The European Union's house bank invested in funds that benefited Egypt's ruling clique and had links to the ruling elites of Palestine and Syria, even as it preached the importance of human rights and democracy, suggests a new report obtained by Ahram Online.
The family and associates of Egypt's Hosni Mubarak directly gained from some of the investments made by the European Investment Bank (EIB) into private equity funds run by Cairo based EFG Hermes bank, says a draft of the report by Counter Balance, a coalition of non-governmental organisations.
The European bank's transactions with EFG Hermes meant the ex-president's son, Gamal Mubarak, was a direct financial beneficiary of at least two investments as a result of his shareholding in the bank's Private Equity division -- a conflict of interest of which, Counter Balance, says the bank should have been aware.
Titled 'Private Equity, public inequity: The EIB's questionable partners in the Middle East', the investigation will be published on 25 January.
EIB is owned by the 27 member states of the European Union and is the continent's largest public lender.
Under scrutiny in the report is EIB's business partnership with Egypt's EFG Hermes bank and its related private equity firms, as well as Gamal and Ala'a Mubarak, the two sons of the country's deposed president.
The investigation looks at some of the financial investments made by the EIB in private equity funds in Egypt and the Middle East. Convicted industry and trade minister Rachid Mohamed Rachid was also connected to one such fund.
The report looks at four investments made by EIB, an allegedly non-profit financial institution, to EFG Hermes related entities between October 2000 and May 2010, and investigates the links between two of these transactions and key figures in the Egyptian regime via EFG Hermes Private Equity.
Two EIB transactions involve 4.5 million euros with the Jordan High Tech fund in October 2000 and 6 million euros with the Middle East Technology fund in February 2001. Both funds were set up and managed by EFG Hermes Private Equity.
The other two transactions were a 6.3 million euros risk capital facility extended to EFG Hermes Holding Company in December 2005, and a 39 million euros co-investment with EFG Hermes Private Equity into the InfraMed Infrastructure Fund in May 2010.
Counter Balance's investigation questions the European Union’s bank's involvement in these funds in the light of widely publicised information that Gamal Mubarak had an 18.5 per cent stake in EFG Hermes Private Equity and was on their board of directors. This means he would have directly profited from the EIB’s investments in at least two of these funds.
The NGO coalition also asks why the EIB associated itself with the InfraMed Infrastructure Fund when the strategic board chairman at the time was minister Rachid Mohamed Rachid.
The former minister for trade and investment has since been sentenced in absentia to 35 years in prison and ordered to pay a $237 million fine for profiteering, misusing public funds and corruption.
The investigation makes further connections between the EIB and Mubarak’s ruling clique by looking at Gamal Mubarak’s close associate Walid Kaba.
Kaba, who set up Bullion Co. with the ousted president’s son and was also a shareholder of EFG Hermes' Private Equity division, not only managed Gamal’s private offshore business interests but also sat on the boards of the parent company of EFG Hermes investment bank along with the bank's CEO and co founder. He represented Bullion's interests on the board and was also a director of the bank's private equity division that ran the funds in which the EIB invested.
EFG Hermes has other interests in the region.
EFG Hermes’s subsidiary in Syria is a joint venture with Syrian businessman Firas Tlass who is widely believed to belong to President Bashar Al-Assad’s inner circle.
Counter Balance also connects the EIB with the Palestine Investment Fund through a joint investment. This fund has allegedly been misused by the President of the Palestinian National Authority Mahmoud Abbas to further his own political interests.
Vast sums have reportedly been misappropriated by the fund and it was recently embroiled in a high profile lobbying scandal involving Britain's ex-PM Tony Blair.
The report contrasts the EIB’s behaviour in the Middle East with statements it has made about its goals and philosophy. The bank has previously said it promotes "human rights and democracy projects, the fight against poverty and education and training" across the MENA region.
The report also questions why the EIB has chosen private equity funds as its strategy for development, claiming that as a financial product they are "inherently non-developmental."
Counter Balance’s investigation also criticises the apparent lack of due diligence performed into those involved in chosen funds.
Formed in 2007, Counter Balance is a European coalition of development and environmental NGOs set up to challenge the EIB which it claims lacks transparency and binding social and environmental standards.
Counter Balance claims the EIB does not fulfil the mandates for sustainable development by which it is legally bound.