Will FRELIMO Betray the Mozambican People to Protect Its Own?

FRELIMO, Mozambique’s governing party, is at a historic crossroads. A party once known for the integrity of its leaders and its commitment to the welfare of all Mozambicans must choose: Pursue a lawsuit to recoup damages from the “hidden debt scandal” that will expose the role of Felipe Nyusi, its leader and the country’s president, in the corruption. Or scrap the suit to protect him.

The scandal arose from some $150 million Dubai-based shipbuilder Privinvest paid Mozambican officials to approve $2.1 billion in contracts to supply it with coastal patrol vessels, tuna boats, and a shipyard to maintain them. Privinvest kicked back $50 million from the deal to Credit Suisse executives in return for their arranging financing for the purchases. The loans they secured were not disclosed: either to the Mozambique parliament, as required by law, or to the IMF, as required under the terms of an IMF bailout loan. When the Wall Street Journal revealed them, donors cut funding, foreign investors pulled out, and the economy tanked.  

This hidden debt scandal may well go down as the most damaging corruption scam in modern history. According to a recent estimate by a team from Mozambique’s Centro de Integridade Pública and Norway’s Chr. Michelsen Institute, the damages from the scandal over the 2016-2019 period alone equals $11 billion, $403 for every man, woman, and child in Mozambique. At the same time, the World Bank ranks it as the world’s third poorest nation with a GDP per capita for 2020 of a little over $1200.

Mozambique’s only chance to recover the enormous damage the scandal has done is a civil law suit the government filed against Privinvest, Credit Suisse, and many of the individuals involved.  Privinvest has now countered. At paragraph 22.5 of its defense, the shipbuilder claims Nyusi was “fully aware of, and/or participated, in [the corruption], and indeed was at the heart of the matters now complained of by the Republic.”

The threat is now on the table. If Mozambique continues to press the suit, Privinvest will produce in excruciating detail evidence of Nyusi’s involvement. The only way to avoid the likely discrediting of the party’s ruling elite is for Mozambique to scrap the suit.

Will a party once led by the likes of Eduardo Mondlane and Samora Machel sell out the Mozambican people to maintain its grip on power? Will those party members who were their colleagues and those whom they inspired with their dream of a free and prosperous Mozambique stand up?

The trial of Mozambique’s “hidden debt case”: the omnipresent absence of Filipe Nyusi

As the corruption trial of the decade if not the century enters its fifth day in a Mozambique court, guest commentator Marcelo Mosse, editor and publisher of the independent online outlet Carta de Mozambique, notes that the presence in the courtroom of a very large elephant remains unremarked. During the first days of the trial, witnesses have identified those responsible for a scheme saddling one of the world’s poorest nations with $2.1 billion of debt and driving millions into poverty. Mosse explains that the culprits have been identified by name and by the office held when the scheme was hatched and executed. With one exception. His own translation of his commentary from Carta de Mozambique on the significance of that exception is below.

Almost 20 years ago, at the time of the trial of the murder of journalist Carlos Cardoso, Mozambican society witnessed a judicial process that hit the presidential family to the core, due to the suspected involvement of Nyimpine Chissano [son of the then president] in the crime. This involvement was never proven. However, incriminating “nuances” of various kinds remained engraved in the imagination of the Mozambicans.

In addition, the trial was conducted within a tacit agreement among the interveners: everything was acceptable, except directly tweaking [then president] Joaquim Chissano. Bringing his name out at the hearings was like striking at the heart of the State, shattering our Mozambicanity, emptying the last stronghold of the beloved homeland, draining out its blood. Although the son ended up somewhat hit by the unraveling of his calls, the father, Joaquim, came out unscathed. Mozambicans would not be the ones to bury their own Father, even if hostile forces wanted to. Moreover, the administration of Justice was able to achieve this desideratum.

Twenty years later, history repeats itself, with the due distinctions of circumstance. The first four days of the trial of the “hidden debts” showed that we are facing the same tacit understanding: no one has yet mentioned Filipe Nyusi‘s name, but everyone mentions the Minister of Defense at the time. However, nobody asked for the name of the Minister at the time. Neither Judge Baptista nor the prosecutor Sheila Marrengula. Much less the Bar Association [participating in the case as assistant to the prosecution].

The Bar Association demanded that the former Minister of Finance, Manuel Chang, be required to come and testify as a declarant. The request followed several mentions made by the defendants Cipriano Mutota and Teófilo Nhangumele about his presence in decision-making meetings on the coastal protection project for which some of the debt was incurred.

