International Narcotics Control Strategy Report

International Narcotics Control Strategy Report   -2007
Released by the Bureau of International Narcotics and Law Enforcement Affairs
March 2007

Egypt

Volume I: Drug and Chemical Control

I. Summary

The Arab Republic of Egypt is not a major producer, supplier, or consumer of narcotics or precursor chemicals. Heroin and cannabis are transported through Egypt, but presumed levels have not risen in four years. The Anti-Narcotics General Administration (ANGA) is the main counternarcotics organization in Egypt. It is competent and progressive, and cooperates fully with the Drug Enforcement Administration (DEA) office in Cairo. In 2004, a joint DEA-ANGA investigation uncovered a significant MDMA (Ecstasy) laboratory in Alexandria, resulting in the arrest of four individuals, indictment of three U.S. citizens, and a secondary ongoing investigation that has already identified more than two million dollars of drug related proceeds. In 2006, DEA conducted several major international joint investigations with ANGA. Egypt is party to the 1988 UN Drug Convention.

II. Status of Country

Egypt is not a significant producer or consumer of narcotics or precursor chemicals, despite the fact that opium poppy and cannabis plants are grown in Egypt. The substances that are most commonly abused are cannabis, which is known in Egypt as "bango," and legitimate pharmaceuticals. Narcotics do pass through Egypt. Egypt's long and mostly uninhabited borders, combined with the high level of shipping passing through the Suez Canal Zone, have made Egypt prone to the transshipment of Asian heroin. Other types of narcotics periodically pass through Cairo International Airport. The narcotics are primarily destined for Western Europe, with only small amounts headed to the United States. Transshipment has diminished considerably in recent years due to the elevation of security in Egypt and the region as a whole.

The ANGA is the oldest counternarcotics unit in the Arab world. It has jurisdiction over all criminal matters pertaining to narcotics and maintains offices in all major Egyptian cities and ports of entry. Despite limited resources, ANGA has continually demonstrated improvements in its capabilities.

III. Country Actions Against Drugs in 2006

Policy Initiatives. The Government of Egypt (GOE) continues to aggressively pursue a comprehensive drug control strategy that was developed in 1998. ANGA, as the primary Egyptian drug enforcement agency, coordinates with the Egyptian Ministry of Interior, the Coast Guard, the Customs Service, and select military units on all aspects of drug law enforcement. Government and private sector demand reduction efforts exist, but are hampered by financial constraints and logistical challenges.

Accomplishments/Law Enforcement Efforts. Internal security and combating terrorism are the major foci of Egyptian law enforcement efforts. Despite these priorities, ANGA is able to operate an effective program against narcotics trafficking. Egypt is a transit country for narcotics. ANGA investigates and targets significant drug traffickers, intercepts narcotics shipments, and detects and eradicates illegal crops. Large-scale seizures and arrests are rare, primarily because Egypt does not have a significant narcotics market or narcotics abuse culture. ANGA operates its own drug awareness campaign in addition to other government and private sector demand reduction programs. ANGA's Eradication Unit conducts monthly operations against cannabis and opium crops in the Sinai. Reversing a trend over the past several years, the amount of narcotics seized during 2005 was lower than that of the previous year.

According to the GOE, drug seizures in 2005 included cannabis (78.0 MT), hashish (1.5 MT), and smaller amounts of heroin, opium, psychotropic drugs, and cocaine. Significant amounts of prescription and "designer" drugs such as Ecstasy (10,683 tablets), amphetamines, and codeine were also seized. During the course of 2005, Egyptian law enforcement officials eradicated 380 hectares of cannabis and 106 hectares of opium poppy plants. Late in 2004, a joint DEA-ANGA investigation uncovered an MDMA laboratory located in a small apartment building in Alexandria, Egypt. ANGA raided the laboratory, arresting four individuals and seizing chemicals, paste, and equipment. Additionally, a secondary ANGA financial investigation conducted in 2005 with assistance from the DEA country office has identified over two million dollars in drug proceeds located in Egypt. Since 2003, production of illicit pharmaceuticals and counterfeit narcotics are on the rise in Egypt, which may represent a new trend toward shifting synthetic drug labs to the region due to the region's relatively lax regulation of commercial chemical products. With the passage of the first anti-money laundering law in 2002, which criminalized the laundering of proceeds derived from trafficking in narcotics and numerous other crimes, seizures of currency in drug-related cases have amounted to over 4,560,000 Egyptian Pounds ($800,000). In October 2005, ANGA seized two metric tons of marijuana that originated in the northern Sinai.

