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Andre Cronje Calls The Mozambique/Credit Suisse Scandal, A TradFi Scam.

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Credit Suisse Group AG agreed to pay almost $475 million to resolve multiple investigations into its role in a fundraising scandal that saw hundreds of millions looted from Mozambique and tipped the country into economic crisis, according to a Bloomberg report.

The Zurich-based bank said it expects to take a $230 million charge in the third quarter as a result of the settlement, a further hit for shareholders after the bank was buffetted by the Greensill and Archegos Capital Management scandals.

The legal agreement is the latest action in a multi-year, international saga resulting from $2 billion of debt deals that were supposed to help fund a new coastal patrol force and tuna fishing fleet in Mozambique, one of the world’s poorest countries. Three Credit Suisse bankers have previously pleaded guilty in the matter.

Credit Suisse Securities Europe Ltd., a unit of the bank, pleaded guilty to a single charge of conspiracy to commit wire fraud at a hearing in Brooklyn federal court Tuesday. The parent company also entered into a three-year deferred-prosecution agreement with the U.S. Justice Department. 

The bank deceived investors by hiding information about the use of the proceeds of three debt offerings from 2013 to 2016, prosecutors said Tuesday. Credit Suisse bankers received $50 million in kickbacks that were hidden from other members of management, part of at least $200 million in “improper payments” and bribes, the U.S. said.

The settlement highlights include:

$247.5 million criminal fine paid to the U.S. Justice Department, which will be reduced to $175.5 million after crediting payments to other authorities.

$100 million paid to the U.S. Securities and Exchange Commission. GBP147.2 million ($200.6 million) paid to the U.K.’s Financial Conduct Authority.

Forgiveness of $200 million in debt owed by Mozambique as a result of the loans
Appointing an independent third-party to review compliance measures for businesses in financially weak, high-risk countries, per enforcement action by Switzerland’s Financial Market Supervisory Authority Bankers

“were able to carry out the scheme as a result of deficiencies in Credit Suisse’s internal accounting controls, unreasonable reliance on the CS Bankers to structure the deal, and inadequate appreciation of bribery risks that came to the attention of the bank’s reputational risk, credit risk and compliance groups,” the U.S. Securities and Exchange Commission said Tuesday. 

The agreement with authorities from the U.S. to Switzerland helps Credit Suisse move forward after a series of recent scandals. The lender was forced to freeze $10 billion in supply-chain finance funds this year related to defunct finance company Greensill Capital, and it took a $5.5 billion hit from the collapse of prime brokerage client Archegos Capital Management.

As part of the settlement, Credit Suisse agreed to forgive $200 million of debt owed by Mozambique. 

“This marks a first in that relief is flowing to the people of a country,” said Matthew Herrington, a lawyer for Credit Suisse at Paul Hastings LLP. “I am proud to have been part of this resolution.”
 
The loans were for three separate maritime projects including a tuna fishing fleet, the building of a shipyard and surveillance operation to protect Mozambique’s coastline and protect against pirates. 

The nation revealed in 2016 that it had guaranteed about $2 billion of the loans, more than previously disclosed. As a result, the International Monetary Fund froze its financial support and soon after, a group of donor countries cut their aid. The nation defaulted on $727 million of bonds in February 2017 and its currency plunged, sparking a surge in inflation.

The bonds were restructured in 2019. The tuna fishing boats they paid for are yet to operate and are rusting in the port of Maputo, the capital.

In Mozambique, the scandal has ensnared over a dozen people, including the son of the nation’s former president and the ex-head of intelligence. Former Finance Minister Manuel Chang, who signed the government guarantees for the debts, has been held in custody in South Africa since 2018.

“The Republic of Mozambique welcomes the admission by Credit Suisse to regulators today of criminal wrongdoing,” Keith Oliver, a representative for the attorney general of Mozambique, said in a statement. “This is an important step towards obtaining full redress for the people of Mozambique.”

Separately, a subsidiary of Russian bank VTB Bank PJSC separately agreed to pay $6.4 million for its role as joint lead manager in one of the 2016 Mozambique offerings. 

VTB was negligent because offering materials contained “misleading statements by Mozambique” about the full nature of the country’s debts and VTB’s role as a lender on two earlier transactions, the SEC said. 

“The SEC order recognizes the difficult position which VTB was put in by senior Mozambique officials during the offering process and that VTB itself was defrauded by Mozambique officials,” VTB said in a statement Tuesday. 

‘Unlawful Conduct’
Mozambique has filed suit against Credit Suisse and shipbuilder Privinvest Group, one of several cases in U.K. courts that involve the bond deal. The English High Court is scheduled to begin a trial in the matter in October 2023, according to the bank’s most recent quarterly filings. 

In defending its London lawsuit, Credit Suisse has insisted that it was deceived by rogue bankers and couldn’t be held responsible for their “unlawful conduct” when it arranged the loans in early 2013. The Swiss bank has said it carried out its usual due diligence before the transactions and was aware of the risk of bribery and corruption.

Andrew Pearse, who led the global financing group in the bank’s London office, testified at a 2019 federal trial in Brooklyn, New York, that he’d pocketed at least $45 million in illicit payments for his role in the arrangement of the loans. 

Both Pearse and his successor at the bank, Surjan Singh, who also pleaded guilty, testified at the trial of Jean Boustani, a Privinvest executive accused by the U.S. of being behind the plan to get Mozambique to borrow billions of dollars and overpay for dubious maritime projects. A third banker, Datelina Subeva, Pearse’s subordinate, also pleaded guilty but didn’t testify. 

All three bankers await sentencing. After a six-week trial, a federal jury cleared Boustani of all charges.

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