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Mozambique/Global: Who Pays for Transnational Corruption?
AfricaFocus Bulletin
January 8, 2019 (190108)
(Reposted from sources cited below)
Editor's Note
The line-up of those involved in this $2.2 billion fraudulent loan deal, now
implicated in a case in the U.S. District Court of the Eastern District of New York,
is multinational. The five named individuals indicted include the former Minister of
Finance of Mozambique, a Lebanese businessman representing Privinvest (an
international shipping conglomerate in Abu Dhabi), and three London-based bankers,
citizens of New Zealand, Great Britain, and Bulgaria, employed at the time of the
loans by the giant Swiss bank Credit Suisse. Three more names are redacted in the
indictment and 5 others, three Mozambicans and two additional employees of
Privinvest, are cited but not named in the text of the indictment.
This indictment may result in convictions and/or financial forfeitures for some
individuals, and will almost certainly result in more revelations and political
fallout in Mozambique. But it is notable that neither Credit Suisse nor VTB, a
Russian bank which bought into further marketing of these loans, are identified by
name. Credit Suisse is one of the largest global banks. But while similar cases have
sometimes resulted in penalties for the banks involved, critics note that similar
strategies are not yet being contemplated for Credit Suisse, VTB, or Privinvest, by
the U.S. Department of Justice or other relevant governments, and that the Mozambican
people are still being held liable for these illegal debts.
This case is of interest not only for Mozambique, but as a case study of a pattern
which is probably more a rule than an exception in today´s global economy. Whatever
the results, the clear lesson is that only transnational cooperation can track down
(and hopefully also penalize) transnational corruption.
This AfricaFocus Bulletin contains recent reports from two of the most regular and
reliable sources of news and analysis on Mozambique: Joseph Hanlon´s News Reports and
Clippings, and the English-language version of the Mozambican News Service, edited by
Paul Fauvet. While the latest versions are often available first by email or through
Facebook, they are also archived on the web and can be found with Google searches.
Since court hearings are upcoming in Johannesburg and later in the month in New
York, additional news may also be appearing in the financial press.
For previous AfricaFocus Bulletins on Mozambique,visit
http://www.africafocus.org/country/mozambique.php For previous AfricaFocus Bulletins
on debt and illicit financial flows, visit http://www.africafocus.org/intro-iff.php
Among other recent sources with relevant background and analysis:
(1) The Center for Public Integrity in Mozambique, in a press release on January 6,
demanded that ¨the Government of Mozambique should immediately suspend the
restructuring of [this debt,] which implies suspension of all agreements reached with
the international creditors now holding title to these secret debts.¨
http://tinyurl.com/y9jqv4dr
(2) Jubilee Debt Campaign, UK, ¨What we have learned from the US indictment on odious
loans to Mozambique,¨ Jan. 4, 2018
https://jubileedebt.org.uk – Direct URL: http://tinyurl.com/ychc8jl8
(3) ¨Following the donor-designed path to Mozambique's $2.2 billion secret debt
deal,¨ by Joseph Hanlon, Third World Quarterly, October 2016
http://tinyurl.com/y72kgegm
Puts the debts in the context of previous policy pressures on Mozambique by donors
and creditors
++++++++++++++++++++++end editor's note+++++++++++++++++
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Mozambique 429 - US says Chang received $12 mn; full indictment report - News reports
& clippings
5 January 2019
Editor: Joseph Hanlon (j.hanlon@open.ac.uk)
To subscribe: http://tinyurl.com/sub-moz
Previous newsletters and other Mozambique material are posted on http://bit.ly/mozamb
The full indictment is posted on http://bit.ly/ChangIndict
Chang received $12 mn says US indictment; 2 others on list not arrested yet
The indictment against Manuel Chang and others was published on 3 January. Two other
senior Mozambicans have also been charged but their names are blacked out, as they
have not yet been arrested. These two are alleged to have received $36.5 mn in
"bribes and kickbacks". Chang is said to have personally received $12 mn. Three
"Mozambican co-conspirators" who are not charged, presumably because they cooperated
with the US Department of Justice, received $23 mn in bribes. But the largest
payment, $45 mn, went to Andrew Pearse, the then Credit Suisse (CS) managing director
who orchestrated the secret loan deal.
The indictment, issued by a Grand Jury at a US district court in New York on 19
December, shows the large amount of information already provided to the US department
of Justice, including emails and other documents. These make clear the secret loans
were corrupt for the start, going to the top.
