Anti-corruption efforts suffered a setback in the US trial of a businessman implicated in the ‘secret loans’ scandal in Mozambique – but the case has revealed vital information about the nature of illicit funding flows into politics.

On 2 December 2019, Jean Boustani, an executive of shipbuilding multinational Privinvest, was acquitted of charges of defrauding US investors, which had been brought by a team of US prosecutors in connection with allegations of corruption, bribery and money laundering in the ‘secret-loans’ scandal in Mozambique.

This fraud case (also known as the ‘tuna bonds’ scandal) is one of the largest and most shocking debt scandals to have unfolded in decades. In 2010, shortly after the discovery of large offshore natural gas deposits in Mozambican waters, Privinvest staff, most notably Boustani, approached the Mozambican government with a plan to provide a fishing and maritime security fleet for the Mozambique coastline. Three state-owned companies were created for the ostensible purpose of carrying out these activities, and received financing from the major international banks Credit Suisse and VTB to establish themselves under the premise that they would eventually turn a profit, repay investors and generate income for the government.¹

In 2013 and 2014, senior Mozambican government officials contracted a number of non-concessionary loans under the pretext of these plans. Later, after an independent forensic analysis by the Swedish auditor Kroll, it emerged that no business plans were ever created for the companies beyond brief and superficial feasibility studies drawn up by corruption conspirators in the banks and Privinvest.² The US indictment under which Boustani was arrested and tried described the companies as nothing more than fronts under which various parties illegally siphoned millions of dollars from international investors, on the Mozambican government’s credit record.³

The loans themselves were taken out in secret and illegally,⁴ and were discovered only in 2016, after an exposé by the Wall Street Journal prompted the International Monetary Fund to force the government to disclose them. In total they amounted to over $2 billion – almost 13% of the country’s gross domestic product at the time they were discovered.⁵ Their discovery precipitated an economic disaster for Mozambique, one of the world’s poorest countries: donor aid was cut off, the currency was devalued and rating agencies downgraded the country’s investment status. Almost immediately, Mozambique began to default on the loans.

The US indictment named eight suspects. Along with Boustani, three Credit Suisse bankers were arrested. Four others are not in US custody: Najib Allam, the chief financial officer of Privinvest, and three Mozambicans, including the former head of the intelligence services, António Carlos do Rosário, a Mozambican intermediary, and the former minister of finance, Manuel Chang, who is currently fighting extradition from South Africa.

In addition to charges of wire fraud, securities fraud and money laundering, the US court also charged the Credit Suisse bankers with conspiracy to violate the Foreign Corrupt Practices Act anti-bribery and internal controls provisions, due to the use of Credit Suisse accounts in New York to pay bribes. In the months following their arrest, the three former Credit Suisse bankers all pleaded guilty to some of the charges they faced and testified against Boustani. Ultimately, the jury in the trial acquitted Boustani because jurors did not believe the Southern District of New York (where the trial was held) had a strong enough jurisdictional claim to press charges against the Privinvest employee.⁶

While Boustani denied that he and his company had engaged in bribery, during the trial he admitted having made payments to members of the Mozambican govern­ment in order to secure business for Privinvest, and his lawyer described these as ‘the cost of doing business’ in Mozambique.⁷ Boustani’s acquittal has been demoralizing for Mozambican and international anti-corruption advocates, but the case has been useful to their cause by providing detailed evidence of how and to whom bribes were paid.

New information about secret payments to state officials

Boustani testified that he met Armando Guebuza on 20 January 2011 at the then president’s 70th birthday party, and proposed establishing a ‘coastal protection system’ in person.⁸ He testified that he and Najib Allam (the executive director of finance at Privinvest) negotiated with Mozambican fixer Teófilo Nhangumele to decide, approve and make the payments to the people who benefited from the secret loans, though he claimed these were facilitation payments, and not bribes. In var­­ious conversations between the three, the alleged beneficiaries were often given code names, as shown in Table 1.⁹

The trial uncovered new information about the payments that were made to secure the loans (some of which had already been disclosed in the US indictment). An email from Najib Allam, intercepted by the FBI, is believed to detail the payment of bribes to figures in the Mozambican government and Credit Suisse, whose names were disguised by easily decipherable nicknames. Boustani confirmed and corrected some of these payments in court. For example, the original email lists a payment of 2 million to Nyusi, but in court Boustani claimed only 1 million was donated (see Table 1).

