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Criminal law languishes in post-revolution Egypt: Sarie-Eldin

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We are suffering from a post-January 25 mess and the politicization of criminal law in investment disputes, according to economic and legal expert Hani Sarie-Eldin

Dr. Hani Sarie-Eldin, managing partner of Sarie-Eldin Legal Advisors and former head of the Capital Market Authority (CMA) (Photo from Al-Borsa News)

Dr. Hani Sarie-Eldin, managing partner of Sarie-Eldin Legal Advisors and former head of the Capital Market Authority (CMA)
(Photo from Al-Borsa News)

By Mohamed Ayyad

Egypt is suffering from the politicization of criminal law in the aftermath of the revolution of January 25, 2011 through state interference in investment and administrative disputes

Dr. Hani Sarie-Eldin, managing partner of Sarie-Eldin Legal Advisors and former head of the Capital Market Authority (CMA) has described this as a catastrophe that puts fear in the hearts of local and foreign investors and pushes them to scale down investment and dealings with state agencies.

Sarie-Eldin added in an interview with Al-Borsa newspaper that continuing to work with the same legislation and mechanisms of the past would generate the same problems people are currently unable to solve, especially the investment disputes left over from a corrupt system that still exists and runs on their complexity.

The involvement of criminal law in investment and administrative disputes came from the failure to conduct political trials for politicians and state officials as well as for well-intentioned investors. The state’s confusion and hesitation to resolve investment disputes will lead Egypt out of the fierce competition for a piece of the direct foreign investment cake.

The country is currently going through disputes with approximately 20 investors, as well as final judicial rulings returning several privatized companies to the state. It is difficult to implement them to change the legal status of the company shareholders or liquidate their assets, which is what has plagued the investment climate and made the state vulnerable to heavy fines with investors resorting to international arbitration.

According to Sarie-Eldin, the government was trying to coerce investors into settling disputes amicably and according to the conditions it sets, away from legal mechanisms and in clear breach of their contracts. It hinted at resorting to criminal law to force investors to succumb to the Government’s demands, leading to an unstable legal environment and a climate repellent to investment.

“The Government formed committees to rebalance contracts that suffer from a fiscal deficit and infringement of the rights of the state,” he said. “But it abused these committees by threatening the investor with prison in case of an unresolved dispute or failure to bend to government pressure, which led to the state’s general pattern of adopting physical coercion to settle commercial disputes. The committees became futile shams.”

He described the insertion of criminal law into commercial and administrative disputes as a “disaster” that led to government investors scared to make any decision that might subject them to condemnation and criminal accountability, either by privatizing land or implementing contracts. It ultimately became the easier decision for investors to void the contracts, which produced a wretched climate for investment and the complete paralysis of all state agencies under the pretext of protecting public money. It was, however, doing serious damage to public money, as he put it.

Assessing the investment climate required taking into account the legislative framework and judicial system, the speed of resolving and adjudicating investment disputes, the procedural and bureaucratic dimension, availability of infrastructure and investment-ready land and finally currency problems. He described these as the least influential compared to the legislative and procedural framework.

Thus, the chairman of the Department of Commercial Law at Cairo University said that the state’s confusion in resolving investment disputes was a disaster that required quick action from all sides, beginning with the President and Government and the heads of the regulatory agencies because the issue could no longer bear delays. Its resolution would have a very fast positive impact and would return investor confidence in Egyptian government contracts.

“The investor may bear the slowness of some of the procedures and bureaucracy and is asking for amendments to the Companies Act but will not accept being thrown in gaol or conduct a feasibility study for a project with a regime – and then the regime is toppled and another one comes along, and is brought down on the pretext of the right of the state. There are a number of matters that need to be relooked at.”

Sarie-Eldin gave the example of the real estate regulations of the Urban Communities Authority which prevent real estate investors, for instance, from marketing their plans until after their complete implementation. This was at odds with the nature of real estate investment. It was unacceptable to stop a multi-billion dollar project without five years of marketing. It also penalized the investor who might be slightly behind in their payments because of a financial crisis with the confiscation of the land, even if they had paid most of the installments.

He asked the Government to quickly and urgently review its executive decisions, especially its unrealistic and crippling real estate regulations, to revitalize real estate investment and lay regional foundations for pricing by all government agencies.

“The general impression of Egypt, internally and externally, is that it is a country that does not abide by the rule of law or respect contracts, and does not have a clear vision for resolving disputes in its decisions. The integrity of the state’s legal system and the stability of legal centers are the most important elements of an assessment of the investment climate in any country. The administrative apparatus may have made a mistake, but as long as the investor is not paying bribes or committing a crime, it is not permissible for him to be punished by the state. The injustice of the legal system is what threatens current investments and threatens another wave.”

Sarie-Eldin called for adjusting the legislative and economic systems. This included liquidation and bankruptcy laws, a safe exit and quick access to the market.

Despite this, Sarie-Eldin felt that the fundamental problem was operational and procedural more than it was legislative. Officials thinking it was easy to not carry out contracts under the pretext of protecting public funds was a crime because it limited the investment cycle and increased the problems the country faces and led it to standing before international arbitration centers. This exhausted the country’s resources while also halting multi-million dollar projects and limiting the arrival of new investments.