Eight people are charged, the three Mozambicans, two senior people from the Abu Dhabi
company Privinvest which received the money and was to supply ships and coastal
protection equipment, and three senior people then at Credit Suisse.
Thus the indictment is not just against the Mozambicans who took the loans and
received bribes, but also against CS senior officials for organising fraudulent loans
and Privinvest for charging "inflated prices" which it then used "to pay bribes and
kickbacks". The full indictment is posted on
http://bit.ly/ChangIndict
Excerpt from the indictment
A. Overview
24. Through a Series of financial transactions between approximately 2013 and 2016,
Proindicus, EMATUM and MAM borrowed in excess of $2 billion through loans guaranteed
by the Mozambican government. The loans were arranged by Investment Bank 1 and
Investment Bank 2 and sold to investors worldwide, including in the United States.
Over the course of the transactions, the co?conspirators, among other things,
conspired to defraud investors and potential investors in the Proindicus, EMATUM and
MAM financings through numerous material misrepresentations and omissions relating
to, among other things: (i) the use of loan proceeds, (ii) bribe and kickback
payments to Mozambican government officials and bankers, (iii) the amount and
maturity dates of debt owed by Mozambique, and (iv) Mozambique´s ability and
intention to pay back the investors.
25. Each of the companies entered into contracts with Privinvest to provide equipment
and services to complete the maritime projects. The loan proceeds were supposed to be
used exclusively for the maritime projects, and nearly all of the borrowed money was
paid directly to Privinvest, the sole contractor for the projects, to benefit
Mozambique and its people. In reality, the defendants JEAN BOUSTANI, ANDREW PEARSE,
SURJAN SINGH and DETELINA SUBEVA, together with others, created the maritime projects
as fronts to raise money to enrich themselves and intentionally diverted portions of
the loan proceeds to pay at least $200 million in bribes and kickbacks to themselves,
Mozambican government officials and others.
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London Offices of Credit Suisse
Bribe planning came first
The indictment makes clear that the whole idea came from CS and Privinvest and that
Privinvest had to "persuade Mozambican government officials" to accept the deal. The
indictment says that "almost immediately [Jean] Boustani and [the redacted
Mozambican] negotiated the first round of bribe and kickback payments that Privinvest
would have to make for the benefit of Mozambican government officials for the project
to be approved."
On 11 November 2011 the redacted Mozambican wrote an email to Jean Boustani, a senior
executive at Privinvest: "To secure the project is granted the go-head by the HoS
[Head of State, Armando Guebuza], a payment has to be agreed before we get there, so
that we know and agree, well in advance, what ought to be paid and when." Boustani
replied the same day that because of "negative experiences in Africa" Privinvest now
had a policy that no money could be paid before a contract was signed. On 14 November
2011 the redacted Mozambican agreed that part of the bribes would be paid on signing
and part when the project started.
But the Mozambican warned in the e-mail that by the time of project implementation
"there will be other players whose interest will have to looked after, e.g. ministry
of defense, ministry of interior, air force, etc". Money must be paid early because
"in a democratic government like ours people come and go, and everyone involved will
want to have his/her share of the deal while in office, becomes once out of the
office, it will be difficult. So it is important that the contract signing success
fee be agreed and paid in once-off, upon the signing of the contract."
In another e-mail exchange on 28 December 2011, it was agreed that $50 mn in bribes
would go to Mozambican government officials and $12 mn in kickbacks for Privinvest
co-conspirators. It took a further year of negotiation. The ProIndicus contract with
Privinvest was signed on 18 January 2013, and the first bribes were paid five days
later.
Will Credit Suisse wiggle out?
“The indictment alleges that the former employees worked to defeat the bank’s
internal controls, acted out of a motive of personal profit, and sought to hide these
activities from the bank,” Credit Suisse said in a statement, adding that the bank
would continue to cooperate with authorities. But the indictment also makes clear how
easy it was for Andrew Pearse, head of CS's Global Financing Group, and the others to
bypass the bank's internal controls, and how little check there was on their
activity.
CS is not charged in this indictment, but it will still be argued that the
combination of pressure to lend and very light controls encouraged misconduct. The
indictment also makes clear that CS and Privinvest pushed the loan and had to offer
significant bribes before the Mozambicans would accept. So pressure will remain on CS
to accept some liability for the $2 bn secret debt.