However, just as Chang’s name was mentioned, the Minister of Defense was also mentioned several times, but never by name. We emphasize: no one wanted to know the name of this minister, much less his role in the various meetings where he would have been invested with his decision-making power on the subject. Several ministers of the time were addressed by name; the former President of the Republic, Armando Guebuza, was as well.

Why has no one mentioned Nyusi by name? Neither the judge nor the prosecutor asks about the role of this so-called Minister of defense. Why? That is the question.

The trial is still in its beginning stages. And our assertion may be refuted as the days go by, especially with the long awaited testimony of Antonio do Rosário, the second “mastermind” of the default. It is very likely that he will call a spade a spade. However, this taboo regarding Filipe Nyusi’s name shows that ultimately, and as we wrote a few days ago, we are facing the ultimate trial of Guebuzaism. And Nyusi will probably get off without being tweaked. Nyusi is still the President of Mozambique.

 Editor’s note: The trial is live streaming on Mozambican public television. Links here and (Facebook link) here. Excerpts can viewed on YouTube by searching “television moçambique dividas ocultas.”

Mozambique Hidden Debt Case: South Africa Must Say Why It Thinks Chang Will Face Justice; Trial Summary

Earlier today, August 27, the South African High Court blocked the extradition of former Mozambican Finance Minister Manuel Chang to Mozambique.

The order (here) came in response to an urgent request (here) by the Forum De Monitoria Do Orçamento, a coalition of Mozambican civil society groups, raising serious doubts that were Chang, a senior member of Mozambique’s ruling party, returned he would face justice for his part in a scheme that drove millions of fellow citizens into poverty and cost the impoverished nation billions of dollars in lost GDP (here).

The United States is also seeking Chang’s extradition for participating in the hidden debt scheme, and there is a widespread belief he is far more likely to face justice if extradited there.  South African law bars the government from picking Mozambique over the United States if it does not think Change will be tried, or if tried, the trial will be anything more than theatre. The court has ordered South African Minister of Justice and Correctional Services Ronald Lamola to produce the documents justifying his choice of Mozambique by August 30. A hearing on the decision is set for September 17. If the court finds the evidence supporting the decision insufficient, “irrational” in South African legal terms, it will vacate the extradition order.

Separately, Centro para Democracia e Desenvolvimento, a Mozambican civil society organization and FMO member, has released English language summaries of the first four days of the hidden debt trial.  Click on the day to see: Day 1, day 2, day 3, day 4.

Mozambique Hidden Debt Scandal UPDATE: Two Presidents Implicated/Crony’s Return Temporarily Blocked

The government of Mozambique took two hits at the second day of what could well be the corruption trial of the decade. Defendant Cipriano Mutota, a former intelligence official, testified that both the country’s current president and his predecessor were deeply involved in the corruption, a scheme where officials approved $2.1 billion in secret loans for dodgy projects in return for $150 million in bribes. His gripping testimony, captured in a screen grab circulating on Mozambican social media, appears below.

Separately, the Budget Monitoring Forum, or FMO after its initials in Portuguese, has filed an emergency motion to prevent South Africa from extraditing Manual Chang, who signed off on the loans as Finance Minister, to Mozambique. Chang has been jailed in South Africa for two years pending the government’s decision on whether to extradite him to the U.S. or Mozambique. Both want him, the U.S. because American investors lost millions thanks to the secret debts, Mozambique to stand trial for his role in the corruption.

Screenshot, Hidden debt trial, August 24, 2021

The government of South Africa has agreed to delay returning Chang to Mozambique pending a hearing on its legality Friday at 10:00 AM. Along with South Africa’s Minister of Justice, the government of Mozambique will appear and argue in support of the decision. FMO’s draft order, which the court accepted and issued, is here.

FMO filed the emergency request Tuesday evening after the South African government refused to consent to a brief delay in Chang’s return to allow an orderly consideration of whether the decision complied with South African and international law. In its filing, the group, an umbrella organization whose 22 civil society organizations serve virtually every impoverished or low income Mozambican, argues that the evidence shows the government will not really put such a senior figure on trial for corruption. Or if it does, he will get a most a slap on the wrist for a scheme that threw millions into poverty and by one estimate shaved $10 billion off the GDP.

