Mozambique: Hidden Debts - Ematum - a Fraud From the Start

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Mozambique debt.

Maputo — The scandal-ridden Mozambique Tuna Company (Ematum) was set up, not to catch tuna, but to divert funds into private pockets, according to the indictment drawn up by US prosecutors, investigating Mozambique's "hidden debts".

Five people have so far been arrested on international warrants issued by the United States. They are: former Mozambican Finance Minister, Manuel Chang; three former executives of the bank Credit Suisse, Andrew Pearse, Surjan Singh and Detelina Subeva; and Jean Boustani, the lead salesman and negotiator for Privinvest, the Abu Dhabi based concern that was the sole contractor for Ematum and for two other fraudulent companies, Proindicus and MAM (Mozambique Asset Management).

The indictment makes it clear that Ematum was not a genuine fishing venture gone wrong, but a scam from beginning to end.

The fraudsters, having easily evaded the internal controls of Credit Suisse when negotiating the first illicit loan (to Proindicus), embarked on an even bigger swindle, seeking 850 million dollars for Ematum. In August 2013, Credit Suisse agreed to make up to 850 million dollars available for Ematum.

As Finance Minister, Chang signed the loan guarantee - Credit Suisse could lend the money, comfortable in the knowledge that if Ematum failed to repay, the government (i.e. the Mozambican taxpayer) would be liable for the whole amount.

The guarantee was entirely illegal - it violated the ceiling on loan guarantees in the budget law, and a clause in the Mozambican constitution which states that only the country's parliament, the Assembly of the Republic, could authorise such debt.

But in the event Credit Suisse seems to have had second thoughts - in September 2013, it only lent Ematum 500 million dollars. Ematum sought the rest of the money from a second bank, VTB of Russia.

The Ematum scheme, the indictment argues, was cooked up in May 2013 by Boustani, Pearse and Subeva. The fraudsters devised a project that had nothing to do with Mozambique's legitimate fishing needs: instead, the project was "a pretext to justify the maximum possible loan amount".

Part of the money was not for Ematum at all, but was intended to carry on paying for the earlier fraudulent scheme, Proindicus. Boustani sent an e-mail on 21 July 2013, saying "we will go for 800 million dollars so we keep a cushion for Proindicus interest payment next year".

On the same day, Subeva e-mailed "We should also keep a cushion for Proindicus of 17 million dollars so that we don't need to go back to MoF (Ministry of Finance) and they are on our side".

Pearse and Subeva were still employed by Credit Suisse, but they "sought to conceal their involvement in setting up the Ematum project by using personal e-mail accounts and removing all reference to themselves in the documents they prepared".

In an e-mail to Boustani in late July 2013, Pearse said "Pls bro don't just forward, but create new e-mail and attach the docs". Credit Suisse, he added, "is very sensitive to seeing our names involved".

Since Credit Suisse might wonder why the Ematum contract was going to Privinvest, the fraudsters, the indictment says, "created fake competing bids for contracts". Fully aware that there was no proper tender, Boustani e-mailed Pearse at the end of July, suggesting "Let's say they contacted South African shipyards and Spanish and Portuguese. Without naming them".

Surjan Singh then "included fake bid information" in a memorandum sent to Credit Suisse, "falsely asserting that the Privinvest proposal was deemed the most competitive one in comparison to bids from three other international companies".

Credit Suisse's internal procedures were so shoddy that it put Singh in charge of the due diligence for the Ematum loan. Singh, Pearse and Subeva, adds the indictment, "provided talking points and suggested answers to Mozambican government officials for due diligence meetings".

Surjan was richly rewarded, Between October 2013 and February 2014, Privinvest wired six payments, totalling 4.49 million dollars to Singh's account in the United Arab Emirates. These payments went via corresponding banks in New York - one of the many reasons for US prosecutors to take a direct interest in the scandal.

By 8 April 2014, Boustani had also paid seven million dollars to Chang, and bribed as yet unnamed Mozambican government officials to the tune of 36 million dollars.

The Ematum fishing boats, built in a Privinvest-owned shipyard in Normandy, did all arrive - but did virtually no fishing. The projections of vast revenues from the export of tuna proved no more than a fantasy. In 2018, it was reported that the boats did not even have fishing licences. From the new suspension bridge over the Bay of Maputo, there is an excellent view of the Maputo fishing port, and any passer-by can see all 24 Ematum boats lying idly at anchor.

In 2016, the original Ematum bonds (or "loan participation notes") were swapped for eurobonds directly issued by the Mozambican government. At the time it appeared as if this was a Mozambican idea - extending the maturity of the bonds, but increasing the interest on them.

But, according to the indictment, the idea came from the conspirators, including Boustani, Pearse and Subeva and was intended "to hide from the public and the IMF the near bankruptcy of the project companies, resulting from loan proceeds being diverted as part of the fraudulent scheme".

Although here was a new government in Maputo, and Chang was no longer finance minister, Mozambican officials did not smell a rat. They hired Credit Suisse and VTB to conduct the bond exchange. The adviser for the exchange was Palomar, a Privinvest subsidiary - and by now Pearse and Subeva had moved seamlessly from Credit Suisse to Palomar.

On 6 April 2016, the Ematum bondholders consented to exchange their bonds for Mozambican government Eurobonds. But the documents on which they based this consent did not mention the Proindicus and MAM loans, thus giving a completely misleading picture of Mozambique's foreign debt situation.

A couple of weeks later, thanks to an article in the "Wall Street Journal", the existence of Proindicus and MAM was suddenly revealed, and the Ematum/Eurobond investors realised they had been deceived.

The IMF too was angered to find that the government had concealed the scale of the country's debts, and suspended its programme with Mozambique. These events precipitated the financial crisis which came close to crippling Mozambique in 2016/2017.

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