Britain declines to prosecute $ laundering & leaves it to the US
Many of the actions being prosecuted in the US case took place in London at the
Credit Suisse (CS) branch there, and the three ex CS employees were arrested in
London on 3 January. The Financial Times (FT, 11 Nov 2018) reported that the British
Financial Conduct Authority (FCA) told CS in August 2018 that it had dropped its
criminal probe into the secret loans. The FT commented that "the U-turn is a boon to
the bank as the FCA was previously looking to use its criminal money-laundering
powers in what would have been one of the first cases of its kind."
The FT notes that the FCA has yet to file charges in any criminal money laundering
case.
Comment: The UK has taken harsh action against Mozambique because of the $2 bn secret
debt, cutting off all aid directly given to government. By dropping the case against
CS, it makes clear it will punish poor countries taking bribes, but not London banks
giving bribes.
The people of Mozambique suffer twice - first from a corrupt government, and then by
the UK cutting off aid to health and education. But in London, the corruptors go free
- until the United States demands the arrests of the bribe givers.
It leaves the UK looking just like Mozambique, refusing to prosecute the guilty, and
punishing the poor but not the rich.
But in Britain's case, the reluctance to prosecute CS and money laundering may be
understandable. If the UK leaves the European Union, it will increasingly be
dependent on illegal money to keep the economy afloat. And it will need the support
of the big global banks. jh
Civil society says arrests "should embarrass" UK
"The arrest of three Credit Suisse bankers should embarrass the FCA, as it shows that
the FCA decision failed to fulfil the organization’s basic statutory standards, and
suggests that UK regulators did not apply the necessary due care in handling the
Mozambican debt case," said the Budget Monitoring Forum (FMO, Forum de Monitoria do
Orçamento), a Mozambican civil society coalition. FMO adds that if FCA "internal
constraints … affect their ability to take appropriate action against Credit Suisse,"
FMO is willing to assist.
"The nature of charges also reinforces our view that the Mozambican illegal debt
crisis is a consequence of criminal activity spanning various jurisdictions including
the UK, Norway, Netherlands, Switzerland and the UAE."
"FMO rejects Credit Suisse’s attempts to distance itself from its former employees.
As we have previously stated ,the failure of Credit Suisse to lay criminal charges
against its former banker Andrew Pearse, responsible for the sovereign debt deals who
joined the contractors benefitting from the illegal Ematum loans, suggests that
illegal, immoral and negligent conduct was not by a rogue banker, but rather part of
systemic Credit Suisse culture. "
The full FMO statement is below and at bit.ly/FMO-Moz-CS
Hidden Debts: Ematum – A Fraud from the Start
https://allafrica.com/stories/201901070064.html
Maputo, 6 Jan (AIM) – The scandal-ridden Mozambique Tuna Company (Ematum) was set up,
not to catch tuna, but to divert funds into private pockets, according to the
indictment drawn up by US prosecutors, investigating Mozambique’s “hidden debts”.
Tuna fishing boats sit in Maputo. Purchased from Privinvest, they have never been
used for fishing.
Five people have so far been arrested on international warrants issued by the United
States. They are: former Mozambican Finance Minister, Manuel Chang; three former
executives of the bank Credit Suisse, Andrew Pearse, Surjan Singh and Detelina
Subeva; and Jean Boustani, the lead salesman and negotiator for Privinvest, the Abu
Dhabi based concern that was the sole contractor for Ematum and for two other
fraudulent companies, Proindicus and MAM (Mozambique Asset Management).
The indictment makes it clear that Ematum was not a genuine fishing venture gone
wrong, but a scam from beginning to end.
The fraudsters, having easily evaded the internal controls of Credit Suisse when
negotiating the first illicit loan (to Proindicus), embarked on an even bigger
swindle, seeking 850 million dollars for Ematum. In August 2013, Credit Suisse agreed
to make up to 850 million dollars available for Ematum.
As Finance Minister, Chang signed the loan guarantee – Credit Suisse could lend the
money, comfortable in the knowledge that if Ematum failed to repay, the government
(i.e. the Mozambican taxpayer) would be liable for the whole amount.
The guarantee was entirely illegal – it violated the ceiling on loan guarantees in
the budget law, and a clause in the Mozambican constitution which states that only
the country’s parliament, the Assembly of the Republic, could authorise such debt.
But in the event Credit Suisse seems to have had second thoughts – in September 2013,
it only lent Ematum 500 million dollars. Ematum sought the rest of the money from a
second bank, VTB of Russia.
