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amaBhungane: The banker bros who bankrupted Mozambique
amaBhungane: The banker bros who bankrupted Mozambique
Published Date: 2019-01-10 | Source: DailyMaverick | Author: Susan Comrie for amaBhungane
In December 2018, the US Department of Justice indicted three former Credit Suisse bankers for their role in bringing Mozambique's economy to its knees. State-owned entities drowning in billions of dollars in debt, bloated infrastructure projects, kickbacks paid into UAE bank accounts, and government guarantees imperilling the entire economy: if any of this sounds familiar, keep reading.
"50 million chickens."
This is how kickbacks, destined for Mozambican government officials, were described by one of the co-conspirators in an international corruption scandal that centred on a $2-billion project to build shipyards and tuna trawlers in Mozambique.
Make no mistake though, the kickbacks would not be paid in poultry. Instead, $50-million in hard currency would be deposited into a series of bank accounts in the United Arab Emirates (UAE) and Spain.
This is according to the US Department of Justice which filed an indictment in December 2018 in a court in New York.
It was this indictment which led South African police to arrest Manuel Chang, the former finance minister of Mozambique, at OR Tambo International Airport on Sunday 30 December. Chang was on his way to Dubai when he was arrested, but is now waiting to hear if South African courts will extradite him to the US.
Four days later, three former Credit Suisse bankers - Andrew Pearse (New Zealand), Surjan Singh (UK) and Deletina Subeva (Bulgaria) - were detained in London. They also face the prospect of being extradited to the US.
A fifth accused, Jean Boustani (Lebanon), was arrested as he tried to fly out of New York's JFK International Airport.
US investigators accuse the defendants of creating three separate shipping projects "as fronts to raise money to enrich themselves" to the tune of "at least $200-million in bribes and kickbacks".
A 2017 audit report, produced by New York-based Kroll and commissioned by Mozambique's attorney-general, concluded that at least $500-million of the $2-billion spent on the project cannot be unaccounted for and that the equipment that was bought was inflated by roughly $713-million.
November 2011: Hatching the scam
The 47-page indictment describes how Boustani, a salesperson for shipbuilder Privinvest, approached the Mozambican government in November 2011 with a proposal to develop a coastal protection system for Mozambique's 2,470 km coastline.
"Almost immediately, Boustani and [one of a number of as yet unnamed accused] negotiated the first round of bribe and kickback payments that Privinvest would have to make ... for the project to be approved," the indictment reads.
It appears that the reason US investigators are able to make these bold claims is that they had access to the private emails of those involved.
"To secure that the project is granted a go-ahead by the HoS [Head of State], a payment has to be agreed before we get there, so that we know and agree, well in advance, what ought to be paid and when," one of the unnamed accused is alleged to have told Boustani via email on 11 November 2011.
At the time, Mozambique's head of state was President Armando Guebuza. He is not directly implicated in the indictment.
But it appears this was not Privinvest's first foray into corruption, and Boustani insisted that the company would only pay "success fees" - interpreted as kickbacks by US investigators - once the company was sure it had the contract.
"A very important issue which needs to be clear: we had various negative experiences in Africa. Especially related to the 'success fees' payments. Therefore, we have a strict policy in the Group consisting of not disbursing any 'success fee' before the signature of the Project Contract," Boustani told the unnamed accused via email.
Emails show that a two-stage "success fee" was agreed upon: the first payments would happen when the contract was signed, the second when the project was implemented.
"I agree with you that any monies can only be paid after the project signing," the unnamed accused told Boustani via email on 14 November 2011.
"This has to be treated separately from the project implementation... Because for the project implementation there will be other players whose interest will have to be looked after e.g. ministry of defense, ministry of interior, air force, etc, ... in democratic governments like ours people come and go, and everyone involved will want to have his/her share of the deal while in office, because once out of the office it will be difficult."
It is unclear whether the unnamed accused is a Mozambican government official or a fixer with political connections. By December 2011, he or she came up with a price:
"I have consulted and please put 50 million chickens. Whatever numbers you have on your poultry I will add 50 million of my breed," they told Boustani.
Although the wording was obscure, the message was clear, according to US investigators: $50-million would need to be paid to Mozambican officials for the project to go ahead.
In a brief written statement, Privinvest told amaBhungane: "This was not expected and the allegations made are being investigated by the group. The group will make a further announcement in due course but notes that Privinvest is not a defendant."
September 2012: Enter the banker bros
It took another year to negotiate the first contract: ProIndicus, a Mozambican state-owned company, would pay Privinvest $366-million to "supply materials and training to protect Mozambique's territorial waters".
As with most big infrastructure projects, the government was unwilling to fund it outright and turned to the markets to raise loans.
Enter Credit Suisse.
