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$500 million loaned to Mozambique is currently unaccounted for, according to a new report

Published by Business Insider on Tue, 27 Jun 2017


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 excessivefees as part of the loan agreement, which the bank has denied.Loans totalling $2 billion were agreed withlendersCredit 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."Thereport found that $500 million of the total loan iscurrently unaccounted for and thatthe 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 millionroughly 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 gotfrom '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 froma2015 IMF report, whichnoted that the government of Mozambique had guaranteed a $850 million bond, issued by EMATUM, forthe 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 draftcontract between Privinvest Group and ProIndicus outlinedthat some of the boatswould be fitted with weapons, although thiswas omitted from the final contract.However,Privinvestwere adamantthat no weapons had been provided, and Kroll said ProIndicus had not explained the contractchange.Given thatthe 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 theyhad been unable to assess whether the boats and equipmentprovided by Privinvest had been value for money. When comparingPrivinvest's invoicesand 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 beenconvinced that this was necessary byofficials from Mozambique's security service, SISE. Some of the classified information requested by Kroll is currently being withheld by SISE.Mismanagement within the three companiesProIndicus trainees did not have the necessary technical knowledge or clothing, while EMATUM had not secured the necessary land and buildings to establish a coordination centrefurther 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 millionwill likely remain unexplained.Join the conversation about this storyNOW WATCH: HENRY BLODGET: High valuations mean low expected returns
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