Mozambique’s former finance minister, ex-Credit Suisse bankers arrested over secret loans

Mozambique was considered insolvent in 2017 and was effectively cut off from international credit lines, following the addition of secret government-guaranteed loans totalling $2 billion to the government accounts in 2016, raising the country’s debt ratio to unsustainable levels. Three ex-Credit Suisse Group AG bankers, who helped arrange the secret loans have now been arrested after being charged by a United States District Court in New York with defrauding US investors.

“Through a Series of financial transactions between approximately 2013 and 2016, Proindicus, EMATUM and MAM borrowed in excess of $2 billion through loans guaranteed by the Mozambican government. The loans were arranged by Investment Bank 1 and Investment Bank 2 and sold to investors worldwide, including in the United States,” the grand jury indictment stated.

“Over the course of the transactions, the co-conspirators, among other things, conspired to defraud investors and potential investors in the Proindicus, EMATUM and MAM through numerous material misrepresentations and omissions,” the indictment further stated.

Proindicus S.A., Empresa Mocambicana de Arum S.A. (EMATUM) and Mozambique Asset Management (MAM) owned, controlled and overseen by the Government of Mozambique had been used to secure the loans, including $850 million for EMATUM in 2013 and a $535 million loan for a military shipbuilding project. The indictment showed that the companies were actually fronts for the ex-bankers; 49-year-old Andrew Pearse, Surjan Singh, 44, and Detelina Subeva, 37; Mozambique’s ex-finance minister, Manuel Chang and Jean Boustani, a contractor to the Mozambican companies, to enrich themselves.

The investment banks involved Credit Suisse and Russia’s VTB Capital surprisingly showed little interest in the risks. However, in the case of Credit Suisse, available information has now shown that its ex-employees worked to defeat the bank’s internal controls.

As required by Credit Suisse’s internal controls, due diligence conducted showed red flags which the bankers ignored. They even went as far as secretly appointing an external firm to perform due diligence on Proindicus’s officers and directors, a duty supposed to be carried out by compliance personnel of Credit Suisse. Proindicus is the name for a maritime security project in Mozambique, for which part of the $2 billion loans was sought.

Chang, who by law, was allowed to guarantee up to $6 million without parliamentary approval but guaranteed $850 million was arrested in South Africa on December 29 as part of the same case that saw the ex-Credit Suisse bankers arrested in London. Chang was arrested at O.R. Tambo International Airport in Johannesburg on his way to Dubai. South African authorities plan to extradite him to the U.S. where he is expected to face charges related to the debt deal on which the three companies missed $700 million in repayments in 2016 and 2017. His lawyers says he will oppose the application for his extradition. Boustani, who worked for an Abu Dhabi-based shipbuilder connected to the projects was also arrested in New York.

Credit Suisse said in a statement that the bank would continue to cooperate with authorities.

Living on China
With the southern African nation unable to access international credit lines as a result of its current debt crisis, Mozambique has had to rely on China.

In 2017, China agreed to write off four interest-free loans worth 239 million yuan $36 million owed to it by Mozambique. The Asian giant had written off $22 million in 2001 and $30 million in 2007. China also extended the grace periods granted to the southern African country for repayment of more than $2.2 billion of debt, as revealed in April 2018.

Mozambique also secured a grant of 140 million yuan (about $20.5 million) from China and a pardon of the country’s interest-free debt to the Asian giants maturing in late 2018.

China is currently funding projects in Mozambique, including the Moatize-Macuse Railway worth $2.7 billion.