Mozambique’s $2bn scandal with shipping company Privinvest and Credit Suisse

By Olivier Holmey
Posted on Tuesday, 20 April 2021 11:49

Armando Guebuza (left) and Filipe Nyusi (right), former and current Mozambican presidents respectively, with Iskandar Safa (centre), CEO of Privinvest. JA editing: CARL COURT/AFP; Andrew TESTA/PANOS-REA; Henry Nicholls/REUTERS

For many months, Mozambique has been trying to avoid arbitration regarding its so-called 'hidden debt' scandal. But on 11 March, both Geneva and Zurich’s private courts obtained jurisdiction to examine the complaint filed by Mozambique against Privinvest, the shipbuilding company at the heart of the scandal. We accessed the files of the parties on trial, which could potentially implicate many people.

Maputo has battled for many months to avoid the arbitration scenario. In the London Court of Appeal, Mozambique’s lawyer Nathan Pillow pleaded at length for “justice to take place in the open and not behind closed doors.”

Now that Geneva and Zurich’s private courts have gotten hold of the complaint filed by Maputo against Privinvest, the case is expected to be settled outside the courts despite the general public’s interest in this affair. This includes accusations of corruption levelled against the highest levels of the Mozambican government and which has kept the country and its creditors on tenterhooks for six years already.

It has also fuelled allegations of international arbitration, which is considered an alternative form of justice that settles disputes in secret.

Despite this decision, two trials are still pending in London’s High Court.

  • One concerns Mozambique’s charges against Privinvest’s boss – the Franco-Lebanese billionaire Iskandar Safa – and three companies affiliated with Privinvest, as well as Credit Suisse and three former employees of the bank.
  • The other concerns the complaints of some creditors, including the Russian investment bank VTB Capital, against Mozambique.

In both cases, several depositions are still expected this year, which means that the first hearing will take place – at the earliest – towards the end of 2021.

From the files already compiled, these trials promise to shed a harsh light on this state scandal which, despite judicial investigations in the US and Mozambique, is still far from having revealed all its secrets.

Arms purchases

To understand this affair, we must go back to 2013. Mozambique’s former President Armando Guebuza was laying the groundwork for a vast programme to develop the fishing industry, a key sector for this coastal country. Three dedicated state companies were created: Mozambique Asset Management (MAM), Empresa Moçambicana de Atum (Ematum) and ProIndicus, which in turn subcontracted the project to Privinvest, a private company based in Beirut and Abu Dhabi.

MAM took out a $540m loan, via VTB Capital and others, to finance the construction of the shipyards. Ematum borrowed $850m from the bond market through Credit Suisse and VTB to finance the creation of a fishing fleet, while ProIndicus borrowed $622m from these same two banks to finance the deployment of coastguards to curb piracy and illegal fishing. The Mozambican government approved all of these loans.

These transactions quickly became the subject of intense controversy. In 2015, Ematum investors suspected that part of their money had been used to purchase arms, contrary to the conditions of the loan, and the following year they discovered that ProIndicus had also taken out a loan. This hidden debt seriously damaged Mozambique’s reputation on the financial markets, forcing the IMF to withdraw funding which inevitably contributed to the collapse of the country’s currency.

None of the protagonists have gotten off lightly

All of this occurred against a backdrop of accusations of widespread corruption. In order to secure its participation in the project, Privinvest is said to have issued huge bribes to Credit Suisse bankers and the Guebuza administration.

The London files, which we were able to consult, reveal an avalanche of accusations and counter-accusations, from which none of the protagonists have gotten off lightly.

In particular, Mozambique has accused its then finance minister, Manuel Chang, of taking at least $5m in bribes following a September 2013 meeting with Safa at the latter’s residence in southern France.

According to Mozambique, Safa also arranged transfers to several people close to President Guebuza, including his personal assistant and oldest son.

The bribes and kickbacks amounted to at least $136m, according to the complaint filed by the Mozambican government.

President Nyusi destabilised

Remarkably, Privinvest does not deny making these transfers. In its statement, prepared by Signature Litigation, the company goes even further and states that Chang actually received not 5, but $7m.

It nevertheless asserts that these were perfectly legal payments that were used for electoral campaigns and genuine commercial projects. Privinvest denies any attempt to bribe the country’s authorities in order to win the public contract.

According to Privinvest, President Filipe Nyusi – who has been in power since January 2015 – denounced this flagship project of the Guebuza administration in order to damage his predecessor’s reputation. The aim of this manoeuvre was to oust Guebuza from the Frelimo political party, of which they both wanted to control.

But Mozambique’s complaint, which was carried out with the help of the law firm Peters & Peters, could backfire on the country’s current President. According to the court file, Privinvest claims to have put $1m into Nyusi’s Emirati bank account in April 2014, and to have also helped him purchase a Toyota 4×4 in July of that same year.

According to Privinvest, if the transfers to the former president’s entourage were criminal in nature, as the Nyusi administration claims, then the transfers to the current president are just as criminal. This is a clever argument that risks destabilising the plaintiff and further extends the scope of potential wrongdoers.

Litigation worth several hundred million dollars

Three former Credit Suisse bankers in Mozambique – Andrew Pearse, Surjan Singh and Detelina Subeva – are also implicated. Pearse admits to having accepted $45m from Privinvest but claims it was not a bribe. Singh admits to having received $5.7m in kickbacks from Privinvest to secure the Swiss bank’s participation in the project. Subeva denies having received any bribe.

Safa’s company confirms that it did not transfer any money to her, but says it has since discovered that Pearse, who is her boyfriend, allegedly paid her $2.2m in 2013.

Credit Suisse, which is also accused of having taken part in this conspiracy, has disassociated itself from its former employees. In its statement, the bank admits that it was bribed by Privinvest but says it was itself the victim of this conspiracy, the purpose of which would have been to funnel funds to Privinvest without regard to the bank’s business interests. Credit Suisse is being represented by the London firm Slaughter and May.

In any case, the Nyusi administration believes that the state guarantees signed by Chang on all the debt incurred have no legal value, as these signatures were allegedly purchased by Privinvest. Credit Suisse and VTB, represented by Freshfield Bruckhaus Deringer, have stated that these contracts are still valid and that the Mozambican government must respect its commitments.

This dispute could therefore amount to several hundred million dollars. This is a large sum for Mozambique, which is currently experiencing a serious humanitarian crisis due to the combined effect of the Covid-19 pandemic, natural disasters and the rise of Islamist terrorism.

The British courts will have to determine who is at fault. If the Swiss arbitration courts take up Privinvest’s claim, some aspects of the case may be kept secret.

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