US embassy cable - 03AMMAN1621

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 001621 
 
SIPDIS 
 
USTR FOR SAUMS 
USDOC 4520/ITA/MAC/ONE/COBERG 
 
E.O. 12958: DECL: 03/19/2008 
TAGS: EINV, ETRD, BEXP, JO 
SUBJECT: JORDAN GOVERNMENT DISSOLVES BOARD OF CENTURY 
INVESTMENTS 
 
Classified By: Ambassador Edward W. Gnehm.  Reasons 1.5 (b) and (d) 
 
1.  (c)  Summary.  The Jordanian Minister of Industry and 
Trade has dissolved the Board of the Century Investment Group 
following accusations of financial and managerial 
improprieties made by some stockholders.  Century is a 
leading investor in QIZ companies and an outstanding example 
of business cooperation between Jordan and Israel.  Omar 
Salah, Century's founder, claims that he is being victimized 
because of his Israeli connection.  That allegation cannot be 
substantiated.  The Ambassador has discussed with Minister 
Bashir his actions against Century and the two important U.S. 
interests at stake: the impact on U.S. investment in Century 
(and ultimately the investment climate in Jordan) and the 
possible negative impact on the QIZ initiative.  End Summary. 
 
2.  (c)  In a decision effective earlier this month, Minister 
of Trade and Industry Salah al-Bashir dissolved the Board of 
Directors of Century Investment Group (CIG), a holding 
company for Qualifying Industrial Zone (QIZ) companies, and 
called for new board elections to be held on March 23.  In 
the intervening period, a committee of government officials 
and shareholders' representatives is overseeing the company. 
According to the committee's head (Amer al-Hadidi, the MOIT's 
Director General for Industry), the committee's mandate is to 
arrange the extraordinary board elections and to ensure that 
the holding company continues to operate on as normal a basis 
as possible.  Management of the joint venture QIZ companies 
in which Century has invested is not affected by the 
Minister's decision. 
 
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Minister al-Bashir: Acted to Protect Shareholders 
--------------------------------------------- ---- 
 
3.  (c)  Al-Bashir told the Ambassador on March 12 that he 
took the step of dissolving CIG's board under the authority 
of Article 168 of the Companies Law (number 22 of 1997). 
(There is at least one recent precedent in the dissolution of 
the board of the Jordan Petroleum Refinery Company in 2002.) 
According to Bashir, his action was preceded by an 
investigation by the ministry and an audit of Century's 
finances conducted by the local Ernst and Young affiliate. 
Both the investigation and the audit found discrepancies. 
Article 168 states that in cases "of financial or 
administrative disorders or serious losses" or if a board of 
directors and/or management "exploit their powers and 
position in any manner that achieves for their or another's 
account any benefit in an illegitimate manner," "the Minister 
shall... dissolve the Company's board of directors and form a 
committee... to manage the Company for a period of six months 
renewable twice... (and) the committee shall invite the 
General Assembly to elect a new board of directors for the 
Company." 
 
4.  (c)  The Minister said he took this step after more than 
a year of discussions between his Ministry and Omar Salah, 
the CEO of the company and a leading shareholder.  Those 
discussions failed to resolve complaints by a number of other 
shareholders about mismanagement of the company.  In 
particular, the complaints alleged that as CEO Salah had made 
significant decisions without necessary board approval and 
that there had been bookkeeping improprieties (such as 
booking capital gains from the sale of assets as current 
revenue).  Salah, he said, agreed in February to call a 
special board election to resolve the differences.  However, 
Bashir said he acted to dissolve the board when he learned 
that in a late February board meeting Salah had suggested 
that his CEO contract be renewed for three years with a large 
cancellation penalty.  Bashir saw this as a blatant attempt 
by Salah to reap personal windfalls as well as to influence 
the new board elections.  The Minister said he had to act 
quickly to prevent this from happening. 
 
