How A Tuna Scandal Got Involved in UBS’s Acquisition of Credit Suisse

When Swiss investment bank UBS agreed to buy Credit Suisse following the collapse of various U.S. banks in 2023, it did not expect to be engaged in a lawsuit with Mozambique over tuna. This unexpected legal battle has thrust both financial giants into the international spotlight as Mozambique alleges that Credit Suisse’s involvement in a complex debt deal, tied to its state-owned fishing company, has resulted in financial calamity for the African republic. As the case concluded in October, it raised critical questions about the role of global financial institutions in facilitating questionable transactions and the ethics behind such decisions. With the world’s eyes on them, the 10-yearlong Mozambique-Credit Suisse tuna case and its settlement serve as a symbol of the intricate corruption faced by emerging economies in navigating the global financial landscape.

Described by the World Bank as “a gateway to global markets” from its strategic location, Mozambique has a variety of valuable resources such as land and energy as well as “newly-discovered deposits of natural gas off its coast.” This particular interest in Mozambique’s newly-discovered natural gas sources launched dreams of enormous wealth, causing its leaders to take $2 billion of secret loans organized by two major European banks—Credit Suisse and Russian government-owned VTB. Both banks’ questionable management of these loans led the UK, U.S., and Switzerland’s respective financial authorities to investigate their involvement. According to Christine Lagarde, the director general of the International Monetary Fund (IMF), the $2 billion was meant for “tuna fishing, maritime security and weapons to fight Renamo rebels,” each sent to a respective government-owned company—Proindicus, EMATUM (Mozambique Tuna Company), Mozambique Asset Management (“MAM”) under the management of the Mozambican Security and Intelligence Service (SISE). However, some of the funds dedicated to these companies were siphoned off for personal use.

Since the price of gas decreased severely and delayed Mozambique’s gas field development, Mozambican officials could not pay back the money they had borrowed in 2016 and the news became public. By keeping the loans a secret, these officials essentially “lied to its own parliament,” the IMF, and other countries like Britain which prompted them to immediately reduce their aid and lending. This escalated the crisis where Mozambique’s local currency, the metical, became drastically “devalued” after a recent announcement of inflation rising to 25%. The crisis also forced the country to delay “payments to its suppliers” as well as finding itself unable to “make any interest payments on the debt.” Teachers and other civil servants found themselves impacted as their 13th-month salary bonus was halved, echoing the government’s statement of being unable to pay back its loans. An internal audit and press leaks demonstrated that the relevant officials were not the only ones who had a hand in robbing Mozambique as the banks partaking in this scheme—Credit Suisse and VTB—had terms “far above market rates.” Press leaks and Mozambican parliamentary report further demonstrated that the justifications for the $2 billion loans were ludicrous, assuming things like how Mozambique had the capability of selling tuna for 4 times as much as neighboring Seychelles.

In the face of the $2 billion debt, Mozambique’s former Minister of Economy and Finance, Manuel Chang, claimed that the government “would guarantee to repay the loans.” However, the parliamentary report stated that Chang had no authority to guarantee such loans, characterizing his actions as “unconstitutional, illegal, and invalid.” The report also further indicated that Chang’s guarantees should have been flagged due to their obviousness since the only entity capable of issuing guarantees is parliament. Even though the 3 government-owned companies had never engaged in trading before, Credit Suisse and VTB still issued the $2 billion loan under Chang’s management—falling under the overall leadership of Mozambique’s then-president, Armando Guebuza, with the promise of repaying 100% of the loans. Chang persisted in signing the guarantees despite the illegality of it all, surpassing the legal limits on loan guarantees in Mozambique’s 2013 and 2014 budget laws. A portion of the $2 billion loans became untraced, revealing that one Mozambican contractor had secretly arranged $137 million of “significant kickbacks” alongside a $50 million dedicated to Credit Suisse bankers to persuade them to secure more promising arrangements on the loans.

