This is a reposting of MOZAMBIQUE News reports & clippings 429, first published by Joseph Hanlon on 5 January 2019.

Chang received $12 mn says US indictment; CS loan organiser Pearse got $45 mn; 2 Mozambicans on list not arrested yet given $36.5 mn

The indictment against Manuel Chang and others was published on 3 January. Two other senior Mozambicans have also been charged but their names are blacked out, as they have not yet been arrested. These two are alleged to have received $36.5 mn in “bribes and kickbacks”. Chang is said to have personally received $12 mn. Three “Mozambican co-conspirators” who are not charged, presumably because they cooperated with the US Department of Justice, received $23 mn in bribes. But the largest payment, $45 mn, went to Andrew Pearse, the then Credit Suisse (CS) managing director who orchestrated the secret loan deal. The equipment supplier was Privinvest and Jean Boustani is said to have received a $15 mn kickback.

The indictment, issued by a Grand Jury at a US district court in New York on 19 December 2018, shows the large amount of information already provided to the US department of Justice, including e-mails and other documents. These make clear the secret loans were corrupt for the start, going to the top.

Eight people are charged: 3 Mozambicans: Manuel Chang, Finance Minister at the time of the secret loans. and two others whose names are redacted. 2 senior people from the Abu Dhabi company Privinvest which received the $2 bn and was to supply ships and coastal protection equipment: Jean Boustani, called in the indictment “the lead salesman and negotiator of Privinvest” and one other whose name is redacted. 3 senior people then at CS: Andrew Pearse, a managing director at CS and head of the Global Financing Group; Surjan Singh, a managing director of CS’s Global Financing Group; and Detelina Subeva, a vice president of CS’s Global Financing Group.

Thus the indictment is not just against the Mozambicans who took the loans and received bribes, but also against CS senior officials for organising fraudulent loans and Privinvest for charging “inflated prices” which it then used “to pay bribes and kickbacks”.

Three Mozambican “co-conspirators ,,, whose identity is known to the Grand Jury” but who are not charged are not named and only identified as: “involved in obtaining the Mozambican government’s approval of the Proindicus project”; “a relative of a senior official of Mozambique”: and “a senior official in Mozambique’s Ministry of Finance and a director of Ematum”.

Bribe planning came first

The indictment makes clear that the whole idea came from CS and Privinvest and that Privinvest had to “persuade Mozambican government officials” to accept the deal. The indictment says that “almost immediately Boustani and [the redacted Mozambican]negotiated the first round of bribe and kickback payments that Privinvest would have to make for the benefit of Mozambican government officials for the project to be approved.”

On 11 November 2011 the redacted Mozambican wrote an email to Jean Boustani, a senior executive at Privinvest: “To secure the project is granted the go-head by the HoS [Head of State, Armando Guebuza], 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.” Boustani replied the same day that because of “negative experiences in Africa” Privinvest now had a policy that no money could be paid before a contract was signed. On 14 November 2011 the redacted Mozambican agreed that part of the bribes would be paid on signing and part when the project started.

But the Mozambican warned in the e-mail that by the time of project implementation “there will be other players whose interest will have to looked after, e.g. ministry of defense, ministry of interior, air force, etc”. Money must be paid early because “in a democratic government like ours people come and go, and everyone involved will want to have his/her share of the deal while in office, becomes once out of the office, it will be difficult. So it is important that the contract signing success fee be agreed and paid in once-off, upon the signing of the contract.”

In another e-mail exchange on 28 December 2011, it was agreed that $50 mn in bribes would go to Mozambican government officials and $12 mn in kickbacks for Privinvest co-conspirators. It took a further year of negotiation. The ProIndicus contract with Privinvest was signed on 18 January 2013, and the first bribes were paid five days later.

The charges

The US says the eight charged people “created the maritime projects as fronts to raise money to enrich themselves and intentionally diverted portions of the loan proceeds to pay at least $200 million in bribes and kickbacks to themselves, Mozambican government officials, and others.”

The loans were organised by CS and the Russian bank VTB and sold to investors, including in the United State, and the 8 charged people “conspired to defraud investors and potential investors” by misrepresenting the use of the money and Mozambique’s ability to pay, and through the paying of bribes and kickbacks.

Charges can be brought in the US because US investors were defrauded, because US investors were to pay through CS New York branch, and because many of the bribe payments were made through corresponding banks in New York. For example, in 2013 and 2014 Pearse received 14 kickback payments which were simply transferred from one UAE bank to another, but each payment was denominated in dollars and routed through the UAE banks’ correspondent in New York.

Banks accused of securities fraud on Ematum exchange

“To hide from the public and the IMF the near bankruptcy of the project companies”, the indictment says, Boustani, Pearse and Subeva proposed that the original Ematum bonds be exchanged for new bonds issued directly by the government. Government accepted the proposal in 2015 and hired CS and VTB to conduct the exchange, and chose as advisor Palomar, which was owned by Privinvest and Pearse and then employing Pearse and Subeva, who had left CS.

