Why Has Mozambique Sued Credit Suisse Over Tuna Bonds?

Why Has Mozambique Sued Credit Suisse Over Tuna Bonds?

Key Points:

  • Legal Battle: Mozambique is pursuing a $1.5 billion-plus lawsuit against Credit Suisse and Privinvest in the “tuna bond” scandal, with UBS engaged in out-of-court settlement talks to avoid a lengthy trial.
  • Tuna Bonds Background: The scandal involves loans of about $2 billion secured by Mozambique for projects like a tuna fishery, leading to economic turmoil when missing funds were exposed.
  • Allegations and Defendants: Mozambique alleges corruption and bribery, holding Credit Suisse accountable for its bankers’ actions. UBS and Privinvest deny wrongdoing, while former officials face criminal charges in the ongoing case.

Mozambique’s legal action against Credit Suisse and shipbuilder Privinvest regarding the decade-old “tuna bond” scandal in London may soon put one of the world’s poorest nations in a $1.5 billion-plus dispute against corporate giants. This upcoming battle has captured the attention of many.

Recent Developments:

Credit Suisse’s parent company, UBS (UBSG.S), and the African republic were engaged in confidential out-of-court settlement talks as of last Friday. This eleventh-hour effort aims to reach an agreement that could spare Swiss banking giant UBS from a three-month High Court trial scheduled to begin next week.

The Background:

The case, often referred to as the “hidden debt” scandal, revolves around deals meant to finance a fishing fleet and maritime security. These deals involved hundreds of millions of dollars, and their exposure led to a prolonged economic downturn in Mozambique. Both Mozambique and the U.S. governments initiated criminal proceedings.

UBS and Privinvest’s Stance:

UBS declined to comment on the matter, while Privinvest has not yet responded to requests for comment.

What’s at Stake:

Mozambique is seeking to annul a sovereign guarantee on a loan it believes was obtained through corrupt means and is pursuing compensation for alleged wrongdoing. This legal dispute is one of the significant issues inherited by Swiss banking giant UBS, which came to the rescue of the embattled Credit Suisse earlier this year.

Understanding the ‘Tuna Bonds’:

In 2013 and 2014, three state-owned Mozambican companies entered into agreements with Privinvest and banks, including Credit Suisse, for loans totaling approximately $2 billion. These loans were backed by undisclosed government guarantees and were presented as funding for projects like a state tuna fishery. Credit Suisse later sold a significant portion of its exposure to international investors.

Mozambique’s Allegations:

Mozambique alleges that it fell victim to a conspiracy and that Privinvest paid over $136 million in bribes to corrupt officials and Credit Suisse bankers. This exposure potentially puts them on the hook for at least $2 billion. Credit Suisse is accused, in part, of being liable for the actions of its bankers involved in the deals, some of whom pleaded guilty in the U.S. in 2019 to conspiracy charges related to anti-bribery laws and money laundering.

Defendants’ Claims:

Credit Suisse contends it was unaware of its bankers’ misconduct at the time. Meanwhile, the bank’s former employees deny any involvement in a conspiracy. Privinvest asserts that it fulfilled its contractual obligations and that any payments made were either investments, legitimate remuneration, or political campaign contributions.

Other Individuals Involved:

Former finance minister Manuel Chang, who signed the sovereign guarantees, was extradited to the United States in July, where he pleaded not guilty to charges of conspiring to commit wire fraud, securities fraud, and money laundering. He is scheduled to appear in a Brooklyn federal court on Oct. 27. Additionally, a former central bank governor and two ex-central bank employees in Mozambique have been charged alongside Chang for alleged abuses of their positions. In a separate case, a Mozambican criminal court sentenced a former president’s son and 10 others to more than 10 years in jail on charges including money laundering and bribery in December.

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