Amid His Failure to Provide Dollars, Is Sisi Opening the Doors of Egypt to Drug and Antiquities Traders?

Egyptian banks have been accustomed to questioning anyone who applies to open a dollar account or convert it to Egyptian pounds about the source of the currency.

They also refuse to issue letters of credit to traders for importing goods if they use their own dollars obtained from sources outside the bank, even when the bank does not supply them.

However, the scarcity of dollars, the state of economic chaos, and the expected problems in repaying accumulated debts have prompted Abdel Fattah el-Sisi's regime to open the doors of banks to account holders without asking them about the source, even if it's in millions.

Surprising statements were made by Yehia Abu el-Fotouh, vice chairman of the board of directors of the National Bank of Egypt, following the bank's issuance of international certificates with a huge return, which caused a widespread uproar.

This has raised questions about the meaning of the new decision and whether Egypt is thereby opening the door for drug dealers, antiquities smugglers, and money launderers while still scrutinizing small dollar transfers for Egyptians and demanding explanations for foreign currency conversion.

Does this decision put Egypt on the red list of countries accused of money laundering, as it means opening the door to dirty money from antiquities and drug smuggling for laundering?

The confusion grew when the Egyptian Foreign Ministry announced the possibility of exempting deserters from military service and residents outside Egypt on the condition that they pay five thousand dollars at a branch of Banque Misr in Abu Dhabi, which raised questions about the scale of the crisis pushing the regime to collect dollars in any form and why through Banque Misr branch in the UAE, specifically?

 

Laundering Through Dollars

On July 25, 2023, Banque Misr and the National Bank of Egypt, both government-owned, introduced new dollar-denominated investment certificates with a three-year term and an annual interest rate of 7% and 9%.

These rates represent the highest interest on foreign currency certificates in the history of the Egyptian banking system since the early 1990s, according to an investment manager at an American consulting firm with investment portfolios in Cairo, as reported by Mada Masr on July 26, 2023.

The announcement regarding the certificates stated that the 7% certificate's return can be disbursed monthly, quarterly, or annually, while the "full return" of the 9% certificate is paid "in advance upon deposit" in Egyptian pounds, with the principal amount of the certificate being paid in dollars at its maturity.

The announcement also included the possibility of borrowing in local currency with a guarantee of the dollar-denominated certificates, up to 50% of their value, which is an additional attractive feature for dollar depositors, as banks are prohibited from lending in local currency against foreign currency deposits.

But the incentives didn't stop there. A meeting was organized between Yehia Abu el-Fotouh, Vice Chairman of the National Bank of Egypt, and the Sada el-Balad channel, owned by pro-government businessman Mohamed M. Abou el-Enein. The newspapers promoted the meeting, during which Abu el-Fotouh assured dollar depositors that they will not be questioned about the source of their funds.

He stated on July 26 that all Egyptians can purchase savings certificates in dollars without being questioned about how they obtained the funds.

"If you have a million dollars, go to the bank and get the certificate, and no one will ask you where you got the money from," Abu el-Fotouh said.

He implied that this was done after collecting 3.5 billion dollars from the dollar-denominated savings certificates with a monthly return of 5.25%, which were introduced in May 2023.

However, an investment manager told Mada Masr on July 26, 2023, that the statements made by Abu el-Fotouh about not questioning clients about the source of their dollars "do not prevent following the customary procedures in case there is a reason to suspect the source of the funds," which includes reporting to regulatory authorities.

With Egyptians on social media asserting that drug dealers and antiquities traffickers might exploit these certificates for money laundering, a high-level source told Shorouk News that "Egyptian banks do not accept funds of unknown origin."

The denial of what the Vice Chairman of the National Bank of Egypt stated regarding not asking about the source of dollars has further added to the mystery.

 

What is the Objective?

A former bank manager explained to Al-Estiklal that the goal is to "collect dollars from the market in any form, even through the black market or any unknown source," indirectly implying that it may be "illegitimate."

He mentioned that banks used to have strict instructions to inquire about any dollars through documents where the client states the source of obtaining them, whether they were owned or transferred from abroad, for security reasons.

