Half a billion dollars worth of loans to Mozambique are currently unaccounted for and are rumoured to have gone to weapons, according to a report by independent auditor Kroll. The report also criticises main lender Credit Suisse for charging excessive fees as part of the loan agreement, which the bank has denied.
Loans totalling $2 billion were agreed with lenders Credit Suisse and Russian investment bank VBT Capital in 2013 and 2014, to boost Mozambique’s fishing industry, and became known as the so-called “tuna bonds.”
The report found that $500 million of the total loan is currently unaccounted for and that the lenders charged over $140 million in “contractor fees,” on top of almost $59 million in bank fees.
“The reporting that Credit Suisse realised $100 million or more in ‘arranging’ fees is incorrect and misleading,” a spokesperson for the bank told Bloomberg. “Banking fees for Credit Suisse totalled $23 million – roughly 2.3% of the total financings and is in line with comparable emerging market financing transactions,” they said.
The $2 billion loan went to three companies, ProIndicus, EMATUM and MAM, in order to boost maritime security and the country’s fishing industry. It was taken out in secret, and authorities only admitted to the undisclosed borrowing in April 2016. Officials later admitted repayments were unsustainable, causing the International Monetary Fund (IMF) and other donors to halt aid to Mozambique.
Kroll’s audit was unable to determine where $500 million of the loan had gone due to “inconsistencies” in the explanations it got from ‘Person A’ (a senior figure responsible for signing documents on behalf of the three companies), Mozambique’s Ministry of Defence and the shipbuilding contractor, the Privinvest Group.
“The main challenge in completing the Independent Audit was the lack of documentation available from the Mozambique Companies,” says Kroll’s report. In many cases, it goes on, documents were either incomplete, “classified” or otherwise unavailable.
One possible clue comes from a 2015 IMF report, which noted that the government of Mozambique had guaranteed a $850 million bond, issued by EMATUM, for the purchase of tuna fishing boats and maritime security equipment. $500 million, it said, was then incorporated into the national budget and became public debt.
But Mozambique’s Ministry of Finance was unable to confirm to Kroll that this was the case. Instead, Person A said the money had been spent on military equipment. Supporting this theory, a draft contract between Privinvest Group and ProIndicus outlined that some of the boats would be fitted with weapons, although this was omitted from the final contract.
However, Privinvest were adamant that no weapons had been provided, and Kroll said ProIndicus had not explained the contract change.
Given that the project was intended to monitor and protect Mozambique’s waters, says the report, “it is remarkable that the vessels were not fitted with weapons, as this will undoubtedly restrict the ability of the vessels and their operators to effectively police the Exclusive Economic Zone.”
Kroll also said they had been unable to assess whether the boats and equipment provided by Privinvest had been value for money. When comparing Privinvest’s invoices and the market price for the boats that were provided, Kroll found a difference of $713 million, which it has been unable to explain.
One anonymous source told Kroll that they had knowingly and unlawfully breached the country’s budget laws, by approving the government guarantees for the three companies. They said they had been convinced that this was necessary by officials from Mozambique’s security service, SISE. Some of the classified information requested by Kroll is currently being withheld by SISE.
Mismanagement within the three companies – ProIndicus trainees did not have the necessary technical knowledge or clothing, while EMATUM had not secured the necessary land and buildings to establish a coordination centre – further complicated accurate reporting and hindered Kroll’s assessment of value for money. Kroll also noted that none of the three companies were fully operational, and had generated “no meaningful revenue.”
Without some of the documentation currently being withheld, Kroll says the $500 million will likely remain unexplained.
“We welcome the release of the Kroll report, and we are pleased to see that it acknowledges our cooperation with the audit,” said a spokesperson from Privinvest Group. “In an unprecedented demonstration of transparency, Privinvent Group provided details of the amounts received on each transaction and unrestricted access to project correspondence between us and our Mozambican clients,” they said.
With regard to Kroll’s difficulty in assessing pricing, the spokesperson went on, “Prices are comparable to those charged to our other customers. We do not accept the partly constructed evaluation of the pricing, which appears to be based on desktop analysis, with extremely limited detail, no detailed technical specification, no reference to intellectual property valuation or context.” Crucially, they said, valuable intellectual property had not been included as a valued asset.