The arrest of Manuel Chang at the request of US authorities was confirmed this morning at Kempton Park magistrates court, Johannesburg. The court rejected the claim by his lawyers that the US request was not a formal extradition warrant, but only a request to arrest and hold him pending the issue of the extradition warrant. The US has charged Chang for his role in the $2 bn secret debt.
The hearing continues tomorrow. Bail was denied. The defence objected that Chang was held in a cell with 20 other people and it was agreed he would be given his own cell. (https://www.facebook.com/CIP.Mozambique/)
Business press says US prosecution could void loans
Even though Credit Suisse (CS) is not formally charged in the United States indictment on the $2 bn secret debt, both Bloomberg and the Financial Times (FT) say that information in the indictment makes CS vulnerable to fines and claims.
Bloomberg (7 Jan) cites two experts. Mitu Gulati, a law professor at Duke University in the US and a debt expert, says "the debtor [Mozambique] probably has a good case to make that these were loans infected with corruption (by the agents who contracted the loans) and, therefore, voidable." Matthias Goldmann of the Max Planck Institute in Germany says "under international law, in my view, the government does not need to pay back anything. Investment tribunals would not grant protection if corruption was involved in the conclusion of the deal. So corruption charges are an independent reason to reject repayment." https://www.bloomberg.com/news/articles/2019-01-07/mozambique-loan-bribe-claims-may-void-debts-law-professor-says
Brooke Masters writing in the Financial Times (8 Jan), quotes Mozambican lawyer Florival Mucave saying "If Credit Suisse is found to have acted illegally [it] should have to pay back the investors." To which masters comments: "That only seems fair".
Both Bloomberg and the FT note that the indictment says that the three CS people were "acting within the scope of their employment … with the intent, as least in part, to benefit" CS. They were senior CS staff working for the bank and for the benefit of the bank - and organising a loan that could not be repaid, based on bribes.
It seems likely that CS will be held responsible. Masters notes that the indictment shows that "the defendants were allegedly able to ignore, lie to or circumvent the bank's compliance department." She continues, "if prosecutors conclude that the bank had shoddy controls or put business interests ahead of complain," the this would cause problems for CS.
Masters quotes a former prosecutor to says that the indictment "adopts the bank's narrative that these are rogues, they lied to us." But she says "the Swiss bank may not be home free. Two former prosecutors told me that it is standard operating procedure for an indictment to emphasise concealment efforts because that supports allegations of international wrongdoing."
The MAM and Proindicus loans were what is known as syndicated loans. The banks create a "syndicate" in which various investors make part of the total loan. Arranged fraudulently by CS, these loans are probably illegitimate. The Ematum loan was different - it was in the form of bonds pruchased by investors. The conversion of the bonds issued by Ematum into Eurobonds issued by the government "makes things worse for the government", explained Mitu Gulati, the Duke professor. It is "modern money laundering", he said, turning illegitimate loans into legitimate government issued bonds. However, the indictment says this exchange was "fraudulent" and was organised by CS and VTB employees.
Finally, Gulati points out that if the loan is declared void, Mozambique will have to give back any loan funds it did receive. But Bloomberg notes this is not a problem because Mozambique did not receive a penny - all the money went directly to Privinvest in Abu Dhabi.
The US indictment is here.
Did Attorney General write the wrong letters to the US?
The United States and other countries were accused Monday by the Attorney General's office (Procuradoria-Geral da República, PGR) of failing to reply to formal letters asking information and assistance relating to the secret debt. But that has generated an indigent response from both Mozambican lawyers and diplomats.
One lawyer said: "It is unacceptable that the PRG simply sat and waited for a reply. As well as following up with legal authorities, it is possible to work with diplomats in Mozambique."
Several countries did receive requests, but without the minimum information to implement. Some embassies in Maputo have been supporting the PRG in preparing adequate requests for mutual legal assistance (MLA). But somehow those proper letters were never sent. MLA requests are complex and require nationalities, passport numbers, bank accounts, etc.
Critics of the PRG says that the secret debt has never been a priority. The PRG has had access to local bank accounts for two years. It is a political hot potato, so it always goes to the bottom of the pile. Letters do not get written and investigations are not done.
This can also be convenient for Frelimo. In the big 2000 bank scandal, Banco Austral officials, some senior in Frelimo, stole $150 mn from bank. The bank collapsed and Antonio Siba-Siba Macuacua, the Bank of Mozambique’s head of banking supervision, took over as head of the bank; he began to investigate the frauds, and was assassinated in 2001. People were charged with fraud and murder, but the cases were politically sensitive, so were not a priority and dragged on for nearly a decade. Finally, in 2009 the PRG dropped the charges over the murder and in 2010 over the theft.
CIP names 2 accused
In an excellent timeline of the $2 bn secret debt based on the US indictment, CIP (Public Integrity Centre, Centro de Integridade Publica) has provided some of the missing names. The US indictment did not name two of the Mozambican accused who have not yet been arrested, as well as three Mozambican "co-conspirators" who are believed to have cooperated with US authorities and agreed deals. https://cipmoz.org/wp-content/uploads/2019/01/Aspectos-chave-do-“golpe”-da-dívida-ilegal.pdf
CIP says the two accused are Antonio Carlos de Rosario and Teofilo Nhangumele. Antonio Carlos do Rosario was a senior SISE (security service) official who is the CEO (PCA, Presidente do Conselho de Administracao) of the three SISE-owned companies that took the loans, Proindicus, Ematum and MAM.
Teofilo (Teo) Nhangumele is less well known, but is alleged to be the person who sold the original Proindicus loan to Mozambique. At the time he was he was managing partner of a "business facilitation agency", Gloca. His profile on bayt says he has a masters degree from de Monfort University, Leicester, UK; worked for the British High Commission 1995-2001 to promote British companies in Mozambique; for BP Mozambique 2001-8 in particular dealing with the government on fuel prices; and 2009-2011 was the deputy director general of the committee to organise the 2011 Africa games in Maputo. On Linkedin he says he was managing partner of Glocal 2008-13, then country manager for Petro SA 2013-5, then country manager for McDermott Marine Construction (a contractor in the gas projects) 2015-6, and since 2017 running his own company, Jostro Capital.
Only limited information is provided on the first two "co-conspirators" but the third co-conspirator is identified as am employee of the Ministry of Finance who was also a director of Ematum. CIP says only Henrique Gamito and Isaltina Lucas Sales satisfy that. Henrique Gamito signed the Ematum loan agreement and is brother of Hermenegildo Gamito, president of the Constitutional Council. Lucas is now Deputy Minister of Finance and was director of treasury. She is said to be very knowledgeable about the secret debt, and was also part of the team that has negotiated with the IMF.