In September 2012, Andrew Pearse, the head of Credit Suisse's Global Financing Group, flew to the UAE to meet with Boustani, an unnamed accused who had negotiated the bribe, and a "close relative of a senior Mozambican government official", among others.
If this strange get-together raised any red flags, Pearse and the Credit Suisse deal team apparently were determined to ignore them.
Boustani openly told the bankers that Privinvest had secured the contract not through an open tender, but through its "high-level connections" with the Mozambican government. When a bank employee told Surjan Singh, the managing director of Credit Suisse's Global Financing Group, that one of the Privinvest executives had been identified as "an undesirable client" because of allegations of corruption, this information did not make it through to the bank's compliance department, according to the indictment.
Despite one of the Privinvest executives being described as "a master of kickbacks" in the bank's own due diligence report, the bankers did not back away.
April 2013: The money starts flowing
The reason became clearer once US investigators started following the money.
In April 2013, Pearse, the Credit Suisse banker, opened a bank account in Abu Dhabi, in the UAE. US investigators allege that over the next 14 months, "Privinvest wired bribe and kickback payments of more than $45-million" to Pearse's account.
Most of the 14 payments were for $1-million exactly and were recorded as "partial [payment] on consultancy agreement". One of the largest payments, for $15.6-million, was listed as a "dividends payment".
It is alleged that Pearse on-paid $2.2-million to another UAE bank account held by Subeva, the vice president of Credit Suisse's Global Financing Group.
Although these payments all happened inside the UAE, bouncing from one UAE bank account to another, the US was seemingly able to track the payments because they were made in US dollars. Every dollar transaction worldwide must bounce through a correspondent bank in the US, in this case in the Eastern District of New York, where the indictment was eventually filed.
The ability of US law enforcement to reach out and claim jurisdiction, even in supposed safe havens like the UAE, should keep those implicated in State Capture in South Africa awake at night.
But the actions of the bankers, in this case, went way beyond enabling corruption or willful blindness, the accusation most commonly levelled against banks and advisers implicated in State Capture. Pearse, Singh and Subeva are accused of actively participating in the fraud and receiving millions of dollars in kickbacks in return.
By August 2013, Credit Suisse had agreed to facilitate another $132-million loan to Proindicus. In November, a Russian state-owned bank, VTB Capital, loaned ProIndicus another $118-million.
Despite soliciting loans of $622-million in total, "ProIndicus never conducted significant operations or generated significant revenue and defaulted on its loan payment due on or about March 21, 2017", according to the US investigators.
On Friday, Credit Suisse distanced itself from the three executives, all of whom have since left the bank.
In a statement to amaBhungane, it said: "Three former Credit Suisse employees have been accused by the US Department of Justice of circumventing our internal controls and using personal email accounts to conceal their involvement in a fraud connected to Mozambican government officials between 2011 and 2013.
"No action has been taken against Credit Suisse. The indictment alleges that the former employees worked to defeat the bank's internal controls, acted out of a motive of personal profit, and sought to hide these activities from the bank."
But the ProIndicus coastal surveillance scheme was just the beginning. Although both Pearse and Subeva left the bank before the end of 2013, they made sure their final deal was a lucrative one.
July 2013: The missing tuna boats
In July 2013, a new deal was presented to the Mozambican government: this time Privinvest was proposing to build a fleet of tuna fishing vessels. The project would be housed under a new state-owned company: Ematum.
The idea had not come from Privinvest this time, but rather from Pearse, the Credit Suisse banker, according to the indictment.
Emails obtained by the US investigators show that throughout July 2013, while Pearse and Subeva were still employed by Credit Suisse, they were using their personal email accounts to sell the idea of the tuna project to Boustani.
By the end of July, the plan was in place. It had been designed to "justify the maximum possible loan amount, rather than to meet legitimate fishing needs of the Ematum project".
"[W]e will go for 800 million$ so we keep a cushion for Proindicus interest payment next year," Boustani told Pearse and Subeva over email on 31 July, in effect describing a Ponzi scheme where loans from new investors are used to repay old investors.
Although Pearse and Subeva were still employed at Credit Suisse, they were now on both sides of the fence. To hide their involvement, they allegedly warned Boustani to be careful about sending documents or emails that would point back to them.
"Plse bro don't just forward but rather create new email and attach the docs, [Credit Suisse] is very sensitive to seeing our names involved," Pearse told Boustani in a 27 July 2013 email.
When Pearse pointed out that Subeva was listed as the author of one of the documents, she reassured him: "I'm sure Surj [Singh] can sanitize worst comes to worst and delete the author."
