The banker bros who bankrupted Mozambique
Source: News 24, 08/01/2019
2019-01-08 â€` News 24
In December, the US Department of Justice indicted three former
Credit Suisse bankers for their role in bringing Mozambiqueâ€™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 around a $2bn
project to build shipyards and tuna trawlers in Mozambique.
Make no mistake though, the kickbacks would not be paid in
poultry. Instead $50m in hard currency would be deposited into a
series of bank accounts in the United Arab Emirates (UAE) and
This is according to the US Department of Justice which filed an
indictment in December 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, December 30. Chang was on
his way to Dubai when he was arrested, but is now waiting to hear
if our 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 $200m 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 $500m of the $2bn spent on the project cannot be accounted
for and that the equipment that was bought was inflated by roughly
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 470km 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 makeâ€¦ 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 the private emails of those
`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 November 11, 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, and 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
November 14, 2011.
`This has to be treated separately from the project
implementationâ€¦ 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: $50m 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 $366m to
`supply materials and training to protect Mozambique`s territorial
As with most big infrastructure projects, the government was
unwilling to fund it outright and turned to the markets to raise
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 was determined to ignore them.
Boustani openly told the bankers that the 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
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
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 $45m` to Pearse`s account.
Most of the 14 payments were for $1m exactly and were recorded as
`partial [payment] on consultancy agreement`. One of the largest
payments, for $15.6m, was listed as a `dividends payment`.
It is alleged that Pearse on-paid $2.2m 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
But the actions of the bankers in this case went way beyond
enabling corruption or wilful blindness, the accusation most
commonly levelled against banks and advisors 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
$132m loan to Proindicus. In November, a Russian state-owned bank,
VTB Capital, loaned Proindicus another $118m.
Despite soliciting loans of $622m in total, `Proindicus never
conducted significant operations or generated significant revenue
and defaulted on its loan payment due on or about March 21, 2017`,
according to the US investigators.
On Friday, Credit Suisse distanced itself from the three
executives, all of whom have since left the bank.
In a statement to amaBhungane, it said: `Three former Credit
Suisse employees have been accused by the US Department of Justice
of circumventing our internal controls and using personal email
accounts to conceal their involvement in a fraud connected to
Mozambican government officials between 2011 and 2013.
`No action has been taken against Credit Suisse. The indictment
alleges that the former employees worked to defeat the bank`s
internal controls, acted out of a motive of personal profit, and
sought to hide these activities from the bank.`
But the Pronidicus coastal surveillance scheme was just the
beginning. Although both Pearse and Subeva left the bank before
the end of 2013, they made sure their final deal was a lucrative
July 2013: The missing tuna boats
In July 2013, a new deal was presented to the Mozambican
government: This time Privinvest was proposing to build a fleet of
tuna fishing vessels. The project would be housed under a new
state-owned company: Ematum.
The idea had not come from Privinvest this time, but rather from
Pearse, the Credit Suisse banker, according to the indictment.
Emails obtained by the US investigators show that throughout July
2013, while Pearse and Subeva were still employed by Credit
Suisse, they were using their personal email accounts to sell the
idea of the tuna project to Boustani.
By the end of July, the plan was in place. It had been designed to
`justify the maximum possible loan amount, rather than to meet
legitimate fishing needs of the EMATUM project`.
`[W]e will go for 800 million$ so we keep a cushion for Proindicus
interest payment next year,` Boustani told Pearse and Subeva over
email on July 31, 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 July 27, 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 $500m loan to
allow Ematum to acquire a fleet of 27 tuna trawling vessels and an
operations centre. Another $350m 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 was 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 $224m
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 purchaseâ€¦
etcâ€¦),` Boustani told one of the unnamed accused via email in
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 $4.49m 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 $125m 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 $500m.
MAM projected its revenue would top $63m 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 $2bn 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 $5m
transferred into a bank account in Spain for his benefit.
And he was not alone. According to the indictment:
â€˘ Mozambican co-conspirator 1, identified as someone `involved
in obtaining the government`s approval for the Proindicus
project`, received at least $8.5m;
â€˘ Mozambican co-conspirator 2, identified as a relative of a
senior official in Mozambique, received at least $9.7m; and
â€˘ Mozambican co-conspirator 3, identified as senior official in
Mozambique`s ministry of finance, received at least $2m.
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
At the time the International Monetary Fund (IMF) was working with
the Mozambican government to rehabilitate the economy. When the
$2bn 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
Keeping up with the state capturers
So far the court papers filed in the US only includes 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 court.
Chang is scheduled to appear in the Kempton Park Magistrate`s
court today. 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.