Corruption. As a matter of government policy, the Government of Egypt does not encourage or facilitate illicit production or distribution of narcotic or psychotropic drugs or other controlled substances, or the laundering of proceeds from illegal transactions. The GOE has strict laws and harsh penalties for government officials convicted of involvement in narcotics trafficking or related activities. However, low-level local police officials involved in narcotics-related activity or corruption have been identified and arrested.

Agreements and Treaties. Egypt and the United States cooperate in law enforcement matters under an MLAT and an extradition treaty. Egypt is a party to the 1988 UN Drug Convention, the 1971 UN Convention on Psychotropic Substances, and the 1961 UN Single Convention as amended by the 1972 Protocol.. Egypt is a party to the UN Convention against Transnational Organized Crime and its protocols on migrant smuggling and trafficking in persons. Egypt also is a party to the UN Corruption Convention . The 1988 UN Drug Convention, coupled with an 1874 extradition agreement with the former Ottoman Empire, provides the United States and Egypt with a basis to seek extradition of narcotics traffickers.

Cultivation and Production. Cannabis is grown year round in the northern and southern Sinai and in Upper Egypt, while opium poppy is grown in the southern Sinai only from November through March. Rugged terrain means that plots of illegal crops are small and irregularly shaped. ANGA combats this production by using aerial observation and confidential informants to identify illegal plots. Once the crops are located, ANGA conducts daylight eradication operations that consist of cutting and burning the plants. ANGA has yet to implement a planned herbicide eradication program. No heroin processing laboratories have been discovered in Egypt in the last 14 years and no evidence is available indicating that opiates or cannabis grown in Egypt reach the United States in sufficient quantities to have a significant impact. In an ongoing investigation that started in 2004, a joint DEA-ANGA operation uncovered the first ever MDMA laboratory in Egypt and eliminated it before it reached significant production.

Domestic Programs /Demand Reduction. In 2005, the National Council for Combating and Treating Addiction continued to be the GOE's focal point for domestic demand reduction programs. The Council is an inter-ministerial group chaired by the Prime Minister and has the participation of ten ministries. The group espouses a three-pronged strategy to counter the demand for narcotics: awareness, treatment (including detoxification and social/psychological treatment), and rehabilitation. The group's efforts over the past year included a range of activities, for example, a media advertising campaign with participation from First Lady Suzanne Mubarak, annual seminars at Al-Azhar University on "Islam and Narcotics," and the establishment of a drug treatment hotline and website. Additionally, the Council sponsors four rehabilitation centers, primarily focused on the Cairo metropolitan area. These centers annually receive thousands of requests from addicts for help.

IV. U.S. Policy Initiatives and Programs

Policy Initiatives/Bilateral Cooperation. The U.S. counternarcotics policy in Egypt is to engage the GOE in a bilateral program to reduce narcotics transshipments and decrease opium poppy and cannabis cultivation. The policy includes the following specific objectives: increase training to ANGA and other government offices responsible for narcotics enforcement; assist with the identification of illegal crop eradication targets; improve narcotics interdiction methodology; and improve intelligence collection and analysis. In 2005, the DEA country office initiated Operation Sphinx, a joint DEA-ANGA operation to collect actionable intelligence for enforcement/interdiction action in the Suez Canal and the Gulf of Aqaba. The operation targets sources of information in the maritime industry throughout the region.

The Road Ahead. In fiscal year 2007, the U.S. Government plans to increase its joint operations with ANGA, moving beyond a previously predominant focus on monitoring the narcotics problem. This will involve the DEA country office continuing to work closely with ANGA on joint investigations, as well as improving interdiction and eradication techniques and developing additional sources of information on trafficking and production.

Volume II: Money Laundering and Financial Crimes

Egypt is not considered a regional financial center or a major money laundering country. The Government of Egypt (GOE) continued financial sector reform in 2006, privatizing the Bank of Alexandria (BOA), the smallest of the four public banks, which was sold to Italy's Sanpaolo IMI. The GOE also undertook initiatives to improve stock market regulation and transparency, stimulate the mortgage sector, reform Central Bank management and restructure public insurance companies. Despite these reforms, Egypt still has a large, informal cash economy, and many financial transactions do not enter the banking system at all. Of the few money laundering cases that have made it to court in the last several years, most involved illegal dealings in antiquities and misappropriation of public funds.