FMO cites a previous Mozambique extradition request (here) that had every appearance of a put-up job, initiated not to bring Chang to justice but from a fear that were he sent to the U.S. he would spill the beans on cronies in return for leniency. Rumors circulating in Maputo that Chang’s relatives have planned a lavish welcome home party have only stoked concerns he has little to fear from a trial in Mozambique.

FMO chair Adriano Nuvunga has called South Africa’s decision to send Chang to Mozambique, “a victory of impunity” and has urged “all southern Africa CSO movements to come together to stop the triumph of impunity.” FMO’s papers seeking a temporary delay in Chang’s return pending a full hearing are here. The Gauteng Division of the High Court may act on the request as early as Wednesday morning South African time.

A Welcome Analysis of Where Mozambique’s Goats Eat

To say that a successful attack on corruption begins with a political economy analysis is commonplace.  To declare that absent such an analysis of the political, economic, and social conditions that foster a particular type of corruption, an anticorruption policy has little chance of succeeding is hardly remarkable.  What remains noteworthy is in the two decades plus since the global war on corruption began how few such analyses have been done.

Of the more than 7500 entries in Matthew’s corruption studies bibliography, titles of fewer than 50 indicate a political economy focus. The corruption and development “gray literature,” reports on corruption in developing nations commissioned by donor organizations, is little better.  Perhaps a larger number of studies, but few quality ones, and perhaps surprisingly, a real dearth of analyses of petty corruption, the kind that citizens of developing nations, most often the poor, regularly encounter in their daily life.

That’s why it was a pleasure to discover Inge Tvedten and Rachi Picardo’s recent study of where Mozambican goats eat.  The Mozambican expression cabrito come onde está amarado (“goats eat where they are tied up”’) refers, as they explain, to the two-legged species rather than the four-legged one.  The kind that exploit their place in government to enrich themselves, friends, and supporters.  The two draw upon years of accumulated research to show how, in a variety of thickly described situations, “a set of structuring principles and common schemes” lead to the “internalization” or “embodiment” of corruption.  (Others might term the principles and schemes “institutions” and internalization or embodiment a “Nash equilibrium.”) An especially thought-provoking example is how traditional norms of deference to authority figures interacts with the way the District Development Fund, a program to help the poorest, is managed to keep beneficiaries marginalized.

Whether hunting for how to deprive a greedy Mozambican goat of nourishment or for a first-rate example of political economy analysis of petty corruption, readers will profit from perusing Tvedten and Picardo’s article.

Recovering Damages for Mozambican Victims of the Hidden Debt Scandal: Possible Suits in the United Kingdom

A recent post explained that Mozambicans harmed by the corruption behind the “hidden debt” scandal may well be able to sue the perpetrators for damages in the courts of many nations.  Mozambique, where the harm was suffered, and most probably France, Lebanon, Russia, Switzerland, the United Arab Emirates, and the United Kingdom, countries where one or more of the alleged perpetrators is located or does business.  The legal basis would be article 35 of the United Nations Convention Against Corruption.  It requires convention parties to open their courts to actions by corruption victims against “those responsible” for the corruption “in order to obtain compensation.”

The U.N. Office of Drugs and Crimes reports that all 187 parties accept the principle of compensation for corruption.  Suits for corruption damages are a relatively recent development, however, and in its latest review of the convention’s implementation, UNODC explains that establishing causation and proving damages remain to be elaborated through application of parties’ domestic law principles governing harm caused by intentional acts.  At the same time, it noted that in corruption damage cases article 35 mandates that these principles be interpreted broadly.  There need be no direct interaction between the perpetrators of corruption and the victim; nor is recovery limited to cases where the perpetrators foresaw the injury the victim would suffer.

In a just released paper, London barrister James Mather shows how English law would apply to claims Mozambicans brought for hidden debt damages in the United Kingdom. He opines that recovery could be had on the basis of an unlawful means conspiracy and perhaps too on the tort of bribery and dishonest assistance.  English law, he writes, incorporates the liberal principles of causation of damages enshrined in article 35. “The approach to the award of damages for conspiracy in particular is quite liberal in English law and extends to losses which cannot be strictly proved.”  English law also offers Mozambican claimants a procedural advantage.  Rather than each person having to file a separate suit, a group action could be filed with a single claimant suing on behalf of all those who suffered a similar injury.

