africa Banking Economy Finance Mozambique

‘Accountability’ remains an issue for Mozambique’s hidden debt scandal

Approximate reading time: 2 minutes

Mozambique accepted loans of up to $2 billion between 2013 and 2014 arranged by Credit Suisse and Russia’s VTB Capital to fund three state owned companies. The loan agreements were later disclosed in 2016, forcing international donors to withdraw financial assistance.

In late 2017, the Wall Street Journal reported that the FBI had began investigating Credit Suisse and VTB Capital’s role in the scandal. The article call attention to the FBI examining ‘whether the banks facilitated improper payments to senior Mozambican officials.’ Simultaneously, the U.S Justice Department probed the banks to assess whether they ‘helped Mozambican officials borrow more debt than the country’s economy could reasonably repay.’

Since the probing commenced, the FBI and Justice Department have not commented or shared their findings with the public, it is unclear whether the banks are still under scrutiny.   

Technically, the agreements fall under English law due to the loans being approved and processed by the London branches.  Surprisingly, the UK financial regulator, FCA has not expressed interest in examining the banks’ conduct.

Shortly after the scandal went public, Mozambique’s attorney-general commissioned U.S consulting firm, Kroll to probe the three companies that hid $2 billion from the public and international creditors. The firm found discrepancies in loan agreements and its final report revealed that,  

“At least $500million of expenditure of a potentially sensitive nature remains unaudited and unexplained.”

The report from Kroll influenced the Public Prosecution Service in Mozambique to take matters into its own hands by launching legal proceedings against the three state owned companies, mainly targeting individuals involved in negotiating the loans.

According to the Jubilee Debt Campaign,  

“Credit Suisse and VTB gave or arranged loans to three companies which had no revenue, and without the contracts in place to suggest that they would generate revenue in the future.”

“The loans were guaranteed by then Finance Minister Manuel Chang, but were not approved by the Mozambique parliament. All three of the state-owned companies are in default on the loans, but no creditor has brought legal action against Mozambique.”

Despite the troubles, Mozambique’s economy appears resilient and, perhaps the country could anticipate more growth once it clears the debt.

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