In Mozambique, citizens directed their ire towards former President Armando Guebuza and his party, including Chang and SISE. Meanwhile, Credit Suisse and VTB had the world’s eyes on them from their involvement in the scandal as they did not loan the $2 billion directly, but rather “sold bonds and pieces of those loans to investment funds and other lenders.” When it comes to large loans like this one, due diligence is a crucial aspect throughout the process where the banks examine the loan’s feasibility and the borrowing country’s economic state, ensuring that the country can repay the loan. Even a superficial examination of Chang’s state agreement would have indicated that there was suspicious activity going on, considering that the accompanying documentation like the feasibility report and repayment process was bogus. Credit Suisse and VTB’s secrecy of the loans to its lenders and bondholders elevated Mozambique’s debt crisis, essentially ensuring that Mozambique could not repay the debt it had incurred. According to the Guardian, both banks had transferred all relevant risks to people who bought the bonds and pieces of the loans, making all their money back through commissions and bearing no responsibility for the aftermath.

Credit Suisse and VTB’s global and respected reputation has aided them in orchestrating the sale of the bonds and loans, essentially placing Mozambique in a debt crisis while persuading consumers that they have done their due diligence and giving their stamps of approval. These banks’ lack of accountability throughout this process reflects their reliance on their reputations, believing that their reputation is enough for bondholders and other buyers of Mozambique’s loans. As global banks, they have the responsibility of ensuring that the loans they give are “sensible and not excessively corrupt” and that “the borrower is likely to repay” for “the investment funds taking on the loans.” Even from a glance, these banks should have realized that Mozambique’s request for a $2 billion loan alongside the feasibility reports and repayment documents was absurd and impossible. If Credit Suisse and VTB had done their due diligence, they would have recognized that their loan was excessive and Mozambique could not repay such a loan, preventing the country from economic chaos.

When asked about the secret $2 billion loans by the government, the relevant Mozambican officials attempted to defend themselves by stressing that the loans were meant for “military and security, and not fishing.” Former president Armando Guebuza, former finance minister Manuel Chang, and SISE’s senior official and the leader of the 3 involved companies António Carlos do Rosário, claimed that there were existing issues from “coastal protection, relating to piracy, the gas industry, fishing, immigration, and smuggling.” The 3 companies were deemed to be “special purpose vehicles” owned by SISE, but could act as an independent entity. Proindicus was the first to be created in January 2013 with a $622 million loan and an aim to “establish ‘integrated systems of aerial, spatial, maritime, lake, river and terrestrial security.’” The second company, Ematum, was created in August 2013 with an $850 million loan for “coastal protection and tuning fishing.” MAM, the last and third company, was created in April 2014 with a $535 million loan for “shipyards.” Chang and do Rosário admitted that their scheme included Proindicus initially borrowing $2 billion, but once that failed, MAM and Ematum were created with fishing as the primary guise. Do Rosário recognized such loans were not viable unless state guarantees were confirmed—which was illegal, but still “appealed to Chang’s sense of patriotism.” Chang succumbed to the pressure from SISE and confirmed the state guarantees without authorization from “the Council of Ministers, the Bank of Mozambique, the Attorney General’s office or the IMF.” Chang argued that he reserved “the right to decide,” claiming that a debt guarantee was different from a debt “because it was not included in the budget because it was not expected to have to be paid by the government.”