In particular, when the original Ematum bonds were exchanged for government bonds in 2016, the exchange documents prepared by CS, VTB, Pearse and Subeva failed to disclose the existence of the still secret Proindicus and MAM loans, and thus contained “false and misleading information”. At a meeting in New York on 15 March 2016 to deal with exchanging the Ematum bonds one of the redacted Mozambicans “provided false and misleading information to investors regarding Mozambique’s economic prospects, debt level, and its ability and intention to meet its Ematum debt obligations”.

The exchange of bonds took place on 6 April 2016, and the indictment says, this was based on “false and misleading information”, and the accused are charged with securities fraud.

Chang, IMF and guarantees

Chang is specifically cited on two key issues. On 22 December 2012 he wrote to “Privinvest co- conspirator 2” a letter forwarded to CS “employee 1” in which he explained that “the financing of this project [Proindicus] is still constrained by the IMF imposed limitations on the Government for Mozambique to accept commercial credit for commercial projects. Therefore, we have devised an alternative solution whereby an SPV [Special Purpose Vehicle] … will be formed.”

On 26 December 2012 Boustani sent an e-mail saying it was “imperative” the Chang sign the Proindicus loan guarantee. He did so on 28 February 2013. and in late 2013 he was paid at least $5 mn from a bank account in the UAE, through the United States, to a bank account in Spain.

Avoiding CS controls

The three CS former senior employees are charged with conspiring to circumvent CS “internal controls to enrich themselves and win the Proindicus business for [CS], including through the payment of bribes to Mozambican officials … with the intent, at least in part, to benefit [CS].”

CS wanted competitive bids for the Ematum contract, but Boustani said this could not be done because it has been arranged due to “high level connections” between Privinvest and the government. Concerns were raised by the CS compliance department that one of the Privinvest people they were dealing with was already on file at CS as “an undesirable client” and a “master of kickbacks”. The indictment notes that his involvement continued and the CS compliance department “failed to pursue its inquiry further.”

The indictment says CS “imposed conditions that Mozambique would have to meet to receive a loan. Some of those conditions, however, carried a risk of exposing the existence of the Proindicus projects to the Mozambican public and members of Mozambique’s government beyond the circle of government officials who are part of the fraudulent scheme.” So the three accused simply removed the conditions from the loan. Two conditions removed were to require approval of the Attorney General (Boustani said “they will never accept to inform the attorney general”) and to inform the IMF about the loan. CS apparently never checked.

Pearse and Subeva, then still employed by CS, used their personal e-mail to set up the Ematum project which Singh submitted without their names. Fake competitive bids were created for the project. Singh then led the due diligence process in Mozambique, while Pearse and Sueva provided answers to government officials for due diligence meetings. Pearse then made $4.5 mn in payments to Singh.

Will Credit Suisse wiggle out?

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

But the indictment also makes clear how easy it was for Andrew Pearse, head of CS’s Global Financing Group, and the others to bypass the bank’s internal controls, and how little check there was on their activity.

CS is not charged in this indictment, but it will still be argued that the combination of pressure to lend and very light controls encouraged misconduct. The indictment also makes clear that CS and Privinvest pushed the loan and had to offer significant bribes before the Mozambicans would accept. So pressure will remain on CS to accept some liability for the $2 bn secret debt.

Britain declines to prosecute $ laundering & leaves it to the US

Many of the actions being prosecuted in the US case took place in London at the Credit Suisse (CS) branch there, and the three ex CS employees were arrested in London on 3 January.

The Financial Times (FT, 11 Nov 2018) reported that the British Financial Conduct Authority (FCA) told CS in August 2018 that it had dropped its criminal probe into the secret loans. The FT commented that “the U-turn is a boon to the bank as the FCA was previously looking to use its criminal money-laundering powers in what would have been one of the first cases of its kind.”

The FT notes that the FCA has yet to file charges in any criminal money laundering case.

“The arrest of three Credit Suisse bankers should embarrass the FCA, as it shows that the FCA decision failed to fulfil the organization’s basic statutory standards, and suggests that UK regulators did not apply the necessary due care in handling the Mozambican debt case,” said the Budget Monitoring Forum (FMO, Forum de Monitoria do Orçamento), a Mozambican civil society coalition. FMO adds that if FCA “internal constraints … affect their ability to take appropriate action against Credit Suisse,” FMO is willing to assist.

“The nature of charges also reinforces our view that the Mozambican illegal debt crisis is a consequence of criminal activity spanning various jurisdictions including the UK, Norway, Netherlands, Switzerland and the UAE.”

“FMO rejects Credit Suisse’s attempts to distance itself from its former employees. As we have previously stated ,the failure of Credit Suisse to lay criminal charges against its former banker Andrew Pearse, responsible for the sovereign debt deals who joined the contractors benefitting from the illegal Ematum loans, suggests that illegal, immoral and negligent conduct was not by a rogue banker, but rather part of systemic Credit Suisse culture. ”

The full FMO statement is on www.bit.ly/FMO-Moz-CS

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