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Secret Commissions and Unlawful Benefits in Corporate Procurement and Supply Contracts

Financial Corruption and Economic Crimes

Commissions received by a procurement officer from a supplier or contractor without disclosure raise overlapping questions concerning private-sector bribery offences, conflicts of interest, the validity of supply contracts, and disciplinary and civil liability. Not every discount, gift or commission constitutes a crime; nor does an inflated supply price alone prove bribery. The appropriate approach begins by examining the nature of the benefit, its relationship to the recipient’s duties, the type of company, the approval and evidentiary mechanisms, and then selecting the appropriate legal course.

What Are Secret Commissions and Unlawful Benefits?

These are sums of money, gifts, services or privileges conferred on a procurement officer, director or intermediary associated with a company, secretly or in violation of disclosure and approval rules, with the aim of influencing supplier selection, contract pricing or terms, or the acceptance or approval of supplies. They may pass through a personal account or an intermediary company controlled by an officer, or be disguised as a consultancy agreement for which no genuine services are provided. Their criminal characterisation, however, depends on the elements of the applicable statutory provision being established. Simply describing a benefit as a secret commission is insufficient.

Distinguishing Commercial Incentives from Bribery

Discounts and commissions that accrue to the purchasing company, are recorded in its documentation and are approved by the competent authority differ from a benefit secretly paid to a person responsible for awarding a contract or receiving goods. Likewise, a token gift permitted under company policy is not automatically treated as a bribe. Its relationship to the recipient’s duties, the timing and value of the gift, whether receipt was concealed, and the consideration sought become central to its legal characterisation.

The Egyptian Legal Framework: Which Provision Applies to Each Company?

Article 106 of the Penal Code

Article 106 of Penal Code No. 58 of 1937 governs the case of an employee who, without the employer’s knowledge and consent, requests, accepts or receives, for their own benefit or that of another person, a promise or gift in return for performing or refraining from performing an assigned duty. The provision prescribes imprisonment for a term not exceeding two years and a fine of not less than EGP 200 and not more than EGP 500, or either penalty. Its application requires an examination of the recipient’s capacity, the nature of the assigned duties and the connection between the benefit and the work, rather than mere proof that money was received from a supplier.

Article 106 bis (A): Joint-Stock Companies and Specified Entities

Article 106 bis (A) addresses board members, directors and employees of joint-stock companies, as well as certain associations, institutions and other entities enumerated in the provision. It criminalises requesting, accepting or receiving a promise or gift in return for performing an official duty, refraining from performing it or breaching the duties of the position. It also covers subsequent rewards subject to its conditions. The prescribed penalty is imprisonment for a term not exceeding seven years and a fine of not less than EGP 500 and not more than the value of what was given or promised. This provision must not be confused with Article 106 bis concerning trading in influence, nor applied to every limited liability company without examining the applicable provision and the accused’s legal capacity.

The Bribe-Giver, Intermediary and Exemption from Punishment

Article 107 bis provides that the bribe-giver and intermediary are subject to the penalty prescribed for the bribe-taker, with the possibility of exemption from punishment if either reports the offence to the authorities or confesses to it, in accordance with judicial interpretation and the statutory requirements. A supplier’s mere assertion that it reported the commission does not establish an entitlement to exemption. Nor does exemption from criminal punishment automatically extinguish a claim for damages: the Court of Cassation has confirmed that exemption of the bribe-giver or intermediary from punishment may coexist with an obligation to pay compensation where the elements of civil liability are established.

Supplementary Legislation

  • Civil Code No. 131 of 1948, particularly Article 125 on fraudulent misrepresentation, Article 157 on rescission for non-performance and Article 163 on tortious liability, according to the facts and requirements of each claim.
  • Labour Law No. 14 of 2025, particularly Articles 134, 137, 138, 141 and 145 concerning employees’ duties of honesty, disciplinary regulations, procedural safeguards in investigations and temporary suspension.
  • Competition Protection and Prevention of Monopolistic Practices Law No. 3 of 2005, as amended, where the circumstances involve a prohibited agreement between competitors, such as bid rigging. Paying a commission to a procurement officer alone is insufficient to establish a competition-law infringement.
  • Companies Law No. 159 of 1981, particularly Articles 97–100, where a transaction involves a conflict of interest of a board member or director, or a contract for consideration involving a company subject to those provisions.
  • Information Technology Crimes Law No. 175 of 2018, particularly Article 11, concerning the technical requirements for digital evidence to have evidential value in criminal proceedings.

