COLUMN | Accountability: Mozambique, Privinvest and the Tuna Bond convictions; Glencore’s ex-oil traders charged with criminal bribery in London [Offshore Accounts]

The last ten days have finally seen at least some closure in one of the longest running and largest embezzlement and corruption scandals in African history, Mozambique’s Tuna Bond scandal, an epic tale of bribery, mismanagement and poor governance.

However, it also highlights reasons to be optimistic regarding Mozambique’s prospects as the sordid tale of bribes and self-enrichment has shown the country is willing to go after even members of the former presidential family, and jail them.

Would that other oil and gas rich kleptocracies could start to hold their rulers accountable.

The Tuna Bonds – canned history

Mozambique is a parliamentary democracy, but the same ruling party, Frelimo, has been running the country for the last 49 years since it gained its independence from Portugal in 1975. This means that checks and balances have been sorely lacking in Maputo.

In 2013, the country embarked on a US$2 billion borrowing scheme, allegedly to fund a fleet of tuna fishing vessels, a fish processing plant and naval interception craft. The boats were built by Privinvest shipyard, a UAE shipbuilder owned by the Lebanese-born entrepreneur Iskandar Safa and his brother.

Unfortunately, the government had not disclosed the existence of the massive debt to its other lenders, nor to the World Bank and the International Monetary Fund (IMF), even though Mozambique gave a sovereign guarantee that the state would repay the loans if the company that received the funding defaulted. The Mozambiquan navy and the state-owned tuna fishery were unable to maintain and manage the vessels, which were left neglected alongside the quay for want of fuel and crew. Of course, there was no cashflow to pay back the loans.

When the existence of the loans came to light in 2016, there was a full-blown financial panic in Mozambique. The national currency, the metical, halved in value against the US dollar, and the IMF and western governments cut off funding for Mozambique’s government budget. In a country where the gross domestic product per person was only US$690 in 2016, based largely on agricultural exports, the reduction in government funding led to a vicious recession and a 40 per cent fall in economic activity.

Even in 2023, Mozambique’s economy had barely recovered to 2016 levels.

A billion-dollar hole is too big to hide

Recriminations began immediately. At the instigation of the IMF, auditors looked into where the funds from the Tuna Bond loans had gone, and were shocked, shocked, to discover that US$500 million could not be accounted for. They were also shocked, shocked, that the state enterprises appeared to have paid excessively high prices for the equipment purchased for the fishery project and the fast patrol vessels. Who would have guessed?

The auditors were also surprised to discover that US$200 million of the loans had been used to pay bank fees. And you thought you had a problem with international charges when you used your card on holiday this summer!

Those investors who had bought the loans were also not at all happy, and these included crucial American investors, which gave the US courts the ability to act on the case. The investors thought they were buying bonds with a sovereign guarantee to support a new fishing industry, not to pay bribes and purchase ships and equipment that could not be used.

Investors holding US$622 million of the loans, including Banco Comercial Português and United Bank for Africa, immediately moved to sue Credit Suisse, Mozambique, and the government-owned company that received the funds raised by the loans in London in December 2020.

The size of the problem in such a poor country as Mozambique meant that it could not be brushed under the carpet, especially as oil and gas revenues are still much lower than hoped due to project delays. Legally, the government of the country – and therefore its taxpayers and population – were still obliged to service the unjustly incurred debts.

Now, some key protagonists finally received the legal consequences.

Finance minister faces two decades in prison

Last week, the country’s former Finance Minister between 2004 and 2015, Manuel Chang, was convicted of wire fraud and money laundering by a federal jury in New York after being extradited from South Africa last year. He is awaiting sentencing for receiving what prosecutors claimed was US$7 million of kickbacks from Privinest.

His lawyer said he will appeal the conviction and that he did not receive the alleged bribes. Mr Chang has claimed that the corrupt shipbuilding projects had been approved by the country’s then-president, Armando Guebuza. Mr Chang faces up to twenty years in prison now that he has been found guilty by a federal jury.

Privinvest faces US$825 million damages

According to the Mozambican government, Mr Safa orchestrated a vast chain of bribes to key politicians in Maputo to approve the deal. The government claimed that he paid at least US$136 million from 2013 onwards in bribes to obtain contracts and loans that were guaranteed by the Mozambican state. Therefore, the state sought to recover the funds from the shipbuilder in a lawsuit in the UK.

To add further closure, at the end of July, the High Court in London made a US$825 million award of damages against Privinvest. The High Court judge ruled “substantially in favour” of Mozambique’s claim that it had been defrauded in loans used to fund tuna boats and other maritime projects. Justice Robin Knowles also ruled that Privinvest must provide an indemnity for the remaining US$1.5 billion that Mozambique potentially still owes to banks and bondholders over the coming years, although there has also been a settlement here.

Iskandar Safa, who passed away earlier this year, had always denied all knowledge of any corruption associated with the contracts. Privinvest said it would appeal an “unfair and unjustified” ruling that it said it had been unable to defend itself properly because the current President of Mozambique, Filipe Nyusi, and his government, had not properly disclosed material documents about the case to the court.

