Mozambique $2-Billion debt fraud, money laundering continues to unfold


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Questions about horizontal governance, internal controls at investment bank

Mozambique has been wrestling in recent years with allegations related to a $2 billion debt fraud involving government officials, state-backed companies, investors and disgraced bankers. That nation indicted 20 individuals in August, and the U.S. has charged various persons and secured multiple guilty pleas already.

U.S. jurisdiction in these Mozambique-based fraud allegations and indictments have been questioned, but U.S. attorneys assert they are protecting U.S. investors affected by the defaulted loans.

A Brooklyn federal court jury last week returned a not-guilty verdict in the trial of Jean Boustani, a Privinvest executive accused in the fraud. Former Credit Suisse bankers Andrew Pearse and Surjan Singh had already pleaded guilty to U.S. charges, as had Pearse’s lover and co-worker Detelina Subeva.

A recent Wall Street Journal feature describes how Pearse explained his fraud in terms of needing money to fund a luxury lifestyle and new business venture with his extramarital love interest. Detelina Subeva, and another Credit Suisse colleague both pleaded guilty to charges related to money laundering.

While only individuals face the charges in the U.S. and Mozambique, many questions relate to Credit Suisse and the subversion of its internal controls by its own employees. The U.S. indictment, filed in January, accuses defendants of securing loans for projects by state-backed companies but that the projects did not proceed meaningfully. Rather, the loan funds were used for kickbacks and bribes. The allegations focus on activities in 2013-2014.

The indictment acknowledges that Investment Bank 1 (i.e. Credit Suisse) had standard AML programs, internal controls, anti-fraud controls, anti-corruption training, and so on in place. But with Pearse and Singh having high-level positions at the bank and leading the “deal team” assigned to the transactions, they could actively skirt Compliance controls. Moreover, Detelina Subeva was on the deal team.

There were numerous and major red flags in the due diligence process, but Pearse, Singh, and Subeva allegedly repeatedly conspired to withhold or conceal the concerning information from the bank’s Compliance department, according to the indictment.

The indictment reads like a case study of how bad actors within a financial institution can manipulate internal controls and Compliance measures designed primarily to detect and repel external bad actors and external corruption. And the Credit Suisse employees used tactics like communicating via personal email rather than work email to evade detection.

After achieving their aims with the Mozambique deals, the bankers left Credit Suisse to work on their own investment firm.

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