The Ematum scheme, the indictment argues, was cooked up in May 2013 by Boustani,
Pearse and Subeva. The fraudsters devised a project that had nothing to do with
Mozambique’s legitimate fishing needs: instead, the project was “a pretext to justify
the maximum possible loan amount”.
Part of the money was not for Ematum at all, but was intended to carry on paying for
the earlier fraudulent scheme, Proindicus. Boustani sent an e-mail on 21 July 2013,
saying “we will go for 800 million dollars so we keep a cushion for Proindicus
interest payment next year”.
On the same day, Subeva e-mailed “We should also keep a cushion for Proindicus of 17
million dollars so that we don’t need to go back to MoF (Ministry of Finance) and
they are on our side”.
Pearse and Subeva were still employed by Credit Suisse, but they “sought to conceal
their involvement in setting up the Ematum project by using personal e-mail accounts
and removing all reference to themselves in the documents they prepared”.
In an e-mail to Boustani in late July 2013, Pearse said “Pls bro don’t just forward,
but create new e-mail and attach the docs”. Credit Suisse, he added, “is very
sensitive to seeing our names involved”.
Since Credit Suisse might wonder why the Ematum contract was going to Privinvest, the
fraudsters, the indictment says, “created fake competing bids for contracts”. Fully
aware that there was no proper tender, Boustani e-mailed Pearse at the end of July,
suggesting “Let’s say they contacted South African shipyards and Spanish and
Portuguese. Without naming them”.
Surjan Singh then “included fake bid information” in a memorandum sent to Credit
Suisse, “falsely asserting that the Privinvest proposal was deemed the most
competitive one in comparison to bids from three other international companies”.
Credit Suisse’s internal procedures were so shoddy that it put Singh in charge of the
due diligence for the Ematum loan. Singh, Pearse and Subeva, adds the indictment,
“provided talking points and suggested answers to Mozambican government officials for
due diligence meetings”.
Surjan was richly rewarded, Between October 2013 and February 2014, Privinvest wired
six payments, totalling 4.49 million dollars to Singh’s account in the United Arab
Emirates. These payments went via corresponding banks in New York – one of the many
reasons for US prosecutors to take a direct interest in the scandal.
By 8 April 2014, Boustani had also paid seven million dollars to Chang, and bribed as
yet unnamed Mozambican government officials to the tune of 36 million dollars.
The Ematum fishing boats, built in a Privinvest-owned shipyard in Normandy, did all
arrive – but did virtually no fishing. The projections of vast revenues from the
export of tuna proved no more than a fantasy. In 2018, it was reported that the boats
did not even have fishing licences. From the new suspension bridge over the Bay of
Maputo, there is an excellent view of the Maputo fishing port, and any passer-by can
see all 24 Ematum boats lying idly at anchor.
In 2016, the original Ematum bonds (or “loan participation notes”) were swapped for
eurobonds directly issued by the Mozambican government. At the time it appeared as if
this was a Mozambican idea – extending the maturity of the bonds, but increasing the
interest on them.
But, according to the indictment, the idea came from the conspirators, including
Boustani, Pearse and Subeva and was intended “to hide from the public and the IMF the
near bankruptcy of the project companies, resulting from loan proceeds being diverted
as part of the fraudulent scheme”.
Although here was a new government in Maputo, and Chang was no longer finance
minister, Mozambican officials did not smell a rat. They hired Credit Suisse and VTB
to conduct the bond exchange. The adviser for the exchange was Palomar, a Privinvest
subsidiary – and by now Pearse and Subeva had moved seamlessly from Credit Suisse to
Palomar.
On 6 April 2016, the Ematum bondholders consented to exchange their bonds for
Mozambican government Eurobonds. But the documents on which they based this consent
did not mention the Proindicus and MAM loans, thus giving a completely misleading
picture of Mozambique’s foreign debt situation.
A couple of weeks later, thanks to an article in the “Wall Street Journal”, the
existence of Proindicus and MAM was suddenly revealed, and the Ematum/Eurobond
investors realised they had been deceived.
The IMF too was angered to find that the government had concealed the scale of the
country’s debts, and suspended its programme with Mozambique. These events
precipitated the financial crisis which came close to crippling Mozambique in
2016/2017. (AIM)
Budget Monitoring Forum (FMO), Maputo
Media Statement On The Recent Arrests Of The Former Minister Of Finance Of
Mozambique, Mr Manuel Chang In Johannesburg And Three Former Credit Suisse Bankers In
London In Connection With The $2.3 Billion Illegal Mozambican Debt
5 January 2019
http://bit.ly/FMO-Moz-CS
The Budget Monitoring Forum (FMO) - a coalition of Mozambican civil society
organisations working on public finance transparency and accountability – has noted
reports of arrest, at the request of US authorities, of former Minister Manuel Chang
in Johannesburg on 29 December 2018. We further have recorded the arrests of three
former Credit Suisse bankers in London on the 3 January 2018.
