No More Mozambiques! No More Hidden Debts!

Surely the most egregious corruption offense of the decade is Mozambique’s “hidden debt” scandal.  According to a January U.S. indictment, executives of the Lebanese shipbuilding company Privinvest and Swiss banking giant Credit Suisse paid senior Mozambican officials tens of millions of dollars to approve loans to finance a coastal protection service, a tuna fishing fleet, and a shipyard to maintain the vessels.  The scam produced little more than a cluster of overpriced boats rusting in the Maputo harbor while saddling the citizens of one of the world’s poorest countries with billions in debts they cannot repay.

The key to the scam was the debts were incurred without the executive telling auditors, the parliament, or citizens.  As Mozambique’s Constitutional Court recently affirmed,  Mozambique law requires the disclosure and parliamentary approval of government debt.  Part of the bribe allegedly went to ensuring then Minister of Finance Manuel Chang and his accomplices would keep the debts secret. It will take years to repair the damage done by these hidden debts.  Full recovery may never be realized.

One scandal is enough.  The international community must make ending “irresponsible lending” a priority.  At a July conference the Open Society Initiative for Southern Africa held in Johannesburg, I was on a panel that discussed what can be done to end hidden debts.  While the other members, all from borrowing countries, offered measures borrowers could take, I advanced five that financial regulators in the countries where private lenders are located should take.  Largely stolen from a paper by Tim Jones of Debt Jubilee Campaign and a forthcoming Illinois Law Journal article co-authored by Fordham Law Professor Susan Block-Lieb and University of North Carolina Law Professor W. Mark C. Weidemaier, they follow.  Comments welcome. Continue reading

Corruption Damages: Options UNCAC Offers Mozambique to Recover “Hidden Debt” Losses

Mozambique continues to suffer from the “hidden debt” scandal, loans a U.S. indictment alleges employees of Credit Suisse, Lebanese shipbuilder Privinvest, and others foisted off on it for dodgy projects through bribery.  Damages include not only the several billion dollars that, thanks to accrued interest and penalties, the government now owes on the original loans of $2.2 billion, but the enormous harm caused by a halt in donors’ disbursements and the resulting slowdown in growth when the scandal was revealed. The whole sorry affair could cost the people of Mozambique upwards of $10 billion, a staggering sum for a country with a total GDP in 2017 of little more than $12 billion. 

Fortunately, Mozambique does not have to absorb the loss. As party to the United Nations Convention Against Corruption, the government can directly recover much if not all of it through article 53.  Article 53(a) requires the other 185 Convention parties to grant it the right to file a civil action to recover property acquired through the offences defined in the Convention.  Article 53(b) directs the other 185 to establish procedures permitting their courts “to order those who have committed offences [established in accordance with the Convention] to pay compensation or damage” to another party injured by the offence.  

Based on the allegations in the U.S. indictment, Mozambique could likely initiate or prompt proceedings to recover assets or recover damages in at least six nations, all parties to UNCAC: France, Lebanon, the Netherlands, Switzerland, the United Kingdom, and the United States. Indeed, thanks to a precedent setting decision by its highest court, Mozambique civil society might itself be able to recover damages in a French case independent of any action by the Mozambican government.  

These options were discussed at a May 14 conference sponsored by the Centro de Integridade Pública.  They are elaborated on in this follow up paper I prepared for CIP after the conference.   

Mozambique’s Hidden Debt Scandal: Noose Tightening Around Credit Suisse and Privinvest?

Mozambique has sustained enormous damage thanks to the “hidden debt” scandal.  The 2016 revelation the government had guaranteed $2.2 billion in loans for projects of little or no value led donors to freeze disbursements, slamming the brakes on the economy and leaving many stuck in poverty.

Press accounts and indictments issued in Mozambique and the United States blame the scandal on Jean Boustani, an executive with Privinest, a Middle Eastern shipbuilding firm; three now ex-employees of Swiss banking giant Credit Suisse; and Mozambican officials Boustani and the bankers allegedly bribed. Privinvest has denied involvement in the scheme as has Boustani. Credit Suisse claims the employees evaded its elaborate controls meant to keep it from becoming enmeshed in such schemes.

Thanks to a surprise development Monday, Privinvest and Credit Suisse may find it harder to continue ducking responsibility for the corrupt, fraudulent scheme and the massive harm it inflicted on Mozambique.  Continue reading

Mozambicans To Credit Suisse: Make Good on Crooked Debt

Credit Suisse’s complicity in the $2.4 billion corruptly lent to the Mozambican government dampened festivities at its April 26 annual shareholders’ meeting.  While shareholders celebrated receipt of a fat dividend, a representative from Mozambique reminded them that some of this money comes at the expense of the citizens of Mozambique – 28 million persons, most desperately poor, saddled with repaying loans foisted off on their government through corruption.  Three senior Credit Suisse employees have been indicted for their role in the scheme, one Credit Suisse management (rewarded with a hefty pay hike at the meeting) claims cleverly circumvented its controls preventing unlawful deals.