----------------------------- 
Omar Salah: Conspiracy Theory 
----------------------------- 
 
5.  (c)  For his part, Omar Salah claims that he is the 
victim of a political conspiracy of "anti-normalizers" that 
is punishing him for his pioneering efforts to take advantage 
of the QIZ initiative and to build business relationships 
between Jordanian and Israeli companies.  He also believes 
that some officials in the Jordanian government are angered 
by his efforts to encourage the creation of a USG-financed 
"enterprise fund" that would invest in Jordan and other 
countries in the region.  Those officials feared that the 
U.S. might finance such a fund using ESF money that was 
critical to GOJ priorities.  Thus, Salah asserts that the 
charges against him are either trumped-up or technical 
transgressions easily corrected through internal adjustments. 
 He strongly denies that he attempted to secure a last minute 
CEO contract, saying that the idea had been discussed at the 
board meeting, but dropped for the reason the minister cited 
(that it not be seen as an attempt to manipulate the 
election). 
 
6.  (c)  The Minister asserts that he acted fully and 
appropriately within the law.  On the other hand, Salah 
believes that Minister Bashir acted inappropriately in 
invoking Article 168 and should instead have referred the 
matter to the judicial system, as was the recommendation of 
one of the internal GOJ committees that first examined the 
shareholder complaints.  Salah claims Bashir is "afraid" to 
go to court because, before becoming minister, Bashir had 
been CIG's lawyer and had thus given legal advice on some of 
the issues in contention.  Nevertheless, it is worth noting 
that Salah has not invoked his own right to take legal 
action, such as by seeking a court order that would suspend 
implementation of the minister's decision.  (Bashir takes 
this as proof that Salah knows his claims are baseless.) 
 
7.  (c)  According to material provided by Salah, the Century 
Investment Group (CIG) is a holding company formed in 1995 to 
"capitalize on the peace process dividend."  U.S.-source 
investment in CIG amounts to $2.1 million, or 21% of total 
investment.  Along with foreign partners, CIG has invested in 
six QIZ companies.  The total foreign sales ($112 million in 
2002) of these companies accounts for about one-quarter of 
QIZ exports and their 5,500 employees for about one-quarter 
of Jordanian employees of QIZ companies.  Companies with 
which CIG has entered into joint venture QIZ partnerships are 
Clal Ltd., Clal Industries and Investments, and Prudential 
Capital.  Partners with CIG in QIZ companies include Delta 
Textiles (New York), Bagir International (New York), Standard 
Textile (Ohio), and two Chinese companies, Paz Chen Jewelry 
Company and the Tee Yung Group.  Salah says that the total 
U.S.-source investment in the joint ventures amounts to $11.1 
million. 
 
------------------------------------- 
Salah's Allegations do not Hold Water 
------------------------------------- 
 
8.  (c)  The March 23 elections will determine the fate of 
CIG and whether its founder, Omar Salah, will be able to 
maintain control of the company.  Currently, Salah believes 
he has the support of 44% of the shareholders, including his 
family's 16%.  The swing vote, he believes, is that of the 
Social Security Corporation, which holds 6.5% of CIG stock. 
Salah has asked for the embassy's support to encourage the 
Social Security Corporation to vote with him.  Otherwise, 
consistent with his assertion of a conspiracy, he believes 
the SSC and a majority of the shareholders will vote to expel 
him from the board. 
 
9.  (c)  The embassy has heard rumors of financial problems 
within CIG for the past year and a half.  (For example, a 
Pakistani subcontractor of a CIG company recently fled the 
country with bills unpaid complaining that Century had not 
paid him for work done on its behalf.)  We find it quite 
likely that Salah is not an effective manager and that there 
may have indeed been some improprieties.  It is difficult for 
us to judge, though, whether the scope of the sanction 
imposed by Minister Bashir fits the alleged transgressions, 
or whether it would have been more appropriate for aggrieved 
shareholders to find redress in the courts. 
 