“Legal and legislative uncertainty and instability are at the heart of the damage to public funds and not the reverse. There is no doubt that the previous regime’s contracts, marred by corruption, are not necessarily financial but administrative. The government often signed contracts with investors then asked them for the possibility of changing the price years later. Investors consented and paid the agreed upon amount. After some years, they were surprised by the demands for them to pay more taxes despite the fact that the state’s administrative apparatus had not implemented [plans] to restore land or deliver energy.”

The legal advisor pointed out that other problems included the lack of discipline in communications, complaints about past judicial decisions, skepticism about financial receivables and serious intervention on the part of state oversight agencies away from the adjustment of irregularities.

Sarie-Eldin said the average citizen looking for job opportunities was the most hurt by government slowness in resolving international disputes. Despite the economy needing security, the stability of the economic climate and improvement of the investment climate were working to control lawlessness and limit demonstrations and preserve Senate staff.

The legal advisor described the phase that followed the January 25, 2011 revolution as an absurdity and asked those in charge of state administration for quick decision-making according to the terms and truths of law so as to not lose a place among the fierce competition for direct foreign investment. There are countries with higher taxes than Egypt’s that attract larger investments due to their calm investment climates and the state’s respect for its contracts. However, Egypt was prepared to mobilize greater investments for efficiency and licensing of its labor, alongside taxes, simple customs and infrastructure unaffected by recent events.

He turned to the crisis of companies that were returned to state possession years after privatization. “The Government has no choice but to implement the final verdicts and reclaim the assets as friendly solutions are no longer available,” he said.

Sarie-Eldin described these judicial verdicts nullifying the privatization of public sector companies as stemming from public pressure that put all assets sold within the circle of corruption.

The ex-chairman of the CMA wondered about how to revoke commercial contracts for which criminal provisions proving themselves marred by corruption were not issued and, at the same time, how to invalidate investment contracts according to criminal provisions for which judgments were not handed down in commercial disputes.

The legal advisor also wondered about how to return the assets of a company that had been traded on the stock exchange and had different legal statuses and a company whose assets had been completely liquidated. It was physically impossible to implement the positions and these would have been better resolved amicably before court, he said, underscoring that he meant the judgments issued against the buyer.

“What is happening right now is weakening the ability of any government to solve these disputes and settle the clash between all executive, judicial, and oversight administrations. The matter has become a state issue and must move quickly to achieve success.”

He played down the difficulty of resolving investment disputes on whose behalf final verdicts were signed, which became “amicable”. At the same time, he stressed the necessity of the government enforcing the final verdicts to maintain stable legal status. There were companies that had been completely liquidated and their assets sold and the original investor was no longer living, which made a physical settlement impossible. The situation also required taking into account the labor force that these disputes will leave behind.

According to Dr. Sarie-Eldin, international national arbitration does not work against Egypt. However, the state was going to international arbitration with badly formulated contracts, unspecialized legal representatives and an exhausted administrative apparatus. In addition, representatives of the government have their defense focus their arguments on cosmetic rather than substantive reasons – all of which has produced the impression of Egypt as a place that does not respect its contracts.

Dr. Sarie-Eldin explained that revolutions made it more difficult when dealing with investment contracts, which were signed by the former regime and stirred up great controversy.

“The current government must try to reconcile with the past,” he said. “We are still talking about the existing procedural and administrative framework without the reasons for the problems coming out. The current administration is working to treat the problems of the past with the same mode of thinking and legislation that it created, although it is necessary to define the problems by sector. There is no magic solution that can be generalized to get us out of this dilemma.

Dr.Sarie-Eldin asked those leading the administration to work quickly to get them on the correct path economically, legislatively, politically, procedurally and organizationally. “We started the two revolutions of January 2011 and June 2013, but they were not finished. As for the first, the regime we rose up against rules across many wings. The second is the religious regime, still increasing the state of political tension and imposing an unstable security reality in the street.”

“The truth is that what happened was only the toppling of individuals. The success of the revolution will only come when its principles are implemented. What happened was not the fault of the revolutionaries but rather of the administration. They did not undertake radical reforms in all areas.”

According to Dr. Sarie-Eldin, the Government currently has few believers in change. The administration was certainly corrupt and they lacked the ability to change and the tools to implement that change. The rest were employees so the administration’s corruption did not bother them. They were a part of it and were neither believers in change nor did they have the ability to do it.

He stressed that Egypt needed a government and regulatory and administrative agencies to define the required change, not exacerbate the problems. They needed to spread hope by broadcasting positive messages, and reassure the business community domestically and abroad.

He said that Interim President Adly Mansour was not governing except by the powers in the last constitutional declaration and the supreme word in the Supreme Council of the Armed Forces’ (SCAF) security dossier. The Government had limited power and was constrained by the scope of security and SCAF, but SCAF was the chief actor in it. As a result here was no one leading the government explicitly, which weakened the decisions taken, despite the fact that the government had a larger framework than ever before.

He described the economic situation as sad and wretched, and said the government was unable to radically resuscitate it right now. It had nothing to do but work to create a stable, balanced and sustainable political climate by way of greater honesty with the people and even accept extreme measures like restructuring subsidies, in parallel with working to address the budget deficit and conduct more in-depth tax reforms.

“The current phase requires painkillers and sedatives but cannot handle surgery in terms of dealing with Gulf aid with the utmost caution and using it with maximum efficiency to create to create job opportunities and direct it to the poorest regions,” he said.

The government called for the necessity of dealing with the transitional phase with the utmost discipline and caution, including all governorates, especially the poorest politically and socially, so as to not create problems that the government was not now prepared to solve.


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