UNACCOUNTABLE #20

Credit Suisse: An enabler of mega-looting in Mozambique?

By Open Secrets 9 February 2021

Mozambique has been battered by devastating cyclones and an armed insurgency. The backdrop to this is a state battling State Capture. This involves a coterie of corrupt politicians. However, at the centre of one of Africa’s biggest corruption scandals is a Swiss banking behemoth – Credit Suisse.

In 2016, 14 donors and the International Monetary Fund (IMF) stopped all lending to Mozambique. This followed the revelation of $2.2-billion in secret “tuna bond” loans undertaken by the Mozambican state from two banks – the Swiss bank Credit Suisse and VTB Capital, majority owned by the Russian state. The result was an economic crisis that saw the national currency plummet in value by 70% and the GDP growth rate fall from 6.7% to 3.8%.

The scandal has prompted a litany of lawsuits in the UK, the US, Mozambique and South Africa against the politicians and private sector actors involved in the secret loans. In 2019, three senior Credit Suisse bankers, Andrew Pearse, Detelina Subeva and Surjan Singh, pleaded guilty in the US to conspiracy to violate US anti-bribery laws and to commit money laundering and securities fraud. 

Could it be that only three bankers are responsible? Mozambican and US authorities believe that Credit Suisse should also be held to account for this fraud. Russian Bank VTB Capital has also escaped accountability and we return to them in a later instalment of Unaccountable.

Mozambique’s ability to respond to myriad social challenges is severely hampered by another crisis – its colossal debt. This debt is largely the product of a profiteering corrupt state, powerful global banks like Credit Suisse, and shipping companies, unscrupulous middlemen and predatory hedge funds. The victims are Mozambique’s people, pushed further into austerity to pay off an odious debt – conceived between corrupt local elites and banks such as Credit Suisse.

Mozambique’s security services go to sea

The background to the crisis is Mozambique’s “tuna bond” loans issued in 2013, purportedly to fund three new state-owned companies as part of a project to create a tuna fishing fleet and other maritime infrastructure. In reality, much of this money would be spent on maritime security and defence equipment, and the companies were all projects of Mozambique’s security services, the Serviço de Informações e Segurança do Estado (SISE). The three companies were Ematum (tuna fishing company); Proindicus (maritime security); and Mozambique Asset Management (MAM) (maritime repair and maintenance). MAM’s $535-million loan was arranged by Russian state bank VTB and Proindicus borrowed $622-million from Credit Suisse for its maritime security projects.

Mozambique does need to protect its maritime resources – it has a 2,700km coastline and is rich in fish and shellfish, which are vulnerable to illegal and unregulated fishing – a major security concern for most African countries. Mozambique also has vast and lucrative reserves of offshore natural gas. With oil and gas prices soaring at the time, the Mozambican government gave the assurance that it was able to repay the debt and provided guaranteed bonds bought by Credit Suisse and VTB.

Yet none of the projects embarked upon would capitalise on Mozambique’s resource wealth – rather the schemes were used to generate kickbacks for politicians and bankers at the expense of Mozambicans. Within the Mozambican government, the project was coordinated by the network of former president Armando Guebuza (president from 2005-2015), then finance minister Manuel Chang and senior state security official António Carlos do Rosário.

Contrary to all of the evidence, they maintain that the secret loans were undertaken for the protection of the country and benefit of the people. This was despite the fact that the equipment delivered is of no value and mounting evidence that their network of cronies received an estimated $200-million in kickbacks.

In order to conceal the existence of the new companies and the extent of the country’s debt, the Mozambican government insisted that the loans be kept strictly secret. The loans for MAM and Proindicus were not approved by Parliament, the Council of Ministers, the Central Bank and the Attorney-General – despite this being a lawful requirement. The money for the loans did not even reach Mozambique. Rather, the banks paid the money directly into the accounts of Abu Dhabi-based shipbuilder, Privinvest – the sole contractor for all three contracts. This violated Mozambique’s Constitution and public finance laws.