Anticipating that Credit Suisse's compliance department might find it suspicious that the Mozambican government had handed Privinvest another lucrative deal without a tender, Pearse allegedly came up with a cover story:
"Guys, below is the argument that I think we (or rather [Ematum]) should present to [Credit Suisse] next week when in Maputo... '[A]t the behest of the President [the government] went out to 4 shipyards (we need to have names) asking for proposals to build a fleet... ONLY [Privinvest] responded with the full package and offered an integrated solution with fishing surveillance, command center and boats.'"
"Let's say they contacted South African yards and Spanish + Portuguese. Without naming," Boustani suggested.
In September 2013, Credit Suisse agreed to arrange a $500-million loan to allow Ematum to acquire a fleet of 27 tuna trawling vessels and an operations centre. Another $350-million was raised from VTB Capital.
Instead "a significant portion of the additional funds would be funnelled to Privinvest and then misappropriated" according to US investigators. Some of the money would allegedly go to pay additional bribes and kickbacks, while some were used to make payments on the ProIndicus loan. The indictment alleges that part of the motivation was "to prevent discovery of the co-conspirators' fraudulent scheme".
Although Ematum told investors it expected to be hauling in $224-million in annual revenue by December 2016, "it generated virtually no revenues and, as of approximately late 2017, conducted no fishing operations", the US investigators claim.
Like ProIndicus, Ematum started defaulting on loans in early 2017.
October 2013: Fake invoices
With a second project came a second flurry of payments for Boustani to co-ordinate.
"I need asap invoices in the name of: Logistics International Abu Dhabi [a Privinvest-related company]. Invoices for everything my brother. Each one mentioning the subject (real estate purchase... etc...)," Boustani told one of the unnamed accused via email in October 2013.
US investigators believe that fake invoices were then used to pay off government officials in Mozambique.
Three days later, Pearse sent an email to Boustani containing his colleague Singh's bank account details. Referring to Singh as "Uncle", Pearse told Boustani: "If we can do something this week he would appreciate it."
Over the next four months, Privinvest is alleged to have transferred $4.49-million to Singh's bank account. Most of the payments were $800,000 exactly and, like Pearse, used the reference "[payment] on consultancy agreement".
According to the US investigators, the payment of bribes became so common that spreadsheets were drawn up accounting for the estimated $125-million that Boustani had either paid or promised to officials and fixers involved in the project.
In one final raid, Prininvest persuaded the Mozambique government to award it a contract to "build a shipyard, provide additional naval vessels and upgrade two existing facilities to service Proindicus and Ematum vessels".
The project, signed in May 2014, would fall under a third state-owned company - MAM - and would be worth $500-million.
MAM projected its revenue would top $63-million by the end of its first year. Instead, by May 2016, it had made "virtually no revenue" and defaulted on the loan arranged by VTB.
Chang: The man who rigged the system
One may be wondering at this point why international investors were willing to loan $2-billion to newly-established state companies in Mozambique with no immediate prospects of repayment.
In each of the three cases - ProIndicus, Ematum and MAM - the banks were only willing to facilitate the loans if the Mozambican government provided guarantees. Chang, as minister of finance, signed off on all three.
In return, US investigators allege that Chang received $5-million transferred into a bank account in Spain for his benefit.
And he was not alone. According to the indictment:
Mozambican co-conspirator 1, identified as someone "involved in obtaining the government's approval for the Proindicus project", received at least $85-million;
Mozambican co-conspirator 2, identified as a relative of a senior official in Mozambique, received at least $9.7-million; and
Mozambican co-conspirator 3, identified as a senior official in Mozambique's ministry of finance, received at least $2-million.
The scale of the scam only became clear when all three state companies began to default on their loans. By this point, the ProIndicus loans had been swapped for government-issued Eurobonds, binding the Mozambican fiscus even tighter to ProIndicus' fate.
The problem was that the government appears to have kept the scale of its exposure to the three companies a secret until it was too late. Much like Greece, which hid massive government debt off its books, Mozambique's foreign debt increased by 20% when the scandal broke.
At the time the International Monetary Fund (IMF) was working with the Mozambican government to rehabilitate the economy. When the $2-billion scandal spilled out into the open, the IMF suspended all financial aid. Mozambique's GDP to debt ratio - which was on par with South Africa's in 2011 - reached a completely unsustainable 138%.
Keeping up with the state capturers
So far the court papers filed in the US only include the version of the US investigators. The five accused in the case will no doubt offer a more lenient interpretation of the evidence when they put their version before the court.
Chang is scheduled to appear in the Kempton Park magistrate's court on Tuesday. If he and the three former Credit Suisse bankers are extradited they are likely to join Boustani in Brooklyn's metropolitan detention centre to await trial.
However, the indictment still contains at least two, but possibly four, redacted names in the list of defendants, suggesting that more arrests may follow soon. DM
The amaBhungane Centre for Investigative Journalism, an independent non-profit, produced this story. Like it? Be an amaB supporter to help it do more.