How Mozambicans Shoulder the Burdens of Corruption

People standing in a line before a nurse
A nurse inoculates infants at a health clinic, in Nacala, Mozambique, on July 4, 2018. © Gianluigi Guercia/AFP/Getty

In late 2019, a jury in a New York City federal court acquitted Jean Boustani, a Lebanese salesperson for the shipbuilding company Privinvest, in a criminal case. The United States government had accused him of defrauding investors, which burdened Mozambique with $2 billion in sovereign debt—an extraordinary amount for a country whose annual GDP is $14.7 billion.

Jurors who acquitted Boustani said that they, “…didn’t see how federal prosecutors in Brooklyn had the authority to prosecute crimes that hadn’t occurred in their jurisdiction.” Jurors did not address substantive questions concerning Boustani’s guilt.

While Boustani walks free, the real human cost of the debt scandal is still unaccounted for in Mozambique. The debt is likely to have severely affected the country’s most vulnerable communities who are already overburdened by an underperforming healthcare system and environmental disasters. But creditors and the international community should not require Mozambique’s affected population to pay for the misconduct of corrupt individuals. Efforts should focus on truth-seeking and accountability for perpetrators.

Mozambique is a resource-rich country in southern Africa with enormous potential for economic growth. Having gained independence from Portugal in the mid-1970s, Mozambique is still emerging from the bloody civil war that followed and severely hindered its economic development.

The evidence set out in the criminal indictment alleges that Boustani, together with Privinvest, orchestrated a complex wire fraud, securities fraud, bribery, and money laundering operation. The operation included London-based bankers from Credit Suisse and other financial institutions, as well as members of the highest echelons of Mozambique’s political oligarchy – namely its ex-Minister of Finance Manuel Chang and the son of the President of Mozambique.

Under the corruption scheme, the Mozambican government created three state-owned companies aimed at capitalizing on Mozambique’s resource-rich and untapped maritime exclusive economic zone. Despite lacking viable business plans and qualified staff, the companies contracted about $2 billion in loans from European banks.

The Mozambican government then guaranteed the loans, meaning they would assume the debt if the companies defaulted. To finalize the loan deals, the bankers involved circumvented their banks’ internal due-diligence processes, while Mozambican government officials provided public guarantees by illegally evading the required parliamentary approvals and exceeding legal budgetary limits allowed for state guarantees.

Boustani and his co-conspirators took and paid off over $200 million in bribes to government officials, bankers, and other facilitators of the corruption scheme. Authorities cannot account for another $500 million. Meanwhile, the three companies have yet to initiate serious business activities or generate any income.

The $2 billion in debt now shouldered by Mozambique represents about 20% of the country’s total debt, and further deteriorates the government’s capacity to ensure basic services for many of its people. Budget cuts compounded Mozambique’s healthcare problems, which had already been grappling with high rates of malaria, HIV, and tuberculosis.

In 2018, Cyclones Idai and Kenneth estimated to have killed over 1,000 people in Mozambique. Rural and agricultural areas, where about 66% of Mozambique’s population lives or works, saw their schools and hospitals “ripped to shreds.” Diseases spread after water contamination, and agricultural communities are still struggling with hunger after the destruction of their crops. Part of this loss may relate to the new debt, which decreased state resources, which are needed to respond adequately to the humanitarian needs emerging from the crisis.

Following the revelations of the debt scandal, major donors such as the International Monetary Fund (IMF) and some G14 countries suspended all aid programs to Mozambique due to loss of trust in the country’s government. According to the Mozambican Attorney General, before the scandal, donor contributions composed 14.2% of GDP; in 2018, international contributions decreased to 6.1% of GDP. However, these figures seem to have shifted in response to the cyclones.

In mid-2019, the Mozambican Constitutional Court ruled one of the loans illegal, as it had not received required parliamentary approval for public guarantees and, further, the amount exceeded official loan limits. A decision on the legality of the two other loans is pending. Such a ruling should, in principle, make any further loan payments by the Mozambican government illegal.

The Fórum de Monitoria do Orçamento, a coalition of Mozambican civil society organizations, argues that the people of Mozambique should not pay for debts that were not approved by the Parliament. United Nations expert on the effects of foreign debt on human rights Juan Pablo Bohoslavsky has similarly made the case that Mozambique should not be required to repay these loans – especially since they were taken out in violation of anti-corruption laws. He has stated further that “the realization of economic, social and cultural rights in Mozambique should not be jeopardized by the servicing of the country’s debt and in particular its ‘secret loan’ component”.

Mozambicans should not be expected to pay for European banks’ failures to ensure due diligence in their lending practices, nor for government officials’ corrupt abuses of power. The perpetrators of this scheme have been identified, and they are not the Mozambican taxpayers. Should this loan be repaid, it should not be at the expense of the over-burdened pockets of the Mozambican people.

The Mozambican government has been renegotiating its debt repayment terms on these illegal loans. The agreements reached so far were widely criticized and said to favor only the creditors, to the detriment of the Mozambican people.

The international community should pursue available accountability mechanisms to bring those individuals and institutions involved to justice. While the jury in the New York City criminal case found Boustani not guilty due to lack of jurisdiction, several possible avenues for litigation still exist.

Switzerland or the United Kingdom could file a similar case based on the venue of Credit Suisse’s international headquarters or its London subsidiary. France could find jurisdiction due to the location of one of Privinvest’s subsidiaries in Cherbourg, France, as well as through the nationality of Privinvest’s French-Lebanese principal shareholder. Mozambique could also attempt to prosecute perpetrators, though it may find domestic political and logistical obstacles in doing so—especially in relation to non-nationals.

While substantial progress has been made in identifying events, individuals, and institutions involved in the debt scandal, more must be done to secure a fair outcome for the public debt payment and accountability for perpetrators. As one Mozambican commentator stated, “All these people were once untouchable […] now, no matter what, they will be [prosecuted]. We will no longer call thieves ‘excellency’ in the streets. They will now be called ‘the accused’”.

Get In Touch

Contact Us

Subscribe for Updates About Our Work

By entering your email address and clicking “Submit,” you agree to receive updates from the Open Society Justice Initiative about our work. To learn more about how we use and protect your personal data, please view our privacy policy.