However, due to the urgent need of the state for dollars to settle foreign debts or fulfill obligations to clients in foreign currency, the banking system practically disregarded these previous instructions.

He explained that the banks are going through a crisis where they are facing a shortage of dollars and are unable to meet the demands of foreign currency certificates and deposits. This is particularly challenging as the central bank is withdrawing dollars from them, leading some banks to resort to borrowing dollars from international sources.

As for his expectation regarding the popularity of these certificates, the source told Al-Estiklal that the target audience for these certificates is Egyptians within the country who hoard dollars, most of whom already deposit them in banks. However, those outside the country are unlikely to respond to such offers.

He explained that the reason is that the initiative of certificates offered by Banque Misr and the National Bank of Egypt sets the official exchange rate of the dollar at 31 Egyptian pounds, which the depositor receives after 3 years in foreign currency. Meanwhile, Egyptians abroad send their dollars to the black market traders at a rate of around 40 Egyptian pounds.

Mohamed Hassan, Investment Funds Director at Odin Investments, stated to Shorouk News on July 26, 2023, that the new certificates "will not attract investors from the black market because investors there achieve higher and quicker returns instead of locking their funds in banks for 3 years."

The announcement made by the National Bank of Egypt was met with ridicule on social media, with activists speculating that it might be a trap for individuals holding dollars or possibly functioning as an official platform for money laundering, involving illicit activities such as drug trafficking and dealing with antiquities. These suspicions were raised under the context of the Abdel Fattah el-Sisi regime.

 

Money of Complicity

On January 8, 2023, banking sources informed Al-Arabiya that Banque Misr and the National Bank of Egypt, the largest government-owned banks in Egypt, borrowed 700 million dollars from the global debt markets. Similarly, Abu Dhabi Islamic Bank – Egypt borrowed 50 million dollars on July 17, 2023.

Fitch Ratings, a credit rating agency, implicitly interpreted on January 13, 2022, that the Egyptian banks' resort to borrowing dollars from the global debt markets was due to the decline in foreign assets in Egypt after the Central Bank withdrew deposits to repay debts.

Fitch stated that the foreign assets of Egyptian banks, which were 6.8 billion dollars in March 2021, declined to negative 7.1 billion dollars in November of the same year.

This means a net decrease of approximately 14 billion dollars in foreign assets of Egyptian banks over a period of 9 months in 2021.

The situation worsened further in the following months, as data from the Central Bank of Egypt showed a decline in net foreign assets in banks during January 2023 to reach negative 21.7 billion US dollars at the end of that month, compared to negative 20.0 billion US dollars at the end of December 2022.

The negative net foreign assets imply that the foreign assets do not cover the foreign obligations of the banks.

The deterioration continued in May 2023, with the net foreign assets deficit jumping to negative 24.4 billion dollars in March 2023.

A marginal and weak improvement occurred for the first time in April 2023 when the net foreign assets deficit decreased to negative 24.1 billion dollars compared to 24.4 billion in March 2023, according to the Economy Plus website in early June 2023.

The negative foreign currency deficit led the banks to entice Egyptians to deposit their dollars in banks, even if their source was unknown or illegitimate, in an attempt to rescue them from collapse after the Central Bank took dollars from them to repay debts and purchase supplies for some failed projects.

These facts are evident in the statements of the Central Bank of Egypt in tables related to the size of the foreign reserve each month.

This happened concurrently with a significant and continuous decline in the remittances of Egyptians abroad, which decreased by 23.1% over nine months, according to the reports of the Central Bank, and these remittances are significantly relied upon by Egypt's economy.

The Central Bank's report showed that the remittances of Egyptians working abroad reached 17.5 billion dollars during the first nine months of the fiscal year 2022–2023.

In contrast, the value of these remittances was 23.1 billion dollars during the same period of the fiscal year 2021–2022.

Remittances from Egyptians abroad represent the largest source of foreign currency in the country, followed by exports, tourism, and Suez Canal revenues in order.