There was further evidence of corruption. An independent audit by US business intelligence firm Kroll showed that Privinvest had severely inflated the prices of the vessels secured through the deal. Privinvest quoted $22-million for the vessels, but they were found to be worth no more than $2-million by Kroll. Moreover, once delivered it was clear that the vessels would need a major refit if they were to catch tuna efficiently. Industry experts also found the feasibility studies on the Ematum and Proindicus projects to be worthless, while it is unclear whether one was ever conducted for MAM.

In 2016, IMF president Christine Lagarde described these loans as “clearly concealing corruption”. The IMF, a primary lender to Mozambique, was only informed about the loan to Ematum, and not of the loans to Proindicus and MAM. The revelation of the latter loans would lead the IMF to cut off access to credit in 2016. However, the IMF is not without blame. It had been privately warned about a second loan by a “Frelimo figure”.  Further, financial surveillance is a key aspect of the work that the IMF does and the Mozambican government had a history of hiding loans in order to circumvent the requirements of the IMF. It is hard to see why the IMF was caught by surprise by this scandal, if it was indeed fulfilling its due diligence requirements.

Credit Suisse: ‘Clearly concealing corruption’?

Despite the obvious irregularities, Credit Suisse paid all the fees to Privinvest, even before delivery of any equipment. Chris Parry of the UK’s Royal Navy explains that building an effective maritime security operation from scratch requires years, if not decades, of support from experienced operators. 

Of Proindicus, Parry says: “No maritime security professional would want to be involved in such a shabby scheme. I don’t believe I have ever seen such a flimsy case for that scale of loan. Credit Suisse clearly did not do their homework.”

The loans were irregular not just in the secretive nature in which they came about, but it has since come to light that Privinvest was using three Credit Suisse bankers to coordinate kickbacks for themselves and Mozambican politicians. According to the testimony of Credit Suisse bankers, Andrew Pearse and Surjan Singh, they were paid $45-million and $5.7-million respectively to arrange lower fees on the Credit Suisse loan for the Mozambique tuna fishing project. 

According to Pearse, Privinvest was also helping him set up his own financial boutique with another banker at Credit Suisse, Detelina Subeva, with whom he was romantically involved. In return for these favours, the bankers were to ensure that Credit Suisse would continue to finance the tuna fishing project, which would in turn benefit Privinvest.

The masterminds

Singh and Pearse both allege that in order to receive their bribes from Privinvest they had to launder the money by setting up bank accounts in Abu Dhabi. To do this, they were helped in acquiring residency documents by Jean Boustani, a lieutenant of Privinvest’s CEO, Iskandar Safa. Safa is a French-Lebanese billionaire businessman and owns the French far-right news outlet, Valeurs actuelles. He is also notorious for supplying military equipment to Saudi Arabia. 

Though Safa was photographed in Mozambique with former president Guebuza at the initiation of the project, the deals were largely organised by Boustani, who is also has been described both as a “salesman” and “executive” at Privinvest. Boustani, who was acquitted of fraud and money laundering charges in the US, is facing legal cases for fraud in Mozambique and the UK.

Credit Suisse’s conduct also requires further probing, as evidence shows that it was aware that Mozambique would be unable to repay this costly loan. According to the Kroll report, the loan agreement was revised four times, escalating costs from an initial $366-million to $616-million.  Credit Suisse included a number of “preceding conditions” on the ProIndicus loan, including approval by Mozambique’s Administrative Tribunal (audit court) and informing the IMF about the guarantee. These were not fulfilled, but there appear to be no records at the bank explaining why these conditions fell away – Kroll could only find a note saying the conditions had been “overcome”. Furthermore, the ProIndicus guarantee states that the government would report to Credit Suisse on its finances including budget, debt strategy and documents provided to the IMF. Kroll found no evidence that this occurred.

According to Joseph Hanlon, an expert in Mozambican political economy at the London School of Economics: “Credit Suisse initially imposed conditions which would have made the loans impossible… The conditions were then ‘overcome’. How this happened was never explained to Kroll – but Credit Suisse closed its eyes to the illegitimacy of the debt.”

