Over the past four weeks, a series of law enforcement actions by U.S. and Mozambique authorities have targeted alleged participants in a bribery and corruption scheme, involving $2 billion in loans with which former Credit Suisse Group AG bankers and Mozambique government officials were connected. Some media reports referred to the underlying situation as the “tuna bond” scandal, because of representations that the loans would be used in part to create a tuna fishing fleet for Mozambique.
The timeline of the law enforcement actions is as follows:
- December 19, 2018: An indictment returned on December 19, 2018 (later unsealed January 3) in the Eastern District of New York charged three former Credit Suisse Group AG bankers – Andrew Pearce, Surjan Singh, and Detelina Subeva – as well as former Mozambique finance minister Manuel Chang and lead salesman for Abu Dhabi-based shipbuilding holding company Privinvest Group Jean Boustani with four counts of conspiracy to commit wire fraud and securities fraud, to violate the Foreign Corrupt Practices Act (FCPA), and to commit money laundering. (Based on the redactions in the unsealed indictment, there are apparently between two and four additional defendants named in the indictment who presumably have not yet been apprehended.)
The indictment alleges that through a series of financial transactions between approximately 2013 and 2016, three companies owned by the Mozambique government borrowed more than $2 billion through loans that the Mozambique government guaranteed, and that two investment banks arranged and sold to investors worldwide. Over the course of the transactions, the co-conspirators in the scheme conspired to defraud investors and potential investors in the financings
through numerous material misrepresentations and omissions relating to, among other things: (i) the use of loan proceeds, (ii) bribe and kickback payments to Mozambican government officials and bankers, (iii) the amounts and maturity dates of debt owed by Mozambique, and (iv) Mozambique’s ability and intention to pay back the investors.
It also alleged that each of the three Mozambican companies
entered into contracts with Privinvest to provide equipment and services to complete the maritime contracts. The loan proceeds were supposed to be used exclusively for the maritime projects, and nearly all of the borrowed money was paid directly to Privinvest, the sole contractor for the projects, to benefit Mozambique and its people. In reality, the defendants JEAN BOUSTANI, [redaction], MANUEL CHANG, [redaction] ANDREW PEARSE, SURJAN SINGH and DETELINA SUREVA, together with others, 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.
- December 29, 2018: South African authorities arrested Chang.
- January 3: United Kingdom authorities arrested Pearce, Singh, and Subeva in London, and U.S. authorities arrested Boustani in New York.
- January 4: Credit Suisse issued a statement in which it pledged to cooperate with the United States’ investigation and indicated that it was not a target of that investigation.
- January 8: The Mozambique Attorney General, who had previously filed a legal action in Mozambique’s Administrative Court challenging officials and entities involved in the $2 billion loans, announced the indictment of 18 individuals allegedly connected to the scheme, on charges of abuse of power, abuse of trust, swindling and money laundering.
- January 10: The Mozambique government reportedly filed its own extradition request for Chang with South African authorities.
- January 15: The head of the United Kingdom Financial Conduct Authority (FCA), Andrew Bailey, stated that the FCA, which reportedly had begun looking into Credit Suisse’s involvement in Mozambique in 2016, had downgraded its investigation from a criminal investigation. Bailey also stated that “our regulatory powers still apply to both the individuals and the firm, and that would be in respect of systems and controls of the firm, and also in respect to fitness and properness in respect to the individuals.”
Note: These prosecutions are significant not only because of the amount of fraud, bribery, and corruption allegedly involved, but because of the devastating effect of the scheme on Mozambique itself. Previously, as details of the fraudulent loans became public, they reportedly helped to “plunge Mozambique into its worst financial crisis since independence in 1975. Debt soared to 112 percent of gross domestic product (GDP) by the end of 2017, forcing the country to suspend repayments and arousing distrust from investors.”
Mozambique’s situation now is less catastrophic, but still dire. As allAfrica reported, all three of the Mozambique companies associated with the scheme “are effectively bankrupt, and so the Mozambican state has become liable for repaying the loans.” In addition, though the purported reason for setting up the companies “was to provide a sophisticated system of coastal protection and a tuna fishing fleet,” the coastal protection system is nonexistent and the fishing fleet consists of only 24 small boats that do no fishing and have no fishing licenses. Moreover, the securities-fraud charge reflects the fact that major institutional investors, according to the Wall Street Journal, stand to lose money.
Earlier today, a prominent anti-corruption expert, Rick Messick, posted that South Africa now has a dilemma about which extradition request they should honor first: the United States’ or Mozambique’s. While Messick may be correct that Mozambique’s request is intended to shield Chang, a leading member of Mozambique’s ruling party FRELIMO, from prosecution or cooperation in the United States, it is more likely that South African courts, after due consideration, will rule in favor of the United States’ “first-in-time” extradition request, while paying appropriate respect to Mozambique’s authority and recognizing the serious effects of the scandal on its economy. As Chang, Pearce, Singh, and Subeva all can be expected to context their extraditions vigorously, it will likely be some time before the U.S. Department of Justice can pursue plea negotiations with, or prosecutions of, the key players in this case.