However, the Mozambican commission investigating this scandal, known as the Parliamentary Inquiry Commission (PIC), did not buy Chang’s arguments of how he was left to his devices by no choice. According to Mozambique’s Constitution, Article 179 explicitly states that “parliament establishes the upper limit for guarantees that may be given by the State.” Meanwhile, Chang’s guarantees “were all governed by English law, with a jurisdction clause in favour of the courts of England and Wales.” In 2013, the year in which the money was loaned by Credit Suisse and VTB, the upper limit was only $5 million compared to the $2 billion Chang had requested. And so, the Commission stated that the $2 billion loan Chan approved “constitute a violation of the constitution and of budget laws” which held restrictions in place for a finance minister. By signing the debt guarantee on behalf of the Mozambican government, Chang had “renounced” the Mozambican sovereignty, “submitting itself to the sovereignty of the British court system.” The former finance minister also claimed that it was on Credit Suisse and VTB’s shoulders to inform the IMF about the loans Mozambique had received instead of the government, stating that “the IMF representation in Maputo is an office… not an institution that discusses policies with the Government.” Do Rosário continued to admit additional details regarding the secrecy of the loan: “Of course we could not go and tell either the banks or anyone else that fishing was not the main part; that it was not for us the initial objective, but only complementary.” However, the Commission re-examined the bonds’ financial projections which were “made on the basis of unsustainable and hypothetical assumptions,” failing to consider external factors and risks accompanying Mozambique’s economic situation like “its vulnerability to international commodity prices.”

Against the wishes of the Mozambican officials, Credit Suisse issued public bonds through its involvement in lending Ematum, forcing money to be secretly directed towards the other 2 companies. Do Rosário justified the secrecy out of a “strategic-military” issue, making purchases with the SISE’s “classified information.” He also explained that after reaching an agreement with Lebanese company Privinvest, public discussions halted as it would have created an “open war” with various companies making offers. The $2 billion loan was allegedly sent to a contractor, Abu Dhabi Mar, owned by Privinvest, neglecting the need to “cover local costs for management, staff, training, bureaucratic procedures, and initial debt repayments.” The relationship between the 3 government-owned companies, the involved contractors, and the banks were lacking transparency, causing the Commission to state that the government should have “an independent inspecting body to check whether the assets ordered by Enactum, Proindicus, and MAM had been delivered.” At the same time, do Rosário failed to divulge in how the loan was transferred and used while the Commission advised that Mozambique’s government should not renounce the debt, “protect[ing] those responsible for legal action.” Even the former leader, Guebeza, claimed that the whole process was valid and would do it again if necessary: “Under these conditions, I believe any responsible government would act as we did.” However, Mozambique had defaulted on the loans, falling deeper into its current financial crisis in 2017.

In 2019, several Credit Suisse executives from various countries pled guilty to their involvement in the scheme, admitting to counts of money laundering and wire fraud. Meanwhile, in 2021, Credit Suisse was charged with a fine of £350 million by global regulators and pled guilty to wire fraud after forgiving hundreds of millions of dollars’ worth of debt by Mozambique. According to the UK’s Financial Conduct Authority (FCA), Credit Suisse employees deliberately hid bribes from financial records and failed to “properly manage the risk of financial crime within its emerging markets business”—despite having information on the potential likelihood of bribery related to such government projects. “Credit Suisse was aware Mozambique was a jurisdiction where the risk of corruption of government officials was high and that the projects were not subject to public scrutiny or formal procurement processes,” FCA stated. In 2021, Credit Suisse must pay a total of $275 million to U.S. regulators and £147 million to the FCA for its involvement with the scheme, a fine that would have been higher if the bank had not forgiven some of Mozambique’s debt.

Some members of the Mozambican political party, Frelimo, also found themselves standing trial and facing more than 10 years in prison, including the former president’s son, Ndambi Guebuza. Judge Efigênio Baptista took note of the corruption in his judgment: “These people are able to live well—them and their children—but they preferred to use money from Mozambicans, that many need, for futile purposes.” Ndambi Guebuza had bought “vehicles to offer friends” with the money embezzled from the government and received a $33 million payment to “speed up approval of the project from his father Armando,” but now is sentenced to 12 years in prison. The U.S. government had fought for Manuel Chang’s extradition in an indictment regarding Ematum over charges of money laundering and fraud, initially fighting Mozambique over his extradition until July 2023 when he was sent to a court in New York. The American government claimed that they had jurisdiction as Chang had taken advantage of the U.S. financial system as well and U.S. investors had been part of those who had been duped.

