A U.S. Department of Justice probe into a $2 billion loan scandal in Mozambique is exposing some of the southeastern African nation’s top politicians to allegations of wrongdoing, just months before it holds elections. It’s also complicating the government’s talks with international creditors on how to restructure the debt, which includes $727 million of bonds.
1. Why is the U.S. involved?
U.S. prosecutors describe the case as a “brazen international criminal scheme” that “took advantage of the U.S. financial system” and “victimized investors from the United States and elsewhere.” The central role U.S. banks play in the global finance system gives American law enforcement agencies scope to investigate just about any suspicious deal involving the movement of large sums of money.
2. What was the alleged scheme?
Six years ago, three state-owned Mozambican companies began taking on loans worth $2 billion to fund tuna-fishing, maritime-security and shipyard projects. The government failed to declare $1.2 billion of the loans to the International Monetary Fund as required under a funding accord. After discovering the debt in 2016, the IMF suspended financing and demanded an independent audit. The audit found that $500 million was unaccounted for and that the companies were overcharged by $700 million for equipment that was financed with part of the loans. The purchases included interceptor vessels and patrol aircraft for maritime security firm ProIndicus, and boats for Empresa Mocambicana de Atum SA, or Ematum, a tuna-fishing company. Criminal prosecutors in the U.S. joined regulators in the U.K. and Switzerland in 2016 to investigate whether the banks that arranged the loans -- Zurich-based Credit Suisse Group AG, VTB Group of Russia and France’s BNP Paribas SA -- had violated securities laws.
3. What’s come of the U.S. investigation?
An indictment issued by the U.S. Justice Department in December accused Mozambican government officials, corporate executives and investment bankers of stealing about $200 million in loan proceeds. The U.S. charged eight people including former Finance Minister Manuel Chang, three ex-Credit Suisse bankers and the chief financial officer of Lebanese shipbuilder Privinvest Group. Chang is in custody in South Africa, where he’s fighting extradition to the U.S. The ex-Credit Suisse bankers -- Andrew Pearse and Surjan Singh, who were managing directors, and Detelina Subeva, who was a vice president in the global financing unit -- were arrested in London on Jan 3. and are fighting their extradition to the U.S. (Credit Suisse denies wrongdoing and says the three bankers deceived it.) The Privinvest CFO, Najib Allam, is not in custody but Jean Boustani, a salesman with the company who was also charged, is in jail in New York and plans to contest the allegations.
4. What does this mean for Mozambique?
A 16-year civil war that ended in 1992 and claimed the lives of as many as 1 million people turned Mozambique into one of the world’s poorest nations. Its efforts to rebuild and portray itself as one of Africa’s hottest investment destinations were boosted by the discovery of huge natural gas fields off its northern coast. But the government has missed payments on the loans that are under investigation since 2017, and is still trying to restructure that debt -- plans that could potentially be derailed by the criminal probes.
5. Who holds the disputed debt?
The loans that benefited Ematum, which total about $850 million, were converted into government-issued eurobonds. Those notes have been in default since early 2017 but soared in November after the government reached a draft restructuring agreement with holders including New York-based hedge fund Greylock Capital Management LLC. That deal would see the debt converted into a new eurobond with a longer maturity, and holders would get as much as $500 million of the country’s future gas revenue as a sweetener. Mozambique’s attorney general has asked a U.K. court to declare invalid the sovereign guarantee on another part of the disputed debt, a $622 million loan to ProIndicus. That suggests the government doesn’t intend to service that debt.
6. How has Mozambique’s government responded?
President Filipe Nyusi, who was defense minister when the loans were agreed, fired Deputy Finance Minister Isaltina Lucas, after she was identified as one of 17 suspects in the scandal. She hasn’t been arrested but 12 others have, including ex-President Armando Guebuza’s son, the country’s former head of intelligence, and the chairman of the three state-owned companies that contracted the loans. The arrests could be part of a strategy by the government to show the electorate that it is committed to holding those responsible for the scandal to account before the October vote.
(Corrects spelling of ‘Boustani’ under third sub-headline.)
--With assistance from Mike Cohen.
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