Mather, a distinguished member of Serle Court in London, cautions that while based on what has been reported it would appear Mozambicans injured by the hidden debt scandal could recover damages in the United Kingdom, much factual research is required to be sure. His paper is an important step forward in seeing that those who suffered enormous harm thanks to the corruption behind the hidden debt scandal are made whole by the perpetrators.  Click on Mather paper to download a copy of his first-rate analysis.

Civil Damage Actions for Corruption: Possibilities Offered by the Mozambican Hidden Debt Scandal

The April 2016 disclosure that Mozambican officials accepted large bribes to secretly guarantee hundreds of millions of dollars in loans wreaked enormous damage on the nation’s economy and its citizens. The “hidden debt” scandal caused economic growth to plummet and donors to freeze funding, forcing the government to make deep cuts in public spending (media accounts here, here, here, and here; selected GAB posts here, here, and here).

The Mozambique government has brought a criminal action against a number of the alleged perpetrators in its own court (Mozambique indictment) and filed a civil suit for damages against others in the London High Court (Mozambique complaint).  So far, though, no citizen has filed an action for the harm hidden debt scandal caused them.

In a recent paper, “Civil Suits for Damages by Mozambicans Harmed by the Hidden Debt Scandal,” I consider who in Mozambique might be able to bring a damage action, for what and where, and the additional legal and factual research required before one or more more suits are filed. Comments welcome.

Will Hosting the UNCAC Meeting Prompt the UAE to Comply with the Convention?

The largest, most important anticorruption conference of the year is underway this week in the United Arab Emirates. Formally known as the eighth session of the Conference of States Parties to the United Nations Convention Against Corruption, the 186 nations that have ratified UNCAC are convening to examine how they can strengthen the fight against corruption.  They have not said why they chose to meet in the UAE, a collection of seven tiny, wealthy monarchies.  Perhaps it is because the Emirates’ location on the eastern end of the Arabian Peninsula makes it an easy place to reach from anywhere on the globe. Or perhaps it is because of its top-notch conference facilities and first-rate restaurants and hotels.

Or perhaps something more subtle is at work.

It’s no secret that the UAE and the governments of its seven federated emirates, especially Abu Dhabi and Dubai, have repeatedly flouted their UNCAC obligations.  In researching The Despot’s Guide to Wealth Management, author Jason Sharman was told by staff from the World Bank/UNODC Stolen Asset Recovery Initiative, the IMF, and the governments of Switzerland and the United States that “the UAE and particularly Dubai . . . were the leading haven for international corruption funds,” a conclusion Susan Hawley confirmed on this blog, writing that an “increasing numbers of corrupt money trails lead” to the UAE. Mozambique’s Prosecutor General reports that the UAE has stonewalled her request for help in prosecuting the accused in the “hidden debt” scandal, and evidence presented in the recently concluded U.S. trial of one of the accused revealed numerous violations of its anticorruption laws that the UAE has ignored.

Perhaps the other 185 parties to UNCAC hope that holding the meeting in the UAE will persuade its government to finally meet the nation’s obligations as an UNCAC party. Five indicators of whether their stratagem is succeeding: Continue reading

Don’t Believe the Spin on the Mozambican Acquittal

The jury in the federal criminal trial in Brooklyn of  Jean Boustani acquitted him December 2 of charges arising from a scheme to pay Mozambican officials tens of millions of dollars in bribes in return for the government borrowing hundreds of millions of dollars to pay for ships it could not afford. No sooner was the verdict announced than Privinvest — Boustani’s employer, the supplier of the ships, and a major beneficiary of the scheme — crowed it had been completely vindicated.  Despite evidence produced at the trial, charges pending in Mozambique, and allegations in a civil action in the United Kingdom, Privinvest lawyers are telling the press the acquittal proves the company had no part of the scheme.  That it did not pay bribes to win the business.

If it were true the company paid no bribes, three Credit Suisse executives would not have pled guilty to accepting bribes from it in the same court where Boustani was acquitted. Nor would they have named its CEO Iskander Safa, CFO Najib Allam, and Boustani as bribe payers (here). Nor would a trial witness have explained that Government Exhibit 2758, an April 2014 e-mail from Boustani to Allam, is a list of bribes the company paid Mozambican officials.  A list that includes President Filipe Jacinto Nyusi (“Nuy” in the e-mail), former Finance Minister Manuel Chang (“Chopstick”), and former intelligence chief António Carlos do Rosário (“Ros”). (Complete decoded list here.)

No, the verdict of acquittal does not exonerate Privinvest.  Nor anyone else for that matter.  What it shows is two things.

Continue reading

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