Practical Forms of Misconduct in the Procurement Cycle

  • Allocating a secret percentage of each invoice value to the officer approving purchase requests or to members of the tender-award committee.
  • Splitting recurring purchases to enable a particular supplier to circumvent approval thresholds and price review.
  • Awarding sham consultancy work to a company owned by a relative of the procurement officer in exchange for facilitating supply contracts.
  • Receiving expensive gifts, paid travel or property-related benefits while negotiations, technical inspections or receipt of goods are taking place.
  • Manipulating specifications or delivery and acceptance records to conceal the supply of lower-quality goods or deficient quantities.

These patterns are indicators warranting investigation, not conclusive proof by themselves. Each payment, its recipient, its source and consideration, and its relationship to the procurement decision must be identified, while checking whether there is a legitimate commercial explanation supported by documentation.

How Can a Company Detect and Prove a Secret Commission?

Financial and Accounting Investigation

The review begins by comparing independent suppliers’ bids, analysing changes in prices, quality and payment terms, and examining purchase orders and the minutes of procurement, evaluation and acceptance committees. Repeated or split payments should be identified, and intermediary and consultancy agreements reviewed to verify that genuine services were provided for corresponding economic value.

Conflicts of Interest and Beneficial Ownership

Supplier registers, employees’ conflict-of-interest declarations and ownership information lawfully available to the company should be reviewed. Suspicion does not authorise a search of personal accounts or surveillance of an employee’s family members without a legal basis. Family or marital relationships capable of affecting the decision should be identified, followed by an assessment of whether the employee participated in nomination, approval or acceptance despite an undisclosed interest.

Digital Evidence and Chain of Custody

Business email, procurement and accounting-system records, and work-related correspondence should be preserved within the limits of lawful access, documenting the source, extraction time and identity of the person carrying out the extraction, and preventing alteration of originals. Access to personal banking information or third-party communications is subject to the appropriate legal powers and procedures: a company has no authority to inspect individuals’ bank accounts merely because misconduct is suspected. A technical expert should be engaged when necessary to examine file authenticity, change logs and the chain of custody.

Disciplinary Investigation of a Procurement Officer

Employees subject to Labour Law No. 14 of 2025 are entitled to the relevant investigative safeguards, including written notice of the allegations, an opportunity to make statements and present a defence, and documentation of the proceedings under Article 141. The investigation and penalty deadlines in Articles 138 and 141 and the approved disciplinary regulations must also be observed. Article 145 permits temporary suspension by written decision in specified cases for a period not exceeding sixty days with full pay, subject to the rules governing appeals and extensions. Filing a criminal complaint is not, by itself, grounds for automatic dismissal.

The Effect of a Secret Commission on the Supply Contract and the Company’s Rights

Proof of a secret commission does not automatically invalidate all contracts with the supplier. It is necessary to examine whether a contract was entered into as a result of material fraudulent misrepresentation, contains an express anti-bribery clause conferring a right of termination or rescission, or is affected by a legal violation carrying a particular sanction, and to establish whether the supplier knew of or participated in the conduct. The company’s right to damages for an inflated price or non-conforming goods must also be considered, subject to proof of loss and causation and without impermissibly recovering overlapping compensation.

Under Article 125 of the Civil Code, an action to avoid a contract for fraudulent misrepresentation requires examination of the seriousness of the deceptive conduct and its effect on the decision to contract. Where the deception was practised by someone other than the counterparty, the relevant knowledge requirements must be observed. Rescission for non-performance under Article 157 depends on its own requirements, including prior notice where necessary. The settlement, arbitration and jurisdiction clauses, and the scope of recoverable damages, must be reviewed in each agreement.

Does a Secret Commission Constitute a Competition-Law Violation?

