An inquiry into the loan scandal surrounding Mozambique's default shows that the money procured via Credit Suisse and VTB Bank served many purposes – just not helping the African nation to develop its economy.

Credit Suisse (CS) so far has flatly denied being at fault for Mozambique’s failure to repay its debt, including in a recently-published inquiry by New York-based Kroll economic research agency. The report by the agency suggests that some questions remain to be answered.

Kroll says that CS and Russia’s VTB, which together organized credit worth more than $2 billion to three state-owned companies in Mozambique, had received $200 million in fees, a claim CS rejects. The loans were intended for a tuna fishing fleet, patrol boats, nautical equipment, maintenance and training.

Bonds Awarded, Fees Distributed

CS in a statement said that it had received $23 million, or roughly 2.3 percent of the loans, a sum in line with market prices. A further $140 million from the $200 million in fees had been so-called contractor fees, passed onto members of the syndicate and investors, intended to boost their return.

CS and VTB had emitted bonds with a coupon of 8.5 percent for parts of the loans granted to Mozambique. CS had not told investors that the bank had granted further loans to the country.

Investors only found out after agreeing to a refinancing in March 2016. The deal had become necessary because Mozambique hadn’t been able to finance the loans. Switzerland’s banking regulator Finma is looking into the transaction, as is the U.K.’s Financial Conduct Authority, or FCA.

The Role of Abu Dhabi Mar

The Kroll Report shows in detail who received how much of the money provided to the African country. Apart from the banks, it includes officials in the African nation and Abu Dhabi Mar, a company based in the Middle East. Abu Dhabi Mar delivered tuna fishing boats, other vessels and nautical equipment and infrastructure as well as an aircraft. The company received $1.8 billion for the goods and services, paid with money borrowed by Mozambique.

Kroll indicated that there had been a number of conflicts of interest in the provision of the loan, and that a large amount of information had been withheld by authorities and companies in Mozambique that would have helped shed light on the affair.

Where Are the Missing $500 Million?

This included the whereabouts of several hundred million dollars, information about which had not been forthcoming from sources in Mozambique. What is known is that Mozambique had changed the end purpose of some of the loans and attributed them to the budget of the country’s military.

Kroll said that it was unclear where some $500 million of the loan intended for the tuna fishing project went to.

Overpaid?

The agency says that Mozambique paid too much for the boats, further equipment and services. Kroll compared the money the country paid with estimated market prices of the equipment and services and came up with a delta of $713 million.

Abu Dhabi Mar is controlled by Privinvest, an investment company partly controlled by Iskandar Safa, a Lebanese billionaire. A spokesperson for Privinvest told finews.com that Kroll in its calculations had not taken into account a number of elements of the deliveries agreed in the contract.

A Lot of Additional Technology

Privinvest hadn’t delivered individual pieces of equipment, but an integrated system, whose individual elements had been adjusted to the needs and complemented with additional technology.

Privinvest also holds a stake in Palomar, an offshore firm. Andrew Pearse, a former CS banker, is a partner at Palomar.

Role of the Former CS Banker

During his time at Credit Suisse, Pearse is said to have contributed to the awarding of part of the Mozambique loans. He had told finews.com that there had been no conflict of interest between his work at CS and his stake at Palomar.

Kroll says that Palomar had received fees of $30.6 million. More than CS and VTB together. Kroll isn’t able to say why this was the case because of the information that had been withheld.

The report alludes to the conflict of interest of a person only named as «B» who had owned a stake in Palomar and had been a former member of a participating company. The report doesn’t specify whether person «B» is Andrew Pearse, and whether the company involved is Switzerland’s second-largest bank.

A spokesperson for Palomar told finews.com that the Kroll-report contained errors and was misleading. Kroll never had contacted Palomar. Still, Palomar was ready to provide the necessary information at any time.

Projects That Don't Work Properly

The inquiry also found that Abu Dhabi Mar, Privinvest and Palomar had had leading roles in all the Mozambique projects. They structured the projects, introduced CS as a provider of financing, agreed payments of contractor fees and restructured the credits – which led to the payment of further fees.

The report also says that Privinvest had provided financial support. The projects hadn’t taken off as had been expected, partly because of a lack of infrastructure for fish processing, but also because personnel had been unsuitable.

Palomar Capital Advisors Liquidated

Zurich-based Palomar Capital Advisors was liquidated in November 2016. Pearse was chairman of the company, which had been a key actor in the Mozambique deal and received the fees mentioned. The fees still outstanding will now go to VR Global Partners, a company based in the Caribbean.

Kroll has kept the report neutral and refrained from making assumptions or pointing fingers. Still, the inquiry repeatedly showed that some of the payments and transactions could not be explained on the basis of the information available.

CS Agreed to the Deal Even as Conditions Weren’t Met

Credit Suisse is being cleared by the report’s findings. It says that CS had demanded a number of conditions to be met for it to agree to the deal. They included an agreement from the central bank of the country, an examination of local courts as well as a report to the International Monetary Fund.

The documents Kroll had at its disposal showed that the conditions set out by CS had not been met. Further information would need to be made available to explain why the bank had agreed to providing the finance despite its conditions hadn’t been met.