London, 22 Oct (AIM) – The High Court in London has heard the opening arguments of lawyers acting for the litigants in the case of the “hidden debts” where Mozambique is seeking 3.1 billion US dollars in damages from the Lebanese shipbuilder Privinvest and its owner Iskandar Safa.
In addition, Mozambique is seeking to cancel debts held by the Russian-linked banks VTB Capital and VTB Bank (Europe), and the Portuguese bank BCP.
The case centres on loans of over two billion US dollars made in 2013 and 2014 to three fraudulent security-linked companies Proindicus, Ematum, and MAM by Credit Suisse and VTB. Some of these loans were syndicated, meaning that they were offered out to other lending institutions such as BCP.
In theory, the loans were for a tuna fishing fleet, shipyards, and maritime security. But none of these ventures ever took off and soon became bankrupt. However, that was far from the end of the story as the project’s debts were backed by state guarantees meaning that the government became responsible for paying off these debts.
The trial at the Commercial Court had been delayed while Mozambique reached an agreement with the main lender, Credit Suisse. According to Mozambique’s lawyer, Joe Smouha, Credit Suisse has waived an outstanding debt of around 450 million dollars. This deal also involved an agreement with eight banks that had participated in the Proindicus syndicated loan.
Presenting Mozambique’s arguments on Tuesday and Wednesday, the lawyers acting on behalf of Mozambique’s Attorney General explained the claim against Privinvest and its owner comprises 700 million dollars in losses and potential liabilities of 2.4 billion dollars. They argued that more than 136 million dollars in bribes were made to government officials and to bankers involved in the loans, without which the deal would never have been approved.
In addition, Mozambique alleges that there were obvious red flags such that any reasonable banker should have refused to participate. The red flags included the knowledge that Mozambique was a country with institutional weakness and at risk of corruption, and that Iskandar Safa and his brother were considered high-risk individuals and known to have participated in corrupt payments. Furthermore, extra due diligence was necessary since the deals were linked to the Mozambican security service (SISE).
There was no tender process for the contract, and Privinvest salesman Jean Boustani arranged both the supply contract and the loan from the bank. The banks were asked to send the full contract amount in advance – not to any Mozambican institution, but to Privinvest.
In addition, it was argued that the supply contracts were so clearly in favour of the contractor, with Privinvest having the right to unilaterally increase the price, that this should have been a clear warning to potential lenders.
The lenders could have looked at the business plans of the three companies or “special purpose vehicles (SPV)”, Proindicus, Ematum, and MAM. Mozambique argued that the business plans seemed superficial with no external market studies.
For example, the supply contract for the Ematum project for building the tuna fishing industry was for 785.4 million dollars to be paid on the day of the signing of the contract. The delivery schedule was spread from six to 19 months after the contract date.
However, the Ematum business plan was to generate over 45 million dollars in the first year which, according to Mozambique’s lawyers, was commercially absurd for a company with no employees, no fishing licence, and no fishing vessels due to be delivered for the first nine months. For Mozambique, the massive interest repayments due with no business plan on how they would be repaid posed severe crime risks.
Much of Mozambique’s case lies on whether the then Finance Minister Manuel Chang had the authority to unilaterally sign a state-backed guarantee for the loan. Chang is currently in custody in the United States where he has pleaded not guilty to charges of fraud and money laundering in relation to the hidden debt scandal.
The Republic argues that Chang overstepped his authority as a result of receiving a multi-million dollar bribe from Privinvest. It states that the guarantees he signed exceeded the ceiling on guarantees fixed by the 2013 and 2014 state budget laws. Furthermore, the Attorney General, the country’s parliament the Assembly of the Republic, and the IMF had been kept in the dark about these sovereign guarantees.
In summary, lawyers for Mozambique argued that no honest and reasonable banker would touch this business with a bargepole. It was stated that experts agreed that a reasonable banker would look at the cumulative and compounding risk of all of these red flags and decline to proceed. The presentation ended with the lament that one expert had concluded that the risk was overwhelming and represented one of the clearest corruption and bribery risks a banker could be presented with.
