Credit Suisse to pay $475 million to settle fraud charges related to Mozambique loan
Financial Investigations ı By Marivic Cabural Summers
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Credit Suisse Group AG (NYSE: CS) agreed to pay $475 million to settle fraud charges in connection with the financing of a multimillion-dollar loan for a state-owned tuna fishing project in Mozambique.
Authorities in the United States and the United Kingdom filed civil and criminal complaints against the Switzerland-based global financial institution for defrauding investors.
According to the U.S. Department of Justice (DOJ), the $475 million will be paid to authorities in the UK and the United States as well as restitution to investors. The court will determine the amount of restitution based on the agreed methodology to calculate the proximate loss for victims of Credit Suisse's fraudulent conduct.
Credit Suisse pleads guilty to defrauding investors
Credit Suisse admitted defrauding investors in the securities of Empresa Moçambicana de Atum S.A. (EMATUM), the state-owned entity responsible for developing the tuna fishing project, according to the DOJ.
The global financial institution through its subsidiary in the United Kingdom, Credit Suisse Securities (Europe) Limited (CSSEL), and co-conspirators misled investors and potential investors in EMATUM.
Between 2013 and March 2017, Credit Suisse, CSSEL, and co-conspirators made material misrepresentations and omissions regarding:
- risks associated with the use of loan proceeds
- the payment of kickbacks to CSSEL bankers and bribes to Mozambican officials
- the existence and maturity dates of debt owed by Mozambique
The global financial institution told investors that EMATUM will only use the loan proceeds for the tuna fishing project. However, co-conspirators diverted loan proceeds from investors to an EMATUM contractor that paid around $50 million in kickbacks to CSSEL bankers and approximately $150 million in bribes to Mozambican government officials.
Credit Suisse identified red flags including the significant corruption concerns before and during the EMATUM financing. It was also aware that EMATUM had problems servicing the loan, raising the risk of default. Additionally, the global financial institution knew that there is a substantial shortfall ($265 to $394 million) between the funds raised for the EMATUM loan and the fair market value of its boats, infrastructure, and training sold by its contractor.
Authorities in the U.S. and U.K. alleged that Credit Suisse did not disclose this material information to investors when it agreed to restructure and exchange the original EMATUM security into a bond with a longer maturity date. The price of EMATUM's securities declined in April 2016 when Credit Suisse's fraudulent conduct was revealed. As a result, investors suffered losses.
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