In February, the English High Court had ruled that President Nyusi enjoys immunity due to his status as a sitting head of government. Privinest says it will sue him when he steps down as president next year.

The case will grind on, but these latest cases mean that many of the key players have faced judgement in court in London, New York, or Maputo.

The cases have taken time to reach trial and judgement – almost the same ten-year period as the Bourbon tax bribery cases in Marseille, which we covered last month. Still, better late than never.

What can we learn?

The Tuna Bond story has many salutary warnings for other developing countries, especially those about to embark on major oil and gas developments. We’re thinking especially of you, Senegal, Namibia, Guyana, Suriname, and Mauritania.

In 2013, Mozambique seemed to on the cusp of becoming a liquefied natural gas (LNG) producer after Anadarko had made a series of deepwater gas discoveries in the Indian Ocean. ENI has subsequently brought the Coral Sul Floating LNG facility into production, but both Total and ExxonMobil’s larger land-based facilities have not yet progressed after a devastating Islamist attack killed dozens in Cabo Delgado province in March 2021, including energy industry subcontractors. Until an operator can bring a project into production, discovered reserves sitting in the ground cannot service debts or pay for roads and schools; just ask the Falkland Islands, waiting more than a decade for its offshore oilfield to be developed, and still waiting.

However, not only do oil and gas revenues make countries vulnerable to that cash being syphoned off by the crooked, as we have seen in Venezuela, Nigeria and Angola, but oil and gas discoveries make it easier for governments to borrow. And borrowed money can also be stolen where governance is poor – this was the basis for the theft of US$4.5 billion from the state-owned 1MDB fund in Malaysia, which saw the nation’s prime minister, Najib Razak, jailed for 12 years for embezzlement in 2022 (a sentence halved this February), whilst the scheme’s mastermind, one-time Cypriot golden passport holder Jho Low, is still at large.

The role of banks

Swiss bank Credit Suisse (now part of the UBS Group) and the Russian bank VTB arranged, facilitated, and provided funds for the two loans totalling over US$2 billion to finance the so-called marine security project and the creation of a tuna fishing fleet to work within Mozambican waters, as well as an onshore fish processing plant. 

If you think investment bankers are selfish, greedy, and immoral individuals, the English High Court ruling provides much support for that view. In the ruling against Prinvinest, Justice Knowles highlighted that the bankers involved in the Tuna Bond project looked at what “banking could make out of Mozambique” and that the banks involved pushed through the Tuna Bond project despite red flags regarding corruption and low internal standards of project review.

The Financial Times has reported how three former Credit Suisse bankers who had arranged the loans pleaded guilty in 2019 to handling the bribes. A Brooklyn jury acquitted Jean Boustani of Privinvest at the same time. Mr Boustani was the company’s head salesman and he claimed he had never visited the US, had never lied to investors, and had no involvement in the sale of the bonds, but he did not deny that he had paid off Mozambican officials.

Mozambique had sued Credit Suisse in 2020, but settled with the bank’s new parent company UBS in late 2023, before the trial started. The bank separately paid US$475 million in fines in the United States and the UK to settle criminal charges. The Swiss bank pled guilty in a federal court in Brooklyn in 2021 to a single charge of conspiracy to commit wire fraud. Credit Suisse agreed to waive part of the Mozambican debt in 2021.

Credit Suisse’s multiple bad lending decisions and lack of professional standards led to the bank nearly collapsing in 2023. Mozambique also settled with Russia’s VTB over its involvement, but the terms do not appear to have been made public.

The role of the Mozambican political elite

Of course, Privinvest and the Credit Suisse and VTB bankers did not work alone, and nor was Mr Chang the sole “bad apple” in the barrel. The IMF made it a condition of further loans and support that the country pursued the malefactors within the government who had been involved in corruptly proposing and illegally financing the project in secret.

In December 2022, Armando Ndambi Guebuza, the son of former president Armando Guebuza, Mr Nyusi’s predecessor as head of state, was sentenced in court in Maputo to 12 years in prison for his role in receiving bribes to advocate the project and for criminal conspiracy.

The country was rapt to live broadcasts of the trial as he appeared in court in orange prison coveralls. The prosecution claimed that Mr Ndambi Guebuza had acted deliberately “to exert influence on his father” the president and get the government to approve the purchase of the naval and fishery vessels. He was found to have taken a US$33 million bribe that went to satisfy his “desire for luxury” which he spent on luxury cars and a mansion in South Africa.

Two former heads of Mozambique’s intelligence agency, General Director Gregorio Leao and head of the economic unit, Antonio Carlos do Rosario, were also convicted of embezzlement and abuse of power, along with eight other state officials. They received between ten and twelve years in prison apiece.

