, and any allegations of corruption in respect of these. This is particularly the case where market entry has been achieved through a joint venture or an acquisition.

To the extent that there is a lack of clarity around these relationships it would be appropriate to investigate internally now, rather than to wait for the prosecutor’s information request to arrive.