FMO believes that the US initiated process is an opportunity for Mozambicans to get
full disclosure on the illegal debts and recover all costs incurred by the Mozambican
fiscus as a result of illegal and immoral conduct by international bankers,
contractors, public officials, their relatives and collaborators in Mozambique. FMO
also expects that this is a beginning of a global process, which will culminate in
holding - all responsible parties accountable for their respective roles in this
crisis. We fully endorse the proposed criminal sanctions, as they will serve as a
deterrent for corrupt activities in Mozambique and beyond.
Mozambicans demonstrate in South Africa outside extradiction hearing
for former Finance Minister Manuel Chang.
Credit: https://www.facebook.com/CIP.Mozambique/
Recent developments confirm our long standing position that the $2.3 Billion debt was
illegal as it did violated the Mozambican legislation. We have further argued that
the entire process around the illegal debt - including the relationships between
international bankers, various contractors and beneficiaries was intended to conceal
criminal activity including money laundering.
FMO has long concluded that the criminal sovereign debt project, masterminded in
concert with international banks, deliberately sought to divert much needed resources
from the Mozambican people. As such we will continue to campaign against any debt
restructuring proposals that do not consider the criminal nature of these
transactions. Mozambican people should not bear the burden for collusive and illegal
behaviour between the Government of Mozambique, and the international bankers.
Mozambicans have been paying a heavy price as resources are diverted for illicit
purposes depriving our nation of crucial resources needed for sustainable economic
growth and development. The beneficiaries of proceeds from illegal debt (politicians,
contractors, international banks) should adsorb all costs associated with the
Mozambican debt crisis - in addition to facing criminal sanctions being pursued by
the US authorities.
The nature of charges also reinforces our view that the Mozambican illegal debt
crisis is a consequence of criminal activity spanning various jurisdictions including
the UK, Norway, Netherlands, Switzerland and the UAE.
Recent arrests validate our position as outlined in the statement (18 November 2018)
that the UK’s Financial Conduct Authority (FCA) should pursue criminal sanctions
against Credit Suisse for the role played by the UK regulated Bank in Mozambique’s
illegal debt crisis. We remain dismayed by the approach adopted by the UK authorities
and lawmakers in holding Credit Suisse accountable for its actions.
The arrest of three Credit Suisse bankers should embarrass the FCA, as it shows that
the FCA decision failed to fulfill the organization’s basic statutory standards, and
suggests that UK regulators did not apply the necessary due care in handling the
Mozambican debt case. We expect the FCA to reconsidertheir decision and continue to
pursue action against UK regulated entities implicated in this scandal. FMO
representatives are willing to make themselves available to assist FCA to augment
internal constraints which might affect their ability to take appropriate action
against Credit Suisse, and other implicated parties in the illegal debt project.
FMO rejects Credit Suisse’s attempts to distance itself from its former employees. As
we have previously stated the failure of Credit Suisse to lay criminal charges
against its former banker – Andrew Pearse, responsible for the sovereign debt deals
who joined the contractors benefitting from the illegal Ematum loans–suggests that
illegal, immoral and negligent conduct was not by a rogue banker, but rather part of
systemic Credit Suisse culture. FMO is relieved that our views around Mr Pearse and
others have found expression in the legal action led by US authorities.
While FMO is encouraged by recent action to hold various parties accountable for
illegal debt, we will continue with our global campaign, as announced in November to
encourage other regulators and governments to take appropriate corrective action
against implicated parties. We call on other jurisdictions and implicated countries
to follow the US lead and pursue charges against institutions and individuals who
were party to the grand corruption project, the illegal debt project. FMO demands
that:
- Mozambican people should not be expected to repay illegal debts, especially as
there is concrete evidence of criminality.
- Any claims arising out of illegal debts must be brought against the International
Banks, contractors, and any other beneficiary of proceeds from the illegal debt
For media enquiries, please contact: Denise Namburete, FMO, d.namburete@nweti.org.mz,
00 258 82 30 28 001 Jorge Matine, FMO, jorgematine.jm@gmail.com; 00 258 84 67 17 432
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