The precarious situation that Mozambique finds itself in has led the current administration to take Credit Suisse to the UK High Court and demand that it forgo repayment of the $622-million Proindicus loan because, it argues, the bank failed in its compliance process before granting the loan. The evidence suggests that Credit Suisse did not conduct due diligence when providing the loans. 

A key question that must be answered is, why did the bank not ensure that the loans met parliamentary approval? This would have been part of the due diligence requirements of the bank before issuing the loan. That the bank did not question the lack of legal approval points at best to gross negligence and at worst to knowingly facilitating corruption. This serious failure of internal controls cannot be reduced to the misconduct of a few rogue employees.

Credit Suisse’s role in this scandal is tantamount to loan pushing. According to Hanlon, loan pushing “happens when the banks have too much capital and push developing countries to take loans they do not need and cannot repay. It was outrageous and clearly the liability of Credit Suisse.”

Loan pushing is also an element of predatory lending which is the practice of a creditor pushing a loan or bond on a borrower who cannot afford to pay back the loan. According to research by the Committee for the Abolition of Illegitimate Debt (CADTM) and the Kroll report, the fishing enterprise was expected to generate $200-million a year; however, the loan repayment was $260-million a year. The gravest consequence of this scandal is the mortgaging of the country’s assets in the event of default. Default in this case was guaranteed.

The fallout

Mozambique is in no position to pay back the loans to Credit Suisse and VTB. It has already defaulted on part of the $2.2-billion in loans related to the tuna fishing project. A coalition of 20 civil society groups, the Mozambique Budget Monitoring Forum (FMO), has sought to declare the secret loans illegal. Despite the FMO winning a case in Mozambique’s Constitutional Court to have the Ematum loan declared illegal, Mozambique’s government is still repaying the loan.

Adriano Nuvunga, coordinator of the forum, said in a statement: ‘The people of Mozambique had no say over, and no benefit from the loans, and should not have to repay one cent.”

Moreover, in the past two years, the country has been ravaged by two cyclones and an insurgency in the north of the country which has deepened poverty and suffering. More than 200,000 Mozambicans have been displaced by the conflict and 700,000 Mozambicans are in need of humanitarian assistance. In general, 70% of Mozambicans live in poverty and it is ranked 181 out of 189 nations on the UN’s Human Development Index.

Mozambicans desperately need aid, and unlike in previous years, the IMF is encouraging social spending in the face of Covid-19. However, Mozambique’s debt makes this almost impossible as austerity measures have been put in place in the country in order to finance its large debts. Mozambicans are the victims of unscrupulous politicians and predatory banks. DM

Open Secrets is a non-profit organisation which exposes and builds accountability for private-sector economic crimes through investigative research, advocacy and the law. Tip-offs for Open Secrets may be submitted here.

Previous articles in the Unaccountable series are:

Unaccountable 00001: Dame Margaret Hodge MP – a very British apartheid profiteer;

Unaccountable 00002: Liberty – Profit over Pensioners

Unaccountable 00003: Dube Tshidi & The FSCA: Captured Regulator?

Unaccountable 00004: Rheinmetall Denel Munition: Murder and mayhem in Yemen; 

Unaccountable 00005:National Conventional Arms Control Committee: handmaiden to human rights abuse?

Unaccountable 00006: Nedbank and the Bank of Baroda: Banking on State Capture.

Unaccountable 00007: HSBC – The World’s Oldest Cartel

Unaccountable 00008: FNB and Standard Bank- Estina’s Banks

Unaccountable 00009: McKinsey – Profit over Principle

Unaccountable 00010: Jacob Zuma – Comrade in Arms

Unaccountable 00011: Thales – How to buy a country

Unaccountable 00012: John Bredenkamp – Agent of BAE Systems

Unaccountable 00013: Fana Hlongwane – Agent of BAE Systems

Unaccountable 00014: BAE Systems: (Profit) Before Anything Else

Unaccountable 00015: The BAE Corruption Bombshell

Unaccountable 00016: Deloot- How Deloitte gets away with it.

Unaccountable 00017: EY- Incompetent, Negligent or Criminal?

Unaccountable 00018: KPMG – At the heart of state capture.

Unaccountable 00019: IRBA- Soft-touch audit regulator in turmoil

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