This week a UK Court ruled that United Arab Emirates company Privinvest owes over $2 billion to Mozambique in a debt scandal which dates back to 2014. Mozambique campaigners the Forum de Monitoria do Orcamento (FMO – Budget Monitoring Forum) have welcomed the judgement as “A great victory” but one that “does not close the chapter of criminal liability of those involved”.
Mr Justice Robin Knowles found that Privinvest paid significant bribes to secure contracts to supply boats and equipment to state owned companies in Mozambique. The deal was funded by $2 billion of loans from the London branches of Credit Suisse and VTB Capital. Bankers working for Credit Suisse have previously admitted to receiving millions of dollars in kickbacks to arrange the deals.
Mozambique’s former Finance Minister, Manuel Chang, is awaiting trial in the US in a case relating to the scandal.
Some of the loans were given in secret, and they caused an economic crisis which is estimated to have cost Mozambique $11 billion – $15 billion. All the loans were found to be illegal under Mozambique law, because they did not get parliamentary approval. However, as is often the case, the loans were governed by UK law. Therefore, in 2019 the Mozambique Attorney General began legal action against Privinvest, Credit Suisse and other parties to the deals. Out-of-court settlements were reached with everyone other than Privinvest.
In passing his judgement, Justice Knowles said “The scale and nature of what was able to happen in this case presented systemic threat to Mozambique’s economy.” He ordered Privinvest to pay $825 million to Mozambique to cover debt payments the government have already made over the deals, and said Privinvest is liable for $1.5 billion of future debt payments arising from the contracts. However, Privinvest has said it will appeal the ruling. And there are major doubts as to whether Privinvest have the money, and if so whether Mozambique will be able to make them pay up.
In a statement reacting to the judgement, FMO said:
“The sentence reaffirms that Mozambique was seriously harmed by this financial scandal, living up to the FMO’s position on the illegality of the debts and the need to restore justice in favor of Mozambican citizens.
“This decision opens space for reducing the burden on Mozambicans in payments assumed in agreements with hidden debt creditors, but it still does not comprehensively address all the social and economic effects that Mozambique has faced since the start of the scandal. Although London’s decision is a significant step towards mitigating the financial damage and improving the situation of the country’s public debt portfolio, the repercussions of the hidden debt scandal on its economy and social fabric were not reflected.
“The FMO also reiterates the need for transparency in the reversal of the amounts that will be returned to the country, including those of Manuel Chang. The funds must be applied to reducing the burden of public debt and freeing up fiscal space for investments in social sectors, aiming to improve the living conditions of Mozambicans.”
Debt Justice have campaigned in solidarity with FMO since 2016, seeking to get the UK to take responsibility for the actions of London-based banks, and measures to prevent such scandals happening again. In 2021 the Financial Conduct Authority fined Credit Suisse $200 million, alongside further fines by the US and Swiss authorities. However, all of this money went to the UK Treasury, none to help people in Mozambique affected by the devastation caused by the loans.
Debt Justice has called for the UK to pass legal changes so that loans given to governments have to be publicly disclosed when they are given. The UK government refused, and instead funded a voluntary scheme for banks to disclose the existence of loans. Under the scheme, just two banks disclosed six loans, while an estimated $30 billion of lending to lower-income countries has remained hidden. The voluntary scheme has effectively come to an end, meaning that the bulk of lending by Western banks to lower-income countries remains hidden.