13 February 2017

Mozambique: Kroll Given Extra Month to Complete Audit

Maputo — The US company Kroll, reputedly the foremost forensic audit company in the world, has requested, and been granted, a further month to complete its audit of the quasi-public Mozambican companies Pro-indicus, Ematum (Mozambique Tuna Company) and MAM (Mozambique Asset Management).

When last year the London branch of Kroll was hired to undertake the international, independent audit of the three companies it was initially given 90 days to complete the task. That deadline meant completing the audit by the end of February.

According to a press release issued on Monday by the Attorney-General's Office (PGR), which is looking into crimes that may have been committed in setting up, financing and operating the three companies, Kroll submitted a preliminary report in January.

This detailed the audit activities undertaken so far, in accordance with the terms of reference, describing the progress made and outlining the steps that still need to be taken.

According to the PGR, the work undertaken by Kroll to date “includes analysis of extensive financial data and other available documentation, visits to the offices of the three companies, visits to facilities and equipment in several parts of the country, and interview with members of the government, public servants, workers of the three companies and other figures”.

Kroll has also requested additional information from the suppliers of the three companies, from the banks which lent them huge sums and from other national and foreign institutions (which the PGR does not name).

Since collecting and processing this information is complex and is still under way, in Mozambique and abroad, Kroll asked for more time. The PGR states that, in collaboration with the International Monetary Fund (which demanded the audit as a condition for resuming normal relations with Mozambique), and with the Swedish embassy (which is financing the audit), it has agreed to grant Kroll a further month. Hence the final audit report should be delivered by 31 March.

The three companies took out loans amounting to more than two billion dollars from European banks (mainly Credit Suisse and VTB of Russia). These loans - 850 million US dollars for Ematum, 622 million for Proindicus, and 535 million for MAM - were on commercial terms, with high interest rates and short repayment periods. Since the loans were all guaranteed by the Mozambican government, they added 20 per cent to Mozambique's foreign debt, and pushed it beyond the bounds of sustainability.

When a parliamentary Commission of Inquiry investigated the three loans last year, it found that the reason given for setting up the three companies was security in the Mozambique Channel. A “Project for Monitoring and Protection of the Exclusive Economic Zone” had been drawn up, and Ematum, Proindicus and MAM were among the instruments for implementing it.

This Project has never been published. It was deemed necessary because of threats of maritime piracy, illegal immigration, terrorism, drug trafficking, illegal fishing, and the need to guarantee security for oil and gas exploration.

So Proindicus was set up in January 2013 in order to establish “integrated systems of aeriel, spatial, maritime, lake, river and terrestrial security”. Ematum followed in August 2013, with a loan intended to import not only tuna fishing boats, but also for “coastal protection”. MAM came into being in April 2014, and its loan, the report from the Commission of Inquiry said, was intended to set up “naval shipyards” in Maputo, and the northern city of Pemba “to maintain and repair vessels on land and at sea”, as well as to acquire a floating dock.

The Commission's report was a devastating indictment of the behaviour of the previous government headed by President Armando Guebuza. It found that the government had violated the limits on government guarantees established in the 2013 and 2014 budget laws. It had also violated the Mozambican constitution which states that it is the exclusive power of the Mozambican parliament, the Assembly of the Republic, to authorize the government “to contract or grant loans, to make other credit operations, and to establish the ceiling for state guarantees”. But, since the government did not go to the Assembly to request any authorization, it was in violation of the Constitution.

The report also found that relations between the three companies, the contractor (the company Abu Dhabi Mar, owner of the CMN shipyard in the French port of Cherbourg where the Ematum and Proindicus boats were built), and the creditors (the banks) were far too close. These relations “were not transparent”, and the government ought to have brought in an independent inspecting body to check whether the assets ordered by Ematum, Proindicus and MAM had been delivered.

There is still no publicly available explanation of what the two billion dollars was used for. No list of assets or services purchased for the three companies has ever been made public.

Doubtless this is a gap which the Kroll audit can and should fill, as well as establishing whether, in the words of the parliamentary commission, there are “any signs of illicit use of public funds by private individuals or companies during the contracting of the debts and issuing of guarantees”.

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