The U.S. District Court for the Eastern District of New York has charged individuals involved in the debt scandal which has troubled Mozambique for several years.
So far, the court has charged three former employees of Credit Suisse, the former minister of Finance of Mozambique, Manuel Chang and a representative of Privinvest, an international shipping company based in Abu Dhabi, over the $2.2 billion loan deal which was supposed to fund three state owned companies.
The loans issued by Credit Suisse and VTB Bank, like any other loan agreement (especially one of this size), should have had strict conditions which the borrower must have met before the loan was approved.
For instance, As I understand, there is a legal cap any government official can approve in terms of sovereign debt without going through parliament and these loans were never brought to the attention of the Mozambican parliament for such approval, which makes a strong case that the entire operation could be rendered unconstitutional.
Also, the basic fundamentals of due diligence were either poorly conducted or flat out ignored, as all the companies in question did not have any of the necessary financials to contract such loans, yet the bankers went ahead with the loan agreement. In addition, according to a 2017 Kroll audit, the proposed purpose of the loan did not match the borrowed amount, rendering a quarter of the operation (around US$500m) unaccounted for.
Interestingly, the Mozambique government had a basic understanding with the International Monetary Fund (IMF) that any sovereign borrowing will be kept to a minimum and that the Fund should be informed of any dealings with private banks. The Fund claimed that it was kept out of the loop and that it discovered the deals two years after the loans had been issued. The question that begs to be asked is, if the IMF works very close to the government, often conducting regular audits and economic evaluations (with open access to the government accounts), how is it possible that the IMF resident mission did not notice any of these transactions?
Yet, the IMF and other international donors promptly withdrew financial assistance to the southern African state. This had an impact on the country’s growth as its currency collapsed and until now borrowing from international donors remains restricted.
Although the loans were not directly issued to the government of Mozambique, creditors including Credit Suisse and VTB Bank expect to be repaid. The government has already made an agreement with the lenders to clear the debt using future revenue from LNG projects.
So far, Credit Suisse has denied any involvement and claims the three former bankers acted alone, out of greed to enrich themselves.
A spokesperson for the bank said, “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.”
Meanwhile, Mozambicans are the ones stuck with the bill and I for one cannot ignore some of the questions that are not being asked. Such as:
- Why the UK Financial Conduct Authority (FCA) downgraded the case against Credit Suisse from money-laundering to a regulatory investigation?
- Are we to believe that Credit Suisse risk did not flag an operation with no adequate due diligence, absenting the bank as a whole of any responsibility?
- Are we to believe that the IMF went through a good 2 years with a resident mission in country without any suspicious of an operation roughly the size of 20% of the country’s GDP?
- How is it that no individuals from Russia’s VTB Bank have been indicted or even mentioned up to this point?
I personally respect the caliber of professionals that make the core of institutions like the IMF and Credit Suisse, thus I have a hard time believing in any institutional innocence.
It is increasingly difficult for me to accept that at every financial scandal and government corruption case in Africa, Africans are exclusively to blame. I have no doubt that corrupt Mozambican government officials were at the core of this fraud, however, in my mind, their ability to “deceive” institutions such as Credit Suisse and the supervision of the IMF is virtually non-existent.
Corruption is corruption and my faith lies in the American Justice System to bring to light and hold accountable all the villains of this dark episode. I hope justice will reach European financiers and stock listed banks as fiercely as African politicians. I for one do not think that Mozambicans should suffer any further financial consequences on behalf of these crooks.
Will justice prevail?