This is not to say that Credit Suisse’s involvement was absolved by Mozambique entirely as the country had sued Credit Suisse’s newfound parent company, UBS, in a $1.5 billion lawsuit. With this lawsuit, Mozambique aimed to “revoke a sovereign guarantee” on the $2 billion loan and “secure compensation for other alleged wrongdoing.” Following the collapses of hedge fund Archegos Capital and UK finance company Greensill Capital, Credit Suisse became increasingly weaker from the rise of scandals it was involved in and prompted for investor confidence to sink. This prompted for the Swiss financial authorities to broker a $3.2 billion buyout by UBS in hopes of calming down the global financial panic in 2023. And so, as the takeover became complete, it was UBS who faced the incoming allegations regarding the extent of Credit Suisse’s involvement with the tuna scandal. However, on October 1, 2023, UBS reached an out-of-court settlement with Mozambique, concluding the decades-long case: “The parties have mutually released each other from any liabilities and claims relating to the transactions.” This settlement came a day before a 3-month long civil trial based in London that was set to start, indicating that UBS would forgive a fraction of Mozambique’s loans—“less than $100 million”—according to a source. The full details of the settlement are not disclosed to the public.

Another participant in the scheme, Privinvest, continued to assert their lack of wrongdoing and argued that “if the money it paid people like Ndambi Guebuza were bribes, then so was a $1 million payment it made to Filipe Nyusi, the current president.” However, the UK Supreme Court ruled on September 2023 that Mozambique can sue Privinvest in Britain for its involvement in the scandal, which it did alongside Credit Suisse and other relevant parties. As Credit Suisse had settled with the Mozambican government, much of the attention is now on Privinvest who had fought for “secret arbitration proceedings” but must undergo a “lengthy public trial” instead. Isakander Safa, the billionaire owner of Privinvest now faces accusations of working alongside Credit Suisse and its bankers to bribe Mozambican officials. Within the first week of October 2023, Duncan Matthew, Privinvest’s counsel, said that the UBS settlement made a “significant shift” on Privinvest’s side as they “should have time to work out which claims and cross claims remained on the table.” Mozambique’s Finance Minister, Max Tonela, described the UBS settlement as “mutually advantageous” as it “opens the door to the possibility of restoring the confidence of international investors in Mozambique.” On the other hand, Privinvest has been trying to push Mozambican president, Filipe Nyusi, into court by alleging that he “accepted unlawful payments” in Mozambique’s lawsuits against those involved in the tuna bond scandal. The ship-making company also argued that Nyusi should be held liable for any damages Privinvest is forced to pay if they are found guilty. In response, Nyusi claimed immunity as he is the current head of state and the London court had agreed with him in not allowing him to be prosecuted, prolonging Mozambique’s case against Privinvest. According to sources, Mozambique is paying a monthly $4.26 million for its London-based legal team, totaling $80 million since 2019.

It is easy to focus on the culprits of the “tuna bond” scandal, but the real victims are Mozambicans who are grappling with the reality of the scandal. According to the Organized Crime and Corruption Reporting Project (OCCRP), at least 1.9 million Mozambicans have experienced living under consumption-based poverty by 2019—a record in the country’s history. This alarming figure underscores the profound impact of the scandal, which not only drained the country’s resources but also exposed the shortcomings in Mozambique’s legal and regulatory systems. The “tuna bond” scandal has shed light on the pressing need for stronger legal mechanisms, increased transparency, and improved governance in Mozambique. The failure to prevent such a large-scale financial scandal has highlighted the vulnerabilities within the country’s legal framework and its ability to safeguard the interests of its citizens. As the nation continues to grapple with the fallout from the scandal, the focus should not solely rest on identifying culprits, but should extend to reforming and fortifying the regulatory structures that will protect the rights and well-being of Mozambique’s citizens to prevent such devastating incidents from happening ever again.