Credit Suisse, a renowned Swiss bank with operations in more than 50 countries and over 45,000 employees, has been embroiled in a number of scandals and controversies over the years. One such scandal involved the bank’s role in facilitating loans for a corruption scheme in Mozambique, which resulted in a debt crisis for the African country.
The background summary of the Mozambique scandal
In 2012-2016, Credit Suisse arranged $1.3 billion worth of loans for three state-owned companies in Mozambique, namely Proindicus, Ematum, and MAM, to finance government-sponsored projects related to maritime security and tuna fishing. However, a significant portion of the funds was diverted to pay bribes to Mozambican officials and Credit Suisse bankers, as well as for other undisclosed purposes.
Credit Suisse failed to manage the risk of financial crime within its emerging markets business unit, according to regulators. The bank also misled investors about the nature and purpose of the loans, which were sold as bonds on international markets. Some of the loans were hidden from public scrutiny and violated Mozambique’s constitutional borrowing limits.
What was the overall banks exposure?
The total amount of loans arranged by Credit Suisse for Mozambique was $1.3 billion, which represented about 10% of Mozambique’s GDP at the time. The loans carried high interest rates and fees, which increased Mozambique’s debt burden significantly. Mozambique defaulted on its debt obligations in 2017 and faced lawsuits from creditors seeking repayment or compensation.
The scandal triggered a political and economic crisis in Mozambique, leading to the suspension of the International Monetary Fund’s assistance program to the country. Other donors also cut off their aid or demanded more transparency from the government.
What are the consequences to the bank?
Credit Suisse faced legal actions and regulatory sanctions from various authorities over its role in the Mozambique debt scandal. In October 2021, the bank agreed to pay $475 million in fines and forgive $200 million of debt owed by Mozambique in a series of co-ordinated settlements with four regulators in three countries: the UK’s Financial Conduct Authority (FCA), the US Department of Justice (DOJ), the US Securities and Exchange Commission (SEC), and Switzerland’s Financial Market Supervisory Authority (FINMA). The bank also pleaded guilty to wire fraud charges in New York federal court and entered into a deferred prosecution agreement with US authorities.
The Mozambique debt scandal serves as a reminder of the importance of responsible lending practices and risk management in the financial industry. It also highlights the serious consequences of corruption and financial crime, which can have devastating effects on the economies and societies of developing countries.
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Keywords: Credit Suisse, Mozambique Debt Scandal, Corruption Scheme, Loans, Sovereign Guarantees, Kroll Associates Inc., Economic Crisis