10.  (c)  On its face, Salah's claim that he is being 
conspired against because of his work with Israel might seem 
plausible.  Upon closer scrutiny, it does not wash.  His 
downfall would no doubt please the so-called 
"anti-normalizers" -- who oppose Jordan's peace treaty with 
Israel and Salah's high-profile attempts to build Jordan's 
economic relationship with Israel.  (In fact, Salah says he 
was once at the top of an anti-normalizer "death list.")  In 
point of fact, however, Salah's main accuser on company 
management issues is Gen. Ihsan Shurdom (ret.).  Shurdom 
holds about 5.5% of the company and is the antithesis of the 
anti-normalizer.  As a former Chief of the Royal Jordanian 
Air Force and brother of the current Public Security chief, 
Gen. Shurdom is widely known as a leading, socially prominent 
proponent of Jordan's relationship with Israel. 
 
11.  (c)  The idea that Salah is being punished for his 
support for an enterprise fund, however, seems more 
plausible.  His solo efforts in Washington and Israel to 
establish such a fund and, implicitely, a role for himself, 
definitely alienated several key ministers in the government. 
 The Minister of Foreign Affairs told the Ambassador that 
Salah's activities had troubled him and the government 
greatly, but he was adamant that the action taken had a sound 
basis and was not arbitrary or a result of Salah's efforts to 
promote an "enterprise fund." 
 
--------------------------------------------- ------- 
Put Focus on U.S. Interests, Not Salah's Personality 
--------------------------------------------- ------- 
 
12.  (c)  Omar Salah, the CEO of Century Investment Group, is 
a prominent young entrepreneur who is well known in the 
business community.  His reputation is that of an active and 
creative businessman willing to take bold and even risky 
business decisions.  His strong points are an engaging 
personality, ability to articulate both plans and dreams in 
extremely appealing terms, and the boldness (mentioned above) 
to enter into new initiatives.  His strong points are often 
the cause of his difficulties.  He is prone to act without 
close consultation with his partners.  The risks that he is 
willing to face are often beyond the toleration point of 
others.  He is a consummate self-promoter and a manipulator 
of information to serve his purposes.  We have seen this last 
trait ourselves in recent weeks when he approached the 
Ambassador for assistance, then decided it would not be 
helpful to his cause, and asked that we not engage.  He then 
proceeds to contact others to intervene, perhaps knowing that 
they would not be as conversant as the Embassy with the fine 
points of the current troubles.  In any case, as popular as 
Salah may be with Americans and Israelis, USG focus should 
not be on personality but on U.S. interests. 
 
13.  (c)  In a meeting March 12 with Minister Bashir, the 
Ambassador focused on U.S. interests at stake:  1) protection 
of U.S. investments and an overall positive investment 
climate to support Jordan's continued economic success.  The 
Ambassador pointed out that key to investment confidence was 
"due process" and the opportunity for current and prospective 
investors to defend their interests.  The Minister needed to 
clarify to all interested investor parties the basis of his 
actions and ensure that the rights of all parties were 
protected.  2) Secondly, it was crucial to protect the 
reputation of the QIZ's.  The QIZ's are very successful; they 
have established an excellent reputation among U.S. importers 
for meeting deadlines and providing quality products.  There 
was every reason to expect their success to continue.  That 
success, however, would be severely impacted if government 
actions against a company, like Century, with such a large 
QIZ investment, led to QIZ factories to miss delivery 
deadlines.  The Ambassador expressed the hope that the GOJ 
considered this aspect of the problem when taking action 
against Century's board. 
 
14.  (c)  Comment:  Century's CEO, Omar Salah, is well known 
to many Americans and Israelis and is using those contacts to 
solicit support and interventions.  We need to keep the focus 
of our interventions on the valid U.S. interests described 
above.  Our interests may or may not coincide with Salah's; 
but our interests are valid and the Embassy will remain 
engaged to encourage the GOJ to follow due process and 
transparency in resolving corporate issues. 
GNEHM