Boustani testified that Frelimo, the Mozambican ruling Party, did receive money from Privinvest, though he said it was lower than the amount the US prosecutors had evidence of: bank transfers show that Privinvest sent $10 million to the party’s central committee through their account at the Banco Internacional de Moçambique in Maputo, in four transactions.¹⁰ Boustani claimed that the money paid to Nyusi and the party was used to support Frelimo’s electoral campaign in 2014, during which Filipe Nyusi was elected to his first term. Boustani claimed there was nothing untoward about this payment and drew a comparison to the system of lobbying donations that exists in the United States.

The documents and testimony from Boustani’s trial add to a developing picture of the illicit flows related to the secret loans scandal. These figures (used to compile Figure 9) are taken from the US Indictment, the proceedings of the Boustani trial, and the investigations of the Mozambican Prosecutor General’s office. They account for payments allegedly made by Privinvest to external entities to secure access to state officials, state contracts, and loans that bypassed regulatory controls. This picture is partial and evolving – it primarily concerns one of the three loans, for the company EMATUM, which was the subject of Jean Boustani’s trial and the US Indictment. As such, payments which were likely to have been made in connection with loans to the other two state companies – Proindicus and MAM – are still largely in the shadows.

Figure 9 Alleged bribes paid by Privinvest to external entities (USD, millions)

Source: See the Indictment available at US Department of Justice: Mozambique’s former finance minister indicted alongside other former Mozambican officials, business executives, and investment bankers in alleged $2 billion fraud and money laundering scheme that victimized US investors, 7 March 2019, www.justice.gov/opa/pr/mozambique-s-former-finance-minister-indicted-alongside-other-former-mozambican-officials; as well as U.S. v. Boustani, 18-cr-681, U.S. District Court, Eastern District of New York (Brooklyn). The full transcript can be found at https://cipmoz.org/documentos/.

Political finance and illicit funding

The Global Initiative has previously written about the complex relationship between grand corruption, organized crime and political finance in Mozambique.¹¹ Transparency International defines ‘grand corruption’ as ‘the abuse of high-level power that benefits the few at the expense of the many, and causes serious and widespread harm to individuals and society’. It is notable that the common features between the scandals our reports have covered – such as illegal timber exports and allegations of drugs and ivory trafficking – and those of ‘the secret loans’ scandals are the facilitating nature of Mozambique’s weak criminal justice system and poorly regulated financial system, and the fact that illicit flows benefit not just individuals, but the ruling party itself.

In reports on the illicit economy in Mozambique,¹² we have argued that the problems of corruption and organized crime are not solely the expression of individual greed or deviance on the part of state officials. At a low level, customs and police officers pay for their positions, often entering into them in debt to their superiors, who expect them to cover these debts by extracting bribes from the populace. At a higher level, there is evidence that funds which are systematically sourced from the illicit economy are used to support the political elite’s continued grip on power.

One example of this is the arrangement documented by Centro de Integridade Pública in 2014 in Zambezia Province, where officials in the Forestry Department were instructed by Frelimo to make a large donation to the party. With no explicit instruction to do so, these officials then illegally sold a number of licences to Chinese companies to cut timber, and the proceeds were deposited into the Frelimo Provincial Committee’s bank account.¹³

In the north, the heroin trade provides a starker example of an established system of bribes. Our analysis has argued that family syndicates located in the Port of Nacala provide payments to a network within the political elite in exchange for facilitating the passage of their product through the country. This arrangement has endured through several administrations, which suggests it is more closely linked to political party interests than individual ones.¹⁴

The evidence presented at Boustani’s trial may not have convinced the US jury that he should face sanction there, but it could still be put to use by anti-corruption advocates in legal processes aimed at shifting responsibility for the debt from Mozambican citizens to the institutions and individuals who profited from corruption, or by investigations aimed at recouping money for investors.¹⁵ There is also still scope for Mozambican citizens to seek compensation for the huge damage the loans wrought on the Mozambican economy.¹⁶

But whatever the consequences for future debt payments, the trial underscores the difficulties that face organizations in Mozambique pushing for greater accountability and stronger institutions. As long as political parties benefit from illicit funding flows, their resolve to reform laws and institutions will always be undermined.

Notes