While there is no significant market for illicit or smuggled goods in Egypt, there is evidence that arms are being smuggled across Egypt's border with Gaza. The funding source is unclear, as is the destination of the proceeds. Other than arms, authorities say that the under-invoicing of imports and exports by Egyptian businessmen is still a relatively common practice. The primary goal for businessmen who engage in such activity is reportedly to avoid taxes and customs fees. Customs fraud and invoice manipulation are also found in regional value transfer and countervaluation in hawala transactions. The Ministry of Finance has indicated that more businesses and individuals are filing tax returns as a result of June 2005 tax cuts. Nevertheless, a large portion of Egypt's economy remains undocumented.

At present, money laundering and terrorist financing are not reported to be widespread. Most cases of money laundering that have been detected have involved laundering of money through the formal banking sector. Informal remittance systems are unregulated and therefore pose a potential means for laundering funds. Egyptian authorities claim that informal remittances are not widespread in Egypt, but the number of remittances officially recorded by banks does not match the large number of Egyptians working overseas, in the Gulf and elsewhere. Reports on the number of Egyptian expatriates are contradictory, but the figure generally stated is 5 million. One report claimed that these expatriates transfer remittances amounting to $5 billion annually: $3.3 billion transmitted through official means (i.e., banks, Western Union); and $1.5 billion through informal means. Many overseas workers use informal means due to a lack of trust in or familiarity with banking procedures or the lower costs associated with informal remittance systems. Due to the unregulated nature of informal remittance systems, it is unclear if and to what extent money laundering actually occurs through these systems. Western Union, the only formal cash transfer operator in Egypt, continues to draw customers.

Egypt does not have a high prevalence of financial crimes, such as counterfeiting or bank fraud. There is no evidence that Egyptian institutions engage in currency transactions involving international narcotics trafficking proceeds. Egypt's Law No. 80 of 2002 criminalizes laundering of funds from narcotics trafficking, prostitution and other immoral acts, terrorism, antiquities theft, arms dealing, organized crime, and numerous other activities. The law did not repeal Egypt's existing law on bank secrecy, but it did provide the legal justification for providing account information to responsible civil and criminal authorities. The law established the Money Laundering Combating Unit (MLCU) as Egypt's financial intelligence unit (FIU), which officially began operating on March 1, 2003, as an independent entity within the Central Bank of Egypt (CBE). The administrative regulations of the anti-money laundering (AML) law provide the legal basis by which the MLCU derives its authority, spelled out the predicate crimes associated with money laundering, established a Council of Trustees to govern the MLCU, defined the role of supervisory authorities and financial institutions, and allowed for the exchange of information with foreign competent authorities. Article 86 of the Penal Code criminalizes the financing of terrorism.

The CBE's Bank Supervision Unit shares responsibility with the MLCU for regulating banks and financial institutions and ensuring compliance with AML law. Under the AML law, banks are required to keep all records for five years, and numbered or anonymous financial accounts are prohibited. The CBE also requires banks to maintain internal systems enabling them to comply with the AML law and has issued an instruction to banks requiring them to examine large transactions. In addition, banks are required to submit quarterly reports showing compliance with respect to their AML responsibilities. Reporting of suspicious transactions is voluntary by banks and nonbank financial institutions.

In 2006, the CBE and MLCU undertook special compliance assessments of all banks operating in Egypt. The assessments consisted of questionnaires and on-site visits to check AML systems in place in banks. Based on the assessments, banks were divided into three categories: fully compliant, partially compliant, and noncompliant. To date, only one bank has been found noncompliant. Where deficiencies were found, banks were notified of corrective measures to be undertaken with a deadline for making the necessary changes and follow-up visits to reassess compliance. Sanctions for noncompliance include issuing a warning letter; imposing financial penalties; forbidding banks to undertake certain activities; replacing the board of directors; and revoking the bank's license. CBE and MLCU officials have indicated that they will continue to conduct comprehensive periodic assessments of all banks.