The statement to shareholders, delivered by a representative of the civil society organization Fórum de Monitoria do Orçamento (FMO, budget monitoring forum in English), asks Credit Suisse to support restorative justice to atone for its role in the Mozambican debt crisis.  To this end, Credit Suisse is asked to: i) accept accountability for its actions in the debt issue;  ii) commit to return to Mozambique all proceeds from the Mozambican Illegal debt scandal; iii) collaborate with authorities to ensure that all responsible parties are held accountable for their roles in the scandal; iv) write off outstanding debt arising out of debt crisis; and v) help ensure the people of Mozambique do not have to make good on debts they had no part in incurring and which did nothing to benefit them.

Full text below; video here (at 2:18:50 –  2:28).

Continue reading

Mozambicans Ask: Will the United Arab Emirates Enforce UNCAC?

The United Arab Emirates faces the first serious test of its commitment the United Nations Convention Against Corruption.  Will it open a case against long-time resident Jean Boustani, who the U.S. Justice Department says masterminded the bribery scheme that robbed the people of Mozambique of some $2 billion.  The “Mozambican hidden debt” scandal pitched the nation into a deep recession, depriving thousands of basic necessities and leaving government without the resources to respond to Cyclone Idai

In its latest submission in its case against Boustani, the Justice Department reveals that much of the bribery scheme was carried out in the UAE. Boustani helped one co-conspirator open an account in a UAE bank to stash bribes, facilitated the travel of others to the UAE to further the bribery scheme, and secured UAE employment permits for three under false pretenses.  Each permit, says the Justice Department, “falsely stated that the [accomplices] professions were ‘petrol engine mechanic,’ ‘diesel engine mechanic,’ and ‘hydraulic mechanic.’”  In fact, the Justice Department told the court in its filing, “all three were members of the conspiracy who would receive millions of dollars of bribes and kickbacks for their roles in the scheme.”

The Justice Department’s charges against Boustani and accomplices are here. To view the Justice Department filing describing Boustani’s alleged violations of UAE law, click on DoJ Boustani filing .  To view the e-mails and other documents that support the Department’s narrative, click on evidence of UAE offenses.

Mozambican citizens have suffered a terrible wrong, one which UNCAC is meant to right.  Will UAE authorities do their part to help right that wrong?  Will the UAE live up to its obligations under the UNODC to prosecute those who pay bribes? Those who flagrantly violate other of its laws as part of a bribery scheme?

Who Will Get to Prosecute Mozambique’s Former Finance Minister for Corruption?

Manuel Chang must surely feel special these days. He is the first former Minister of Finance in history (or at least that history recorded on the internet) whose is being sought for corruption by two countries. As explained here, Chang was arrested in South Africa December 30 at the request of American authorities who are seeking to extradite him to the United States. Two weeks later, Mozambique filed its own extradition request.  Both countries want to bring him to trial for offenses arising from his alleged corrupt approval of government guarantees for loans taken out by state-owned firms while minster.  The companies have defaulted on the loans, costing the impoverished nation (GNI per capita $1200) as much as $2 billion and throttling the economy.

Which country will get to prosecute Chang will turn on how South African authorities construe recondite provisions in South Africa’s extradition agreements with the United States and Mozambique.  As obscure as the provisions in the two are, how South African authorities choose to interpret them will remain anything but.  For their interpretation will have significant consequences for the global fight against corruption. Continue reading

The Promise – and Risk – of Internationalizing the Corruption Fight: Prosecuting the Mozambique Loan Fraud

Manuel Chang, Mozambique’s longest serving Finance Minister, has just lost the first round in his attempt to duck U.S. charges he defrauded the Mozambique people out of some $2 billion.  A South African Magistrate ruled January 9 that Chang’s December 30 arrest in South Africa, requested by the U.S. Justice Department, was valid.  Assuming South Africa stands firm in the face of legal maneuvering by Chang and political pressure by the Mozambique government, Chang will join accomplices in a Brooklyn jail to await trial for corruption.

That the corruption trial of a former official of the one of the world’s poorest nations will be held in the courts of one of the world’s wealthiest and that whether there will be a trial turns on the strength of a third country’s legal system and the political resolve of its government shows both the promise – and the risk – of the internationalization of the fight against corruption. Continue reading