The arrest of Mozambique’s ex-finance minister and three former Credit Suisse AG managers over alleged bribes could render void about $2 billion of project loans to the country, according to Mitu Gulati, a law professor at Duke University in the U.S.
The projects, a tuna-fishing and coastal-protection system, were created to enrich those involved, and at least $200 million of the proceeds went to bribes and kickbacks, according to an indictment from the U.S. Department of Justice. The allegations in the indictment, unsealed on Jan. 3, show how the scandal unfolded between 2013 and 2016 and could have significant implications for the debts that Mozambique has been seeking to restructure since 2016.
In response to emailed questions, Gulati, who has authored papers and lectures on sovereign debt, said:
- “The debtor probably has a good case to make that these were loans infected with corruption (by the agents who contracted the loans) and, therefore, voidable”
- “Now, that does not exempt the debtor from having to give back the funds that it did receive. But it is quite possibly an effective argument to make to obtain a better settlement in a restructuring.” (Mozambique didn’t receive any of the funds, as the banks that arranged the loans, Credit Suisse and VTB Capital, paid the money directly to the contractor in Abu Dhabi)
$2 Billion Scandal
There are three projects and loans that make up the $2 billion scandal. The first is a $727 million Eurobond that an initial $850 million loan for tuna-fishing boats was converted into. The others are a $622 million loan to a state-owned company for a coastal-protection system and a $535 million loan for shipyards. Both of these were government-guaranteed.
The Eurobond holders may be at an advantage to the owners of the other loans, according to Gulati:
- “The conversion into the Eurobond makes things worse for the prospect of mounting a defense. I fear that this is why this got converted into a nice Eurobond -– modern money laundering.”
Matthias Goldmann, a senior research affiliate at the Max Planck Institute in Heidelberg, Germany, had a similar opinion on the debts in a Jan. 4 emailed response to queries:
- “Under international law, in my view, the government does not need to pay back anything. Investment tribunals would not grant protection if corruption was involved in the conclusion of the deal. So corruption charges are an independent reason to reject repayment.”
Credit Suisse and a group representing the majority of Eurobond holders declined to comment. Mozambique’s advisers on the debt restructuring, Lazard Freres SAS, didn’t respond to a request for comment.
The loans have brought nothing but pain to Mozambique, one of the poorest countries in the world. After the government in 2016 admitted to the International Monetary Fund it had $1.4 billion of loans it had previously denied, the lender froze financial support. Soon after, 14 donor countries also cut direct budget aid. The currency tanked and inflation soared to more than 20 percent.
And the tuna boats are still rusting in the bay of Maputo, the capital, having hardly caught any fish.