19 individuals on trial for Mozambique’s illegal loans, but what about UK-based banks?

Earlier this week, the trial of 19 individuals involved in Mozambique’s hidden debt scandal began in the capital city, Maputo. Those on trial, including the former Presidents’ son Armando Guebuza and former head of security Gregorio Leao, are facing charges of blackmail, counterfeiting, embezzlement and money laundering. 

It was also announced that Manual Chang, who was Mozambique’s finance minister when the loans were agreed, will also be extradited back to Mozambique, his home country, where he faces several charges related to the loans including abuse of position and function and fraud. The decision was made by the Pretoria Magistrate’s Court in South Africa earlier this week but has since been challenged by the Mozambique Budget Monitoring Forum (FMO). Chang also faces charges in the US related to the loans, the FMO and others believe his extradition to the US would be the best way to ensure justice is served.

The charges against these individuals relate to Mozambique’s “hidden debt” – three separate loans that were given by Credit Suisse, VTB Capital and other private banks to state-owned companies in Mozambique between 2013 and 2014, totalling over $2 billion. The intention was to use the finance to boost maritime security and develop the country’s fishing industry through, for example, the purchase of a maritime security fleet. However, $700 million of the loans remain unaccounted for and two of them were kept hidden until 2016. The loans were guaranteed by Manuel Chang under English law, but without the necessary approval from Mozambique’s parliament meaning the people of Mozambique had no say over them.  

When the loans were discovered in 2016, it caused a financial crisis in Mozambique. The economy slowed, the currency devalued and the government could no longer pay its bills. On hearing of the loans, the IMF, World Bank and donor countries also cut their aid to Mozambique resulting in a loss of hundreds of millions of dollars a year. 

Recent research by Centro De Integridade Publica (CIP) and the CHR Michelsen Institute (CMI) estimate how 2 million Mozambicans have been pushed into poverty as a result of the loans which may now have cost the country up to $11 billion. At the same time, health and education spending reduced, unemployment rose, and the cost of food and basic necessities surged. Their research shows how health and education spending between 2016-18 reduced by $1.7 billion compared to the previous three years.  

In 2020, campaigners in Mozambique achieved a major milestone when the government declared two of the loans void on the ground that the guarantees given by Manuel Chang were illegal as they did not have the proper approval from Mozambique’s parliament. The case was originally raised by the FMO who have been tirelessly working to hold key actors in the scandal accountable and keep the issue alive by building awareness amongst the people of Mozambique.  

There are also various on-going court cases related to the loans. For example, in 2019 the Mozambique government filed a case against Credit Suisse and Privinvest in the UK High Court, making the case that the loans should be declared void and that Mozambique should be paid damages for their losses. Earlier this year, Britain’s appeal court ruled that the case should be addressed via an arbitration process, meaning the case will continue behind closed doors in Switzerland next year.  

Some involved in the loans have already been held accountable. In 2019, three former Credit Suisse bankers pleaded guilty to charges brought against them in New York related to the hidden debt. However, there are many that have not yet been accountable, including UK banks.   

The UK government has a special responsibility in the case given that the loans were guaranteed under English law, and several the banks involved are UK based. Despite this, the UK authorities have failed to take any action, with the Financial Conduct Authority dropping its criminal investigation in November 2018. 

As the trial in Maputo continues, the UK government must also step up and play its role. UK banks cannot continue to be let off the hook while the people of Mozambique still experience the devastating impact of these loans, on top of the harsh reality of the climate crisis and being one of the poorest countries in the world.  

The UK government urgently needs to hold key actors accountable and to follow the Mozambique government in declaring the debt void. The UK government should also change the law so that a debt can only be enforceable against a government if it has been publicly disclosed when the loan was given so that nothing like this can take place again.

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