Maputo — The bank Credit Suisse ignored warnings from its outgoing regional chief executive officer on the risks of lending huge sums to Mozambique, according to a Wednesday report by the Bloomberg agency.
A legal filing from Credit Suisse published last week has revealed that Fawzi Kyriakos-Saad, at the time the chief of the bank's EMEA (Europe, Middle East and Africa) business, warned his colleagues not to proceed with the initial stage of the financing for companies recently established by the Mozambican security service, SISE, which turned out to be fraudulent.
This is the first time that Credit Suisse has confirmed that some its managers had misgivings about the loans.
In all, Credit Suisse and the Russian bank VTB lent over two billion dollars to three companies, all of which were chaired by the same Mozambican security officer, Antonio do Rosario.
The companies - Proindicus, Ematum (Mozambique Tuna Company) and MAM (Mozambique Asset Management) - were supposed to boost coastal security and develop a tuna fishing fleet. All three are now effectively bankrupt.
Because the previous Mozambican government, under the then President Armando Guebuza, illegally guaranteed the loans, in violation of the 2013 and 2014 budget laws, the creditors want to recover their money from the Mozambican state, since there is no way that the companies can repay.
Any transaction that involved a combination of the French-Lebanese billionaire Iskandar Safa and Mozambique should not go forward, Kyriakos-Saad said, according to the filings. Safa is the founder and chief executive officer of the Abu Dhabi based group, Privinvest, which became the sole contractor for the three Mozambican companies.
An independent audit of the companies showed that Privinvest had overcharged them for fishing boats and other assets by more than 700 million dollars.
Privinvest also paid bribes and kickbacks to Credit Suisse bankers and to Mozambican government officials, including Guebuza's finance minister, Manuel Chang, who is currently in South African police custody, fighting against possible extradition to the United States. The investigation by US prosecutors shows that at least 200 million dollars of the loan money was used for bribes.
Despite the weight of evidence, Privinvest insists that it did nothing wrong.
The warning from Kyriakos-Saad was reported in an email from Andrew Pearse<https://www.bloomberg.com/news/articles/2019-10-18/ex-credit-suisse-banker-pearse-says-love-helped-fuel-his-fraud>, who led the bank's global financing group. The precise nature of the objections from Kyriakos-Saad are not yet clear, but apparently the warning was not what Credit Suisse wanted to hear.
For just a day later, the bank issued an announcement that Kyriakos-Saad was due to leave in a restructuring that saw a shift away from its regional attention on clients to a greater focus on the investment bank offerings.
Pearse, however, did very well out of the Mozambique deals. When he was eventually arrested in London, and then gave evidence to prosecutors in New York, he admitted to pocketing at least 45 million dollars in kickbacks.
Credit Suisse did not comment on the circumstances surrounding the departure of Kyriakos-Saad and he declined to comment on the basis of an agreement with his former employer.
This filing is likely to strengthen Mozambique's hand in its battle to cancel the illegal loan guarantees issued by the Guebuza government, and secure compensation from Credit Suisse and Privinvest.
Credit Suisse has resorted to the flimsy defence that it was deceived by its own corrupt employees such as Pearse, and could not be held responsible for their "unlawful conduct". This argument would be stronger if Pearse had acted alone - in fact, two other Credit Suisse bankers, Detelvina Subeva and Surjan Singh, also admitted to taking bribes.
Credit Suisse also claims that it had undertaken its normal due diligence before lending any money to the Mozambican companies. This is clearly untrue - any serious due diligence would have revealed that the government guarantees were illegal, and that the companies were just fronts for SISE with no track record in business at all.
As for Iskandar Safa, in its filing Credit Suisse admitted that it had previously designated him as "as undesirable client" - one with whom it should not maintain a business relationship after he had appeared on an external compliance database. An attempt to open an account in which he was the beneficial owner had also been previously rejected.
After April 2012, the designation was removed when Credit Suisse was told that historic allegations against Safa were not being pursued. Within a few months of this, Credit Suisse was arranging the first of the Mozambican loans (to Proindicus).
Nonetheless, Mozambique has alleged that the bank's internal records described Safa as a "master of kickbacks."
Safa's relationship with the royal family of the United Arab Emirates<https://www.bloomberg.com/quote/3344698Z:UH> also helped Credit Suisse's High Risk Advisory Team to approve the Proindicus transaction, according to a separate legal filing from Surjan Singh.
Sheikh Hamdan Bin Zayed Al Nahyan, the former deputy prime minister of Abu Dhabi, controlled a shipyard involved in the maritime project. Safa's "increased connections" with Abu Dhabi gave the bank comfort to proceed, Singh said.