The CBE also monitors bureaux de change and money transmission companies for foreign exchange control purposes, giving special attention to those accounts with transactions above certain limits. The Capital Market Authority (CMA), which is responsible for regulating the securities markets, has also undertaken the inspection of firms and independent brokers and dealers under its jurisdiction. The inspections were aimed at explaining and discussing AML regulations and obligations, as well as evaluating the implementation of systems and procedures, including checking for an internal procedures manual and ensuring the appointment of compliance officers.

In 2006, an independent insurance regulatory authority was established and charged with supervising insurance companies for compliance with AML laws and regulations. The General Authority for Free Zones and Investment (GAFI) regulates activity in free zones and Special Economic Zones (SEZ). The Ministry of Communication and Information Technology regulates the Postal Authority and the financial services it offers. Egypt allows gambling in casinos located in international hotels, but only foreigners are allowed to enter the casinos. All cash transactions at casinos are performed by licensed banks subject to AML controls. Individuals acting as financial intermediaries, such as lawyers, accountants, and cash couriers, are not currently subject to AML controls, although MLCU officials have indicated that the law will soon be amended to cover the activities of these individuals. The AML law protects institutions and individuals who cooperate with law enforcement officials.

The executive regulations of the AML law lowered the threshold for declaring foreign currency at borders from the equivalent of $20,000 to $10,000. The declaration requirement was also extended to travelers leaving as well as entering the country. Enforcement of this provision is not consistent, however. The Customs Authority also signed an agreement with the MLCU to share information on currency declarations. Further impetus to law enforcement was added on account of reports that Hamas ministers from the Palestinian Authority were crossing the Egypt-Gaza border with large amounts of cash. Egyptian Customs Authorities now pass all reports of foreign currency declarations at the border to the MLCU, and also alert the European Union border guards of individuals crossing the border with large amounts of cash. Authorities claim that the terrorist attacks of the past several years have given extra impetus to law enforcement agencies to thoroughly scrutinize currency imports/exports.

Egypt is not an offshore financial center. Offshore banks, international business companies, and other forms of exempt or shell companies are not permitted in the country. Egypt has 11 public free zones, several private free zones, and one SEZ, though more of the latter may be opened soon. Public free zones are outside of Egypt's customs boundaries, so firms operating within them have significant freedom with regard to transactions and exchanges. The firms may be foreign or domestic, may operate in foreign currency, and are exempt from customs duties, taxes and fees. Private free zones are established by GAFI decree and are usually limited to a single project such as mixing, repackaging, assembling and/or manufacturing for re-export. The SEZs allow firms operating in them to import capital equipment, raw materials, and intermediate goods duty-free and to operate tax-free. Activity in the free zones and SEZs is not subject to Egypt's anti-money laundering law (AML), but there is no indication that the zones are being used for trade-based money laundering schemes or for financing of terrorism.

The MLCU, Egypt's FIU, is an independent entity within the CBE. The MLCU has its own budget and staff, and also has the full legal authority to examine all Suspicious Transaction Reports (STRs) and conduct investigations. Investigations are conducted with the assistance of counterpart law enforcement agencies, including the Ministry of Interior, the National Security Agency, and the Administrative Control Authority. The MLCU shares information with all of these agencies. The unit handles implementation of the AML law, which includes publishing the executive directives. The MLCU takes its direction from a six-member council, which is chaired by the Assistant Minister of Justice for Legislative Affairs. Other members of the council include the Chairman of the CMA, the Deputy Governor of the CBE, a Sub-Minister from the Ministry of Social Solidarity, a representative from the Egyptian Banking Federation, and an expert in financial and banking affairs. In June 2004, the MLCU was admitted to the Egmont Group of FIUs. MLCU has received extensive training by U.S., European, and Australian anti-money laundering and counterterrorist financing authorities.

The Executive Director of the MLCU is responsible for the operation of the FIU and the implementation of the policies drafted by the Council of Trustees. His responsibilities include: proposing procedures and rules to be observed by different entities involved in combating money laundering; presenting these rules and procedures to the Chairman of the Council of Trustees; reviewing the regulations issued by supervisory authorities for consistency with legal obligations and ensuring that they are up to date; ensuring the capability and readiness of the unit's database; exchanging information with supervisory entities abroad; acting as a point of contact within the GOE; preparing periodic and annual reports on the operational status of the unit; and taking necessary action on STRs recommended to be reported to the Office of Public Prosecution.