Competition law targets specific agreements and practices that restrict competition. Bribery of a procurement officer may coincide with agreements among suppliers to fix prices, divide tenders or coordinate bids. An isolated act of bribery, however, does not by itself establish a prohibited horizontal agreement. Where there are indications of collusion among suppliers, tender documents and evidence of their relationships should be preserved, and the powers of the Egyptian Competition Authority and applicable reporting procedures examined.

Considerations for International Groups

Where an Egyptian company is part of an international group, the connection between the incident and foreign legislation with extraterritorial reach, including the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, should be examined without assuming that either applies to every transaction occurring in Egypt. Investigations must be coordinated with group policies, data-protection requirements, cross-border transfers and applicable regulatory disclosure obligations, while giving priority to mandatory procedures under Egyptian law.

Mistakes to Avoid

  • Treating every discount or gift as a bribe without examining who benefited, disclosure, purpose and legal capacity.
  • Equating suspected overpricing with proof of a commission, or accusing an employee on the basis of incomplete preliminary reports.
  • Terminating a supply contract without reviewing its terms, preserving evidence of fraud or breach, and assessing the consequences for ongoing deliveries.
  • Disregarding employees’ rights during the investigation or extracting personal messages or data from devices without legal authority.
  • Presuming that a supplier obtains an automatic exemption merely by reporting the offence, or that exemption from criminal punishment extinguishes the company’s right to compensation.

A Preventive Procurement and Supply Programme

  • Adopt written policies on gifts, hospitality, commissions and conflicts of interest, requiring employees to update their disclosures periodically.
  • Separate the authority to select suppliers, approve prices, issue purchase orders, accept goods and authorise payment, and review exceptions.
  • Maintain a register of suppliers’ and intermediaries’ beneficial owners using lawfully available information, and carry out risk-based screening.
  • Include enforceable anti-bribery, disclosure, appropriately designed audit, lawful cooperation in investigations, termination and damages provisions in contracts.
  • Provide a secure reporting channel and an impartial investigation procedure designed to prevent retaliation and misuse of reports while restricting data access.

When Should Specialist Legal Counsel or Local Counsel in Egypt Be Engaged?

Specialist legal advice is advisable where a concealed financial relationship between a supplier and procurement officer emerges; an investigation requires the review of sensitive communications or financial transactions; a decision is contemplated to dismiss an employee, terminate a material contract or file a complaint; or company law, competition law and foreign legislation overlap. Counsel can help prioritise the investigation, protect evidence and identify judicial remedies supported by the facts.

How Can Specialist Legal Support Help?

El Rouby Law Firm supports companies and investors by reviewing procurement and contracting policies, managing conflicts of interest and internal investigations, drafting anti-corruption clauses, assessing criminal, employment and civil risks, preparing complaints and legal claims, and pursuing recovery of rights. The firm also provides Local Counsel services to international groups operating in Egypt.

Frequently Asked Questions

Are Secret Commissions in Private-Sector Companies Criminally Punishable?

They may fall within Article 106 of the Penal Code in respect of employees where its requirements are satisfied, Article 106 bis (A) in respect of the persons and entities specified therein, or another provision according to the facts. Receipt of a gift alone is insufficient to establish an offence.

May a Company Inspect a Suspect’s Personal Bank Account?

A company does not have that power merely because it suspects wrongdoing. Access to personal banking information requires compliance with the prescribed legal procedures before the competent authorities.

May a Supply Contract Be Rescinded Immediately Once a Secret Commission Is Proven?

The contractual terms, rules on rescission and avoidance, the supplier’s involvement and the conduct’s effect on the agreement must be reviewed. Neither the contract’s invalidity nor an immediate right of rescission should be presumed.

What Is the Difference Between a Gift and a Bribe?

Relevant considerations include the recipient’s capacity, the relationship between the benefit and their duties, the nature of the consideration sought, disclosure and approval policies, and whether the elements of the applicable criminal provision are established.

Does a Supplier’s Report of Bribery Exempt It from Paying Compensation?

An exemption from punishment under Article 107 bis, if its conditions are met, does not erase the conduct or preclude civil compensation where the elements of civil liability are established.

Legal and Official References

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