London, 22 Dec (AIM) – Lawyers for the Mozambican state at the High Court in London on Thursday argued that the three fraudulent, security-linked companies (Proindicus, Ematum, and MAM) were never designed to succeed and only came into existence through the bribery of both government officials and key bankers.
The High Court was hearing the closing remarks of lawyers acting on behalf of Mozambique, which is seeking 3.1 billion US dollars in damages from the shipbuilder Privinvest and its owner Iskandar Safa.
In addition, the Court is considering whether the guarantees given by Mozambique to loans from the Russian banks VTB Capital and VTB Bank (Europe), and the Portuguese bank BCP are void due to bribes paid to the then Finance Minister Manuel Chang.
The case centres on loans of over two billion US dollars made in 2013 and 2014 to 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 amongst other things a tuna fishing fleet, shipyards, and maritime security. But none of these ventures ever came close to making a profit and became bankrupt when they could not service their huge debts.
However, that was not the end of the story as these debts were backed by undisclosed state guarantees meaning that the government became responsible for paying off these debts.
The main plank of the Republic’s argument is that the projects only went ahead because of these state guarantees. No bank on earth would be foolish enough to lend billions of dollars to companies which had no experience in fishing, maritime security, or shipbuilding without the government guarantees.
No bank would even waste its time after a cursory reading of the cobbled-together business plans which clearly showed that even if everything went perfectly they could not generate enough revenue to pay the crippling debts. And no bank would touch the projects where the terms of the supply contract were so one-sided in favour of Privinvest.
Of course, the other side of the coin is that Finance Minister Chang should not have taken long to dismiss the request for a state guarantee given that it was inevitable that the companies would fail.
In addition, he knew that the guarantees were well in excess of what was permitted under the state budget and broke the debt limits agreed with the International Monetary Fund (IMF). But he did sign the guarantees and Mozambique’s case is that this was because he received bribes from Privinvest.
This is a strange trial in that Privinvest has supplied all the documents necessary to show that Chang did receive seven million dollars. Privinvest has consistently stated that the payments to Chang were legitimate. The first payment of two million dollars was for “joint investments in real estate”. A further five million dollars was sent to the company Thyse for “investment in a bank and/or Sovereign Wealth Fund”. Neither of these projects went ahead and the seven million dollars was converted into a “contribution” to Chang’s political campaign for the Assembly of the Republic in the 2015 elections.
Mozambique also argued that VTBC and VTBE only provided loans because the senior VTBC banker Makram Abboud received a bribe from Privinvest. This was vigorously contested by VTBC who said that this was an entirely unfounded allegation. But Mozambique’s barrister, Joe Smouha, invited the judge to draw his own inference as the Court had asked Abboud to come and be cross-examined and that he had spurned this opportunity to defend himself.
Mozambique bases its allegation, inter alia, on testimony given under oath by former Credit Suisse banker Andrew Pearse to a court in New York that Abboud had told him in person that he had been paid two million dollars by Privinvest.
Smouha said that Abboud had information about the involvement of Mr Safa in corruption which he had not passed on to his bank’s compliance team. This included a recorded conversation where Abboud told one of the most senior figures at VTB in Moscow that Safa “controls the President [referring to former Mozambican President Armando Guebuza]” and that was how Privinvest gained the contract.
For Smouha, this showed that, even if Abboud had not received a bribe, he was in a position where he should have passed on details which would have caused any reasonable banker to decline to participate in the loans.
In addition, any reasonable banker would find out that by signing the guarantees Minister Chang had far exceeded his authority which was limited by the 2013 and 2014 state budget laws. Mozambique’s lawyers argued that as these limits were published in the official gazette, the “Boletim da Republica”, this would be revealed during a proper due diligence investigation and show that the guarantees were invalid.
Smouha concluded that this case was one of the worst-ever frauds involving the bribery of a finance minister. It was enabled by the bribery of bankers including Abboud and the corruption of officials in Mozambique. He stated that the whole edifice of the scandal would have fallen if the banks had done what they should have done and completed a proper due diligence process which would have led to the rejection of the loans.
The closing arguments finished on 21 December and Judge Robin Knowles is expected to take several months before announcing his decision.
(AIM)
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