Since its inception in 2003, the MLCU has received several thousand STRs from financial institutions and has successfully brought several cases to court. Money laundering investigations are carried out by one of the three law enforcement agencies in Egypt, according to the type of predicate offense involved. The Ministry of Interior, which has general jurisdiction for the investigation of money laundering crimes, has a separate AML department that includes a contact person for the MLCU who coordinates with other departments within the ministry. The AML department works closely with the MLCU during investigations. It has established its own database to record all the information it received, including STRs, cases, and treaties. The Administrative Control Authority has specific responsibility for investigating cases involving the public sector or public funds. It also has a close working relationship with the MLCU. The third law enforcement entity, the National Security Agency, plays a more limited role in the investigation of money laundering cases, where the predicate offense threatens national security. The GOE established a national committee for coordinating issues regarding anti-money laundering in late 2005.

In 2002, the GOE passed the Law on Civil Associations and Establishments (Law No. 84 of 2002), which governs the procedures for establishing nongovernmental organizations (NGOs), including their internal regulations, activities, and financial records. The law places restrictions on accepting foreign donations without prior permission from the proper authorities. Both the Ministry of Social Solidarity and the CBE continually monitor the operations of domestic NGOs and charities to prevent the funding of domestic and foreign terrorist groups.

Although the AML law does not specifically allow for seizure and confiscation of assets from money laundering, the Penal Code authorizes seizure of assets related to predicate crimes, including terrorism. All assets are subject to seizure, including moveable and immoveable property, rights and businesses. Assets can only be seized with an order from the Public Prosecutor, and the agency responsible for seizing the assets depends on the predicate crime. Typically, the CBE seizes cash and the Ministry of Justice seizes real assets. Confiscated assets are turned over to the Ministry of Finance, and the executive regulations of the AML law allow for sharing of confiscated assets with other governments. The Public Prosecutor's office is currently engaged in negotiations to enhance cooperation with other governments on asset seizure and confiscation.

Because of its own historical problems with domestic terrorism, the GOE has sought closer international cooperation to counter terrorism and terrorist financing. The GOE has shown a willingness to cooperate with foreign authorities in criminal investigations, whether they are related to terrorism or narcotics.

In January 2005, the National Committee for Combating Money Laundering and Terrorist Financing was established to formulate general strategy and coordinate policy implementation among the various responsible agencies of the GOE. The committee includes representatives from the Ministries of Interior, Foreign Affairs, Social Affairs, Justice, and the National Security Agency, in addition to the MCLU. The same agencies sit on a National Committee for International Cooperation in Combating Terrorism, which was established in 1998.

The GOE is in the process of replacing its original counterterrorism law, an emergency law enacted in 1981, with a new and updated law. It will reportedly include specific measures against terrorist financing.

The United States and Egypt have a Mutual Legal Assistance Treaty. Egyptian authorities have cooperated with U.S. efforts to seek and freeze terrorist assets. Egypt also has agreements for cooperation on AML issues with the UK, Romania, Zimbabwe and Peru. The CBE circulates to all financial institutions the names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions Committee's consolidated list and the list of Specially Designated Global Terrorists designated by the U.S. pursuant to Executive Order 13224. No related assets were identified, frozen, seized, or forfeited in 2006.

Egypt is a founding member of the Middle East and North Africa Financial Action Task Force (MENAFATF) and follows that organization's recommendations on anti-money laundering and counterterrorist financing. In January 2006, Egypt assumed the presidency of MENAFATF for a one-year period. Egypt is a party to the 1988 UN Drug Convention. In March 2004, it ratified the UN Convention against Transnational Organized Crime. In March 2005, it ratified the UN International Convention for the Suppression of the Financing of Terrorism.

The Government of Egypt should follow through with its plans to enact an updated law against terrorism that specifically addresses the threat of terrorist financing, including asset identification, seizure and forfeiture. The GOE must also improve its ability to pursue suspicious financial activities and transactions through the entire investigative and judicial process. Egypt should work to increase the number of successful money laundering investigations, prosecutions, and convictions. It should consider ways of improving the MLCU'S feedback on STRs to reporting institutions. It should improve its enforcement of cross-border currency controls, specifically allowing for seizure of suspicious cross-border currency transfers, regardless of whether couriers have followed required reporting procedures. Egyptian authorities should investigate underground value transfer systems and their possible relationship with money laundering and terrorist finance.