Mozambique’s so-called hidden debts scandal has almost everything: Allegations of corruption, international money laundering — even pirates.
The one thing the case doesn’t have is any connection to the United States. Which makes it very strange that eight people — none of them citizens or residents of the United States — have been indicted in the case in federal court in New York City.
There’s a shipyard, named in the indictment but charged with no crime, based in the United Arab Emirates and with operations in the Middle East and Europe. There are two unindicted investment banks, not named in the indictment but identified in other court filings as Credit Suisse (from — you guessed it — Switzerland) and a Russian bank, VTB. Charged in the case are a New Zealander, a Briton, a Bulgarian, two Lebanese nationals and three Mozambican government officials.
The case dates back to 2013, when Credit Suisse made the first of a series of loans to state-owned enterprises in Mozambique. The government of Mozambique had established these firms for three related purposes: 1) to patrol and secure Mozambique’s territorial waters, including against piracy; 2) to fish in those waters for tuna; and 3) to repair and service the boats needed for numbers 1 and 2.
All told, these three state-owned companies borrowed some $2 billion from Credit Suisse and VTB to buy ships and equipment and to pay the shipbuilder, Privinvest, to set up the shipyard and train locals to maintain, repair and ultimately build ships in Mozambique. All of the loans came with a government guarantee signed by the Minister of Finance.
The ships were built, they were delivered and some training, at least, was attempted. And yet, according to the federal indictment, the whole thing was a scam from the get-go — the contracts and the loans themselves were all cooked up for the sole purpose of skimming off kickbacks and bribes to the bankers, salespeople and politicians involved.
But the U.S. Department of Justice seems to be alone in this theory of the case. Kroll, the New York-based corporate investigations firm, conducted its own audit of the contracts and loans back in 2017. It found some of the borrowed money to be “unaccounted for,” and criticized Mozambique’s preparedness and capacity to make use of the assets it had bought. But it is pretty clear from Kroll’s report that Kroll believes Mozambique really did want a state-owned fishing fleet, a marine patrol and a shipyard, and that was why it borrowed the money.
It is true that very little fishing or patrolling has ever been done, and by all accounts the dream of a self-sufficient Mozambican fishing fleet and marine-patrol organization remains far off. The loans were supposed to be repaid from revenue generated by the fishing fleet, the marine patrol and the shipyard. That’s not happening, and some in Mozambique have questioned the validity of the state guarantee on the loans, but it remains to be seen whether the creditors will ever be paid back.
So where does the United States come into this? The indictment claims that some of the alleged kickbacks passed through “correspondent banks” in the United States — on their way between foreign banks. And it asserts that because the (non-U.S.) investment banks tried to resell some of the loans, and may have tried to resell them to American investors, that someone violated U.S. securities laws. But the loans themselves did not originate in the United States, are not U.S. securities and at least one of them — according to a motion to dismiss that one of the defendants filed this week — was explicitly marketed with the proviso that U.S. investors could not participate.
If there are U.S. victims in this case, the DOJ has not identified any. If there are any real victims at all, they are chiefly the people of Mozambique, who may have overpaid for a project the country wasn’t in a position to make use of. But Mozambique is conducting its own investigation, so it doesn’t appear that it needs the U.S. government to impose itself on a domestic Mozambican matter.
In addition to the jurisdictional problem, there’s a real question of fairness. The defendants are charged in a U.S. court in New York, with crimes that were allegedly committed thousands of miles away — in Mozambique, the United Arab Emirates, London, and elsewhere. Any potential witnesses they might call and from much of the evidence they might seek in their defense are all likely beyond their grasp.
It’s one thing for the U.S. federal government, with unlimited resources, to embark on such a legal fishing expedition. It’s another entirely to ask private defendants to try to defend themselves under such circumstances.
The case is sometimes called the “hidden debts” scandal because the government of Mozambique used the three state-owned companies to borrow the money, in what some critics saw as a way of concealing the loans from other creditors. But at least in its U.S. form, it could be called a “missing victims” case. The alleged corruption took place in Africa, funded by European banks, in a project involving a European and Middle Eastern shipyard. Justice in this case can’t be served in an American courtroom.
• Brian M. Carney is a former editorial page editor of The Wall Street Journal Europe and coauthor of “Leadership Without Ego.”