“During the time period alleged in Count One of the indictment, I conspired with others to defraud certain investors in connection with certain loans including a $500 million loan that Credit Suisse provided to a Mozambican entity.” - New Zealander Andrew James Pearse
The above quote is from the Transcript of Criminal Cause for Pleading before Hon William F. Kuntz, United States District Judge, Court Hearing, United States District Court Eastern District of New York, July 19 2019. Note, some of those mentioned in Pearse’s statement deny the level of involvement that he ascribes to them.
In October Credit Suisse paid $475 million to resolve charges relating to the Mozambican bond fraud. This case involved a 2013 conspiracy between European bankers and senior politicians and Mozambique public servants in to organise a USD 2 billion loan to Mozambique – which amounted to 12% of GDP of one of the poorest countries in the world. The loan was kept hidden. None of the borrowed money, except bribes, went to Mozambique, and there were no services or products of benefit to the Mozambican people.
Grand corruption typically involves high ranking politicians or government servants, abetted or driven by professional service companies such as banks, investment companies, lawyers and accountants. We have seen this sort of corruption in Malaysia (1Malaysia Development Berhad (1MDB) case), in Spain (Gürtel case) and in South Africa (Gupta case). Just a few of the examples included In the 2019 Transparency International publication 25 corruption scandals that shook the world.
It is shameful to know that a New Zealander has been a key player in what is one of the largest cases of grand corruption in the last decade. Despite his admission of guilt in 2019, Pearse has not yet been sentenced in the US.
Meanwhile the Mozambican government is seeking extradition of Pearse and his co-conspirators to face justice in Mozambique. Eight years after the fraud, trials of the son of Mozambique’s ex-President and 18 bankers and government officials have just begun. They are charged with blackmail, forgery, embezzlement and money laundering.
Mozambique is a country of almost 30 million in Southeastern Africa. Its people have faced chronic poverty for decades, as a result of civil war, regional inequalities, poor governance, cyclones and corruption. Their GDP per person is 1% of that of New Zealand. More than 80% of Mozambicans live on less than three NZ dollars per day. According to a report published by Mozambique’s Centre for Public Integrity, there is clear evidence that this fraud generated a dramatic increase in poverty, with at least 1.9 million people in Mozambique falling below the poverty line in 2019.
Before the corruption was revealed publicly by newspapers, Mozambican ministers lied to the IMF and ambassadors of Mozambique’s development partners, denying the existence of any loans. This further discredited the country’s reputation. When it went public, foreign donors (IMF, World Bank) pulled their funding.
The sudden reduction of external donations in April 2016 triggered a fiscal and monetary instability that forced the government to reduce public spending severely. In 2016 real public expenditure (in USD) was cut to less than half of what it was in 2014. The country’s currency lost a third of its value. Inflation surged. GDP fell by 11 billion.
That reduction in public expenditure hit hardest at social services. Comparing the three-year average of 2016-18 to the three previous years, spending on health and education fell by USD 1,7 billion – entirely due to the debt. The reduction in health and education services would have affected Mozambique’s capacity to respond to 2019 cyclones and to the COVID pandemic.
The knock-on effects of such a huge corruption scandal may already have cost Mozambique at least USD 11 billion. If Mozambique is forced to service this debt, there is USD 4 billion more to pay. The catastrophic negative impact on the Mozambique economy will last for years. The corruption generated more than just economic impacts. The poor response by powerful Mozambicans has generated political conflict and factional fights and institutional chaos.
When Mozambican society demanded accountability and refusal to pay the debt, the state chose to implement authoritarian measures, countering the principles of the country’s liberal-democratic constitution. Harassment of key individuals reduced the scope for public criticism. Blatant manipulation of elections in 2018 and 2019 reduced chances that the regime would lose power.
So in summary, a group of corrupt businesspeople and senior government officials committed Mozambique to a debt of over US #2 billion and split the proceeds of the fraud. That cost Mozambicans over US $11 billion – or US$403 per citizen in the years 2016-2019 alone, not to mention future debt management costs.
Meanwhile, accountability and punishment of the perpetrators is slow and limited. The reported US $475 million in fines paid by Credit Swiss represents roughly one quarter of the bank’s operating income.
Knowledge of, and exploitation of the vulnerability of poor countries to corruption, and the means to profit from that noted by Andrew Pearse in his court statement”
“…I, and others at Credit Suisse, knew that projects in emerging market countries, such as those involving … Mozambique, presented a high risk of bribery. At the time, I was not concerned about the bank’s or my potential exposure because I had observed that Credit Suisse had used intermediary brokers in transactions that featured a high risk of corruption with the apparent view that doing so insulated itself from legal liability.”
Pearse has pleaded guilty to just one of the charges (wire fraud), in what appears to be a plea bargain settlement. But in doing that he has allegedly admitted receipt of $45 million in kickbacks and bribes.
It seems too much to hope for that Mr Pearse may use some of the time before his sentencing - in a luxury English estate - to reflect on the impact of his fraudulent behaviour on the lives of millions of already poor people. His plea hearing statement offers no indication of remorse or understanding of the impact on others of his criminal behaviour..
During and after my employment at Credit Suisse, Privinvest, with the knowledge of its executives, [named defendants] wired me millions of dollars in unlawful kickbacks from loan proceeds and illegal payments for my assistance in securing loans made by Credit Suisse. I agreed to accept and keep these monies knowing that they were the proceeds of illegal activity and that it was illegal for me to do so, and that by doing so, I was helping to conceal the source of the proceeds of the unlawful activity. I took these actions to enrich myself and my co-conspirators and to benefit Credit Suisse, which gained substantial profits from the ProIndicus and EMATUM loans in which it was involved.