The Mozambican Attorney-General’s Office (PGR) announced on Friday that it is hiring the company Kroll to undertake the audit of the Mozambique Tuna Company (Ematum), and the security linked companies Proindicus and MAM (Mozambique Assets Management).
Although the statement from the PGR says that Kroll is based in London, it is in fact an American firm, with its headquarters in New York. Doubtless this confusion arises because Kroll’s operations in Europe, the Middle East and Africa are run from its London office. It was set up in 1972 and is described as a corporate investigations and risk consulting firm.
In the 1980s, Kroll began investigative work in the financial sector, paying special attention to suspicious business practices and any type of corporate crime. In the 1990s, Kroll expanded into forensic accounting (a set of skills that will be needed to make sense of the Ematum, Proindicus and MAM money trails).
In 2013 and 2014, the Mozambican government, then under President Armando Guebuza, issued guarantees for loans that Ematum, Proindicus and MAM took out from European banks (mainly Credit Suisse and the Russian bank VTB).
The guarantees were illegal since they violated the clause in the budget law on the limits of government guarantees.
The 2013 budget law set a limit equivalent to 6.5 million US dollars to the amount of borrowing the government could guarantee. In the 2014 budget law the limit soared to the equivalent of 515 million dollars. This was still nowhere near enough to legitimize the guarantees given to the Ematum, Proindicus and MAM loans, which between them amounted to over two billion dollars – 850 million dollars for Ematum, 622 million dollars for Proindicus, and 535 million dollars for MAM.
The Ematum loan was at least public knowledge, since the money was raised by selling bonds on the European market. But the Proindicus and MAM loans were entirely secret: even the then governor of the Bank of Mozambique, Ernesto Gove, declared last April that he had never heard of Proindicus.
When the news leaked out that the Guebuza government had guaranteed an extra 1.1 billion dollars of loans that were undisclosed, either to the Mozambican public, or to the country’s international partners, the International Monetary Fund (IMF) responded by suspending its programme with Mozambique. Other western partners followed suit – all 14 donors and funding agencies that used to provide direct support to the Mozambican state budget suspended further disbursements.
The IMF made it clear that a key condition for restoring normal relations was an international, independent audit of Ematum, Proindicus and MAM, to see where the two billion dollars had all gone. Mozambican President Filipe Nyusi accepted this at his meeting in Washington in September with IMF Managing Director Christine Lagarde, and a week later an IMF team was in Maputo discussing the terms of reference for the audit.
By this time the PGR had already begun its own investigation into malfeasance in the three loans and their guarantees. Assistant Attorney-General Taibo Mocubora told reporters the PGR had already found clear signs of criminal behaviour (doubtless referring to the violations of the budget laws).
On the grounds of lack of time, the PGR did not launch a full international public tender to choose the auditor, but used a special form of hiring covered by Mozambican legislation. Five internationally known companies competed for the contract, and the PGR opted for Kroll.
According to the PGR statement, the special hiring regime was a necessity in order to produce the audit in due time, and assist in restoring international confidence in Mozambique.
The purpose of the audit, according to the PGR, is “to provide an analysis of the financial contracts, of the funds obtained, and of the acquisitions made, and to identify and analyse eventual irregularities in the administration and use of the funds”.
Once the contract has been signed, Kroll will have 90 days to complete the audit, after which the PGR is committed to publishing the results.
The terms of reference were produced by the PGR, the IMF and the Swedish government, which is financing the audit.
The Ematum, Proindicus and MAM loans have pushed Mozambique’s foreign debt over the threshold of unsustainability.
According to the Finance Ministry, Mozambique’s total foreign debt service, including arrears, is 675.2 million dollars this year, rising to 803.8 million dollars in 2017, 826.8 million in 2018 and 865.5 million in 2019. The debt service then dips to 770.8 million dollars in 2020, before rising again to 863.7 million in 2021.
From 2017 to 2019, easily the largest slice of the debt service goes on the EMATUM, Proindicus and MAM loans – this will be 591.2 million dollars in 2017, 377.3 million in 2018, and 359.8 million in 2019. These figures include capital, interest and clearing arrears.
In other words, were it not for EMATUM, Proindicus and MAM, the foreign debt would be manageable for the rest of this decade.