Credit Suisse to pay nearly $475m for role in Mozambique looting

Credit Suisse Group agreed to pay almost $475m 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.

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

The legal agreement is the latest action in a multiyear, international saga resulting from $2bn 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, 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 US 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 on Tuesday. Credit Suisse bankers received $50m in kickbacks that were hidden from other members of management, part of at least $200m in “improper payments” and bribes, the US said.

The settlement highlights include:

• $247.5m criminal fine paid to the US justice department, which will be reduced to $175.5m after crediting payments to other authorities
• $100m paid to the US Securities and Exchange Commission and £147.2m paid to the UK’s Financial Conduct Authority
• Forgiveness of $200m 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 US Securities and Exchange Commission said on Tuesday. 

The agreement with authorities from the US to Switzerland helps Credit Suisse move forward after a series of recent scandals. The lender was forced to freeze $10bn in supply-chain finance funds earlier in 2021 related to defunct finance company Greensill Capital, and it took a $5.5bn hit from the collapse of prime brokerage client Archegos Capital Management.

The Swiss bank has overhauled its management ranks in the aftermath of those blow-ups, and new chair Antonio Horta-Osorio has vowed to clean up the lender’s problematic attitude towards risk management. He has spent the last few months debating strategic options, with an expectation to finalise the long-term vision and midterm targets by the end of 2021. 

Tuesday’s settlement with the Swiss regulator also concludes its investigation into the bank’s spying on executives, Credit Suisse said in a statement. The bank also disclosed that there had been five other incidents of spying besides those of former international wealth management head Iqbal Khan and former human resources head Peter Goerke, all outside Switzerland, between 2016 and 2019.

“Credit Suisse is satisfied with the completion of the proceedings by US, UK and Swiss regulatory authorities into the bank’s arrangement of loan financing for Mozambique state enterprises and can now draw a line under the observation matter.”

Credit Suisse had provisioned Sf1.7bn ($1.8bn) for litigation matters as of year-end 2020 and estimated a maximum of Sf900m in litigation losses not covered by the provisions.

In 2020, the bank had been forced to drastically increase provisions — driving it to a fourth quarter loss — for legacy legal cases in the US, most notably one involving financial crisis era mortgage-backed securities. 

As part of the settlement, Credit Suisse agreed to forgive $200m 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. “I am proud to have been part of this resolution.” 

Bond default

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 disclosed in 2016 that it had guaranteed about $2bn of the loans, more than previously disclosed. As a result, the International Monetary Fund (IMF) froze its financial support and soon after, a group of donor countries cut their aid. The nation defaulted on $727m 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 more than a dozen people, including the son of the nation’s former president and the former head of intelligence. Former finance minister Manuel Chang, who signed the government guarantees for the debts, has been held in custody in SA 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 separately agreed to pay $6.4m 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 recognises 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 UK 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 $45m 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 US 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.

Bloomberg News. More stories like this are available on bloomberg.com