A unit of Credit Suisse Group AG pleaded guilty for its role in a fundraising scandal that looted money from Mozambique and tipped the country into an economic crisis.
An attorney for the bank entered the plea on behalf of the unit, Credit Suisse Securities Europe Ltd., to a single charge of conspiracy to commit wire fraud at a hearing in Brooklyn federal court Tuesday. The Zurich-based parent company also entered into a three-year deferred prosecution agreement with the U.S. Justice Department.
Credit Suisse will pay about $475 million to settle the matter with authorities in the U.S., U.K., and elsewhere, according to people familiar with the matter. The details of the international accord will be released later, said one of the people. A spokesperson for the bank declined to comment.
The agreement is the latest action in a multi-year, international legal saga that came out of $2 billion of debt deals from 2013 to 2014 to state-owned companies that were supposed to fund a new coastal patrol force and tuna fishing fleet in Mozambique, one of the world’s poorest countries.
The Credit Suisse unit “knowingly and willfully agreed to participate in a scheme to violate the federal wire fraud statute by participating in a scheme to obtain money by false and fraudulent statements,” said Alan Reifenberg, the bank attorney. “Certain employees and agents caused acts to be committed, including payments made that passed through the Eastern District of New York.”
In a 2018 indictment, the U.S. Justice Department alleged the contracts were a front for government officials and bankers to enrich themselves. Three former Credit Suisse bankers have pleaded guilty to U.S. charges stemming from the scheme.
The agreement will help the bank move past one of a series of recent scandals. The lender was forced to freeze $10 billion in supply-chain finance funds this year related to defunct finance company Greensill Capital, and it took a $5.5 billion hit from the collapse of prime brokerage client Archegos Capital Management.
The Swiss bank has overhauled its management ranks in the aftermath of those blow-ups, and new chairman Antonio Horta-Osorio has vowed to clean up the lender’s problematic attitude toward risk management. He has spent the last few months debating strategic options, with an expectation to finalize the long-term vision and mid-term targets by the end of the year.
Credit Suisse had provisioned 1.7 billion Swiss francs ($1.8 billion) for litigation matters as of year-end 2020 and estimated a maximum of 900 million Swiss francs in litigation losses not covered by the provisions.
Last year the bank had been forced to drastically increase provisions — driving it to a fourth-quarter loss — for legacy legal cases in the U.S., most notably one involving financial crisis-era mortgage-backed securities.
Mozambique revealed in 2016 that it had guaranteed about $2 billion of the loans, more than previously disclosed. As a result, the International Monetary Fund froze its financial support, and soon after, a group of donor countries cut their aid. The nation defaulted on $727 million of bonds in February 2017 and its currency plunged, sparking a surge in inflation.
The bonds were restructured in 2019. The tuna fishing boats they paid for are yet to operate and are rusting in the port of Maputo, the capital.
In Mozambique, the scandal has ensnared over a dozen people, including the son of the nation’s former president and the ex-head of intelligence. Former Finance Minister Manuel Chang, who signed the government guarantees for the debts, has been held in custody in South Africa since 2018.
“The Republic of Mozambique welcomes the admission by Credit Suisse to regulators today of criminal wrongdoing,” Keith Oliver, a representative for the attorney general of Mozambique, said in a statement. “This is an important step towards obtaining full redress for the people of Mozambique.”
Mozambique has filed suit against Credit Suisse and shipbuilder Privinvest Group, one of several cases in U.K. courts that involve the bond deal. The English High Court is scheduled to begin a trial in the matter in October 2023, according to the bank’s most recent quarterly filings.
In defending its London lawsuit, Credit Suisse has insisted that it was deceived by rogue bankers and couldn’t be held responsible for their “unlawful conduct” when it arranged the loans in early 2013. The Swiss bank has said it carried out its usual due diligence before the transactions and was aware of the risk of bribery and corruption.
Andrew Pearse, who led the global financing group in the bank’s London office, testified at a 2019 federal trial in Brooklyn, New York, that he’d pocketed at least $45 million in illicit payments for his role in the arrangement of the loans.
The loans were for three separate maritime projects including a tuna fishing fleet, the building of a shipyard, and surveillance operation to protect Mozambique’s coastline and protect against pirates, according to Pearse. Mozambican government officials, corporate executives, and investment bankers stole about $200 million, prosecutors said.
Both Pearse and his successor at the bank, Surjan Singh, who also pleaded guilty, testified at the trial of Jean Boustani, a Privinvest executive accused by the U.S. of being behind the plan to get Mozambique to borrow billions of dollars and overpay for dubious maritime projects. A third banker, Datelina Subeva, Pearse’s subordinate, also pleaded guilty but didn’t testify.
All three bankers await sentencing. After a six-week trial, a federal jury cleared Boustani of all charges.