Corruption as a power play

Critically, the corruption case marked a settling of accounts in Maputo within Frelimo between factions aligned with the current and the past head of state – just as it was in Angola, when the adult children of former president Eduardo dos Santos were convicted of various shady schemes by the dead president’s successor in Luanda. Isabel dos Santos may fume against the Angolan government from her luxury serviced home in Dubai, but she has her freedom at least in the Bulgari Residences.

Many defendants in the Mozambique corruption case gave testimony in the trial that President Nyusi himself was involved in the approval of the Tuna Bonds, and by implication may have received, er, benefits. However, the Mozambican judge presiding over the case rejected their statements, and ignored the evidence they presented in court in Maputo. So often, transparency, political struggles, and corruption cases are intertwined.

Whilst questions remain about Mr Nyusi’s involvement, the conviction of Mr Chang and the former president’s son do mark another landmark in accountability.

Off the hook for the unjust debt?

Happily, the country has also reached a settlement to remove the unjust debt from its books.

Last month, Bloomberg reported that Mozambique has agreed to pay creditors including VTB Capital and Banco Comercial Português a US$220 million settlement to waive the US$1.4 billion that was owed on the bonds as interest continued to be charged after the country defaulted on payment. The Mozambican Finance Ministry said that coming after the VTB and UBS settlements, a total of US$2.3 billion in loans has been wiped away.

Notably, US$50 million in legal fees had been wracked up by the creditors.

No comment.

Glencore case shows others prefer to ignore corruption

The contrast between the accountability in Mozambique and what has gone on in the Glencore bribery case is stark.

Back in 2022, we noted that in Glencore had been fined a total of around US$1.5 billion for bribery and corruption over several years around 2010 in multiple jurisdictions in Africa. At the time, we observed that the fine was a drop in the ocean for a company that earned that sum every two months as profits, and that until the individuals paying and receiving the bribes were held to account, there was no real incentive to change.

Finally, that has now happened.

Billionaire trader to appear in court for paying bribes

At the start of this month, the Serious Fraud Office (SFO) in the UK announced that it had charged Glencore’s extremely wealthy former-head of oil, Alex Beard, and four other former colleagues with conspiring to make corrupt payments in Nigeria and other oil-rich African countries. We should stress that this is a simply a charge, not a conviction.

The media has reported that Mr Beard is an actual billionaire having run the London-listed company’s oil trading division from 2007 up until 2019, when he retired. Alongside Mr Beard, former Glencore oil division employees Andrew Gibson, Paul Hopkirk, Ramon Labiaga, and Martin Wakefield will also face corruption charges in Westminster Magistrates’ Court on September 10.

Mr Beard faces two counts of conspiring to make corrupt payments to government officials and officials of state-owned companies in Nigeria between 2010 and 2014 and in Cameroon between 2007 and 2014. Mr Gibson and Mr Wakefield are accused of conspiracies to make corrupt payments to officials in Nigeria, Cameroon and the Ivory Coast at various times in the period from 2007 to 2014, and for falsifying documents.

Mr Hopkirk and Mr Labiaga are charged with one count of conspiring to make corrupt payments to Nigerian officials between 2010 and 2014.

On Friday last week, the SFO said it was preparing to make indictments against two additional people, who live outside the UK, but who have also been asked by the agency to attend court in London with the other defendants on September 10 to answer written charges.

Where are the cases in Nigeria, Cameroon and Ivory Coast?

But where are the cases against the people receiving the bribes in their own countries?

The Tuna Bond scandal in Mozambique showed that bribe-paying also means bribe-taking. The SFO has acted against the former Nigerian oil minister, Diezani Alison-Madueke, because she owned a mansion in London. We emphasise that she has only been charged, and has not been convicted of any crime in the English courts.

But within Abuja, Abidjan, and Yaounde, no measures appear to have been taken against those who received any payments from Glencore, even though Glencore has been fined for paying those bribes, and whose former staff will now stand trial for their alleged involvement in that corporate wrong-doing.

Until countries like Nigeria, Cameroon, and Ivory Coast are willing to put their own officials on trial in orange jumpsuits like Armando Ndambi Guebuza, and to issue Interpol Red Notices against the relatives of even the former head of state, as Angola did against Ms dos Santos, nothing is going to change.

The Tuna Bond scandal was devastating to Mozambique, but not prosecuting bribe takers and not being willing to investigate even the presidential family for corruption is even more devastating. It is a sign that countries like Nigeria, Ivory Coast, and Cameroon are not ready to change and will remain mired in under-development and poverty until they can enforce the rule of law against even their own officials.

In the longer term, bribery, embezzlement, and procurement fraud destroy countries. Transparency and accountability in oil and gas producing states are sorely needed. Let’s see what happens in court in Westminster next month.

Background reading

Whilst Manuel Chang languishes in jail in New York, other leaders in West Africa maintain their impunity. Whale Hunting has been tracking the private jet movements of Equatorial Guinea’s, er, flamboyant vice president Teodorin “Teddy” Obiang Nguema, who is also the son of the oil-rich nation’s president / dictator – his father has ruled the island since 1979.

Our 2021 coverage of the Tuna Bonds is available here.