Credit Suisse to pay over US$450m in Mozambique scandal

Zurich

CREDIT Suisse Group AG agreed to pay almost US$475 million to resolve multiple investigations into its role in a fund-raising scandal that saw hundreds of millions looted from Mozambique and tipped the country into economic crisis.

The Zurich-based bank said it expects to take a US$230 million charge in the 3rd quarter as a result of the settlement, a further hit for shareholders after the bank was buffeted by the Greensill and Archegos Capital Management scandals.

The legal agreement is the latest action in a multi-year, international saga resulting from US$2 billion of debt deals that were supposed to help fund a new coastal patrol force and tuna fishing fleet in Mozambique, one of the world's poorest countries.

Three Credit Suisse bankers have previously pleaded guilty in the matter.

Credit Suisse Securities Europe Ltd, a unit of the bank, pleaded guilty to a single charge of conspiracy to commit wire fraud at a hearing in Brooklyn federal court on Tuesday.

The parent company also entered into a three-year deferred-prosecution agreement with the US Justice Department. The bank deceived investors by hiding information about the use of the proceeds of three debt offerings from 2013 to 2016, prosecutors said on Tuesday.

Credit Suisse bankers received US$50 million in kickbacks that were hidden from other members of management, part of at least US$200 million in "improper payments" and bribes, the US said.

The settlement highlights include a US$247.5 million criminal fine paid to the US Justice Department, which will be reduced to US$175.5 million after crediting payments to other authorities; US$100 million paid to the US Securities and Exchange Commission; and forgiveness of US$200 million in debt owed by Mozambique as a result of the loans.

The agreement with authorities from the US to Switzerland helps Credit Suisse move forward after a series of recent scandals.

The lender was forced to freeze US$10 billion in supply-chain finance funds this year related to defunct finance company Greensill Capital, and it took a US$5.5 billion hit from the collapse of prime brokerage client Archegos Capital Management.

The Swiss bank has overhauled its management ranks in the aftermath of those blow-ups, and new chairman Antonio Horta-Osorio has vowed to clean up the lender's problematic attitude toward risk management.

He has spent the last few months debating strategic options, with an expectation to finalise the long-term vision and mid-term targets by the end of the year.

Tuesday's settlement with the Swiss regulator also concludes its investigation into the bank's spying on executives, Credit Suisse said in a statement.

The bank also revealed that there had been five other incidents of spying besides those of former international wealth management head Iqbal Khan and former human resources head Peter Goerke, all outside Switzerland, between 2016 and 2019.

"Credit Suisse is satisfied with the completion of the proceedings by US, UK and Swiss regulatory authorities into the bank's arrangement of loan financing for Mozambique state enterprises and can now draw a line under the observation matter."

Credit Suisse had provisioned 1.7 billion Swiss francs (S$2.5 billion) for litigation matters as of year-end 2020 and estimated a maximum of 900 million Swiss francs in litigation losses not covered by the provisions.

Last year, the bank had been forced to drastically increase provisions - driving it to a 4th-quarter loss - for legacy legal cases in the US, most notably one involving financial crisis era mortgage-backed securities.

"This marks a first in that relief is flowing to the people of a country," said Matthew Herrington, a lawyer for Credit Suisse at Paul Hastings LLP. "I am proud to have been part of this resolution."

In Mozambique, the scandal has ensnared over a dozen people, including the son of the nation's former president and the ex-head of intelligence. Former finance minister Manuel Chang, who signed the government guarantees for the debts, has been held in custody in South Africa since 2018.

"The Republic of Mozambique welcomes the admission by Credit Suisse to regulators today of criminal wrongdoing," Keith Oliver, a representative for the attorney general of Mozambique, said in a statement.

"This is an important step towards obtaining full redress for the people of Mozambique."

Andrew Pearse, who led the global financing group in the bank's London office, testified at a 2019 federal trial in Brooklyn, New York, that he'd pocketed at least US$45 million in illicit payments for his role in the arrangement of the loans.

Both Pearse and his successor at the bank, Surjan Singh, who also pleaded guilty, testified at the trial of Jean Boustani, a Privinvest executive accused by the US of being behind the plan to get Mozambique to borrow billions of dollars and overpay for dubious maritime projects.

A third banker, Datelina Subeva, Pearse's subordinate, also pleaded guilty but didn't testify. All three bankers await sentencing.

After a six-week trial, a federal jury cleared Boustani of all charges. BLOOMBERG