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Trade-based financial criminality in Mozambique’s US$2 billion corruption scandal

By Mark Ford on August 31, 2021

The son of Mozambique’s ex-president and 18 others have gone on trial over a corruption scandal that allegedly used three state-owned companies to take on US$2 billion of debt in what has become known as the “hidden debt” affair.

Extensive use of trade-based financial crime is all but ignored by most commentators on the scandal. It involved bank loans and bond issues from Switzerland’s Credit Suisse and Russian bank VTB taken out secretly by the companies, without the required approval of Mozambique’s parliament and backed with hidden government guarantees.

Economic collapse

Ndambi Guebuza – who is suspected of having acted as a “facilitator” for his father, former President Armando Guebuza – and the others face charges of blackmail, embezzlement and money laundering.

Mozambique’s biggest corruption scandal, which is also the subject of court cases in the US, UK and Switzerland, led to donors including the World Bank cutting funding for the country and precipitated an economic collapse.

Case outline

Between 2013-2014, three newly established companies took on US$2 billion of debt, ostensibly to fund maritime projects including a state-owned tuna fishing fleet, naval protection vessels and a tuna factory.

An estimated 10 per cent was allegedly diverted into bribes and kickbacks while auditors reportedly discovered US$500 million of the money was missing.

The loans were guaranteed by the Mozambican government, so the state and ultimately Mozambican taxpayers would repay them if things went wrong. Mozambique defaulted on the loans in January 2017.

Trade-based financial crime

While the case is high profile in Mozambique it hardly features in world news coverage and the trade-based financial crime aspects of the scandal are barely recognised.

A rare exception is a 2015 probe by investigative newsletter Africa Confidential during which fishing and naval experts were consulted.

Vastly overpriced

The experts concluded that the price paid for some of the vessels was “unfeasibly high”, so much so that “it may be concealing the secret purchase of other military equipment. It may also, they say, be covering up bribes and kickbacks.”

The way the deal was concluded should have raised suspicions according to Africa Confidential. Ematum spent all of the US$850 million it had at its disposal in one go, instead of scheduling payments over time and making them conditional on suppliers of the fishing and maritime defence vessels meeting their obligations.