Having reached an agreement with Mozambique on Monday, Credit Suisse has turned its fire on Privinvest. Its lawyer, Laurence Rabinowich, argued that it is a matter of fact that Privinvest bribed Credit Suisse employees. Although Privinvest denies any wrongdoing, Rabinowich argued that this is not sustainable. He noted that Privinvest argues that its payments to Credit Suisse employees Andrew Pearse and Surjan Singh were not bribes. But there was no dispute that these payments were made. Rabinowich argued that, in general, the purpose of the payments is irrelevant in law. A conflict of interest between a recipient’s personal interests and the corporate interest is enough to make the payment corrupt.
He noted that the subvention fee received by Credit Suisse was mysteriously reduced from 49 to 38 million dollars after Jean Boustani promised Pearse half of the savings in the subvention fee. In addition, Credit Suisse is relying on testimony by Pearse given under oath in his trial in New York that he was corrupted by Boustani in a hotel in Maputo. Pearse admits to receiving 5.5 million dollars in kickbacks.
Regarding the bribery of Surjan Singh in relation to the Ematum transaction, Privinvest claimed that these were not bribes but prepayments for work Singh was going to do in the future. But Singh admitted in the New York Court that these were indeed bribes.
Duncan Matthews, on behalf of Privinvest and Safa, began by defending Proindicus, Ematum, and MAM. He said that the government of President Armando Guebuza wanted to escape from the clutches of the donors so developed a series of projects to exploit Mozambique’s exclusive economic zone (EEZ).
He argued that it was not a case of Privinvest persuading the country to adopt its plans. Rather, he stated that Mozambique had already been developing its own understanding of the challenges and opportunities arising from the discovery of hydrocarbons off the coast of Cabo Delgado.
He claimed that Guebuza and the then Defence Minister (now President) Filipe Nyusi had promoted an economically sound programme of development. That view had only changed after Mozambique had failed to make projects work and failed to tell the IMF.
Matthews spent a large part of his presentation trying to point the finger of blame at Nyusi. The tactic of blaming it all on Nyusi has been the main plank of Privinvest’s strategy for many months. Its attempts to drag Nyusi into the London court were foiled when High court judge Robin Knowles in early September ruled that Nyusi enjoys immunity.
Privinvest denies allegations of bribery but does admit to making payments for what it described as consultancy fees and investments. Many of these claims were destroyed in the trial over the hidden debts held in Maputo in 2020-2022.
Leading for VTB Capital, Timothy Howe claimed that at the time of its loan, VTB was not aware of any bribery allegations nor of Chang’s alleged lack of power to sign the loan guarantee. He stated that the lenders were deceived into advancing large sums of money and that VTB is owed in excess of half a billion dollars in principal alone.
Howe spent much of his time trying to tie Filipe Nyusi to the origins of the scheme, claiming that Defence Minister Filipe Nyusi had “instructed” Finance Minister Chang to sign the guarantee. (A source in the Attorney General’s office confirmed to AIM that Minsters are equal and cannot instruct their fellow Ministers. In addition, even the President cannot instruct the Minister of Finance to undertake an illegal act).
The former director of the treasury in the Ministry of Finance, Isaltina Lucas, is also represented at the trial. Privinvest says that it made payments to Lucas for legitimate investments. But Lucas strongly denies ever receiving any payments from Privinvest or that any investment was discussed.
By way of background, her lawyer explained that Lucas had the job of making sure that international payments were made on time, including interest payments. But he stressed that this role does not include decision-making powers.
Regarding the payments made to a Mozambican company, MS International, Lucas argues that this had nothing to do with her and that there has never been any evidence that she benefited from this payment. Indeed, she had a British solicitor look through her financial record and present to the London Court her financial position.
Privinvest states that it made payments to MS International in 2013 and 2014. However, there are no documents stating the owner, shareholders, or employees and no proof of what happened to the money after it had been received. Lucas’ lawyer explained that the allegations that Lucas had taken a bribe originate from SISE’s Antonio Carlos do Rosario who told Privinvest that the funds to be paid into the MS International account were for Lucus. This was the only link to her.
Much of the end of the week was taken up with legal arguments over whether Jean Boustani be allowed to give evidence over a video link from Lebanon and whether Iskandar Safa would be able, as he wished, to give video evidence from France. Judge Robin Knowles, listened to arguments and agreed to do all he can to ensure that their evidence is heard over the coming weeks.