Posted by & filed under Crime.

By Ann C. Logue

The world’s financial markets are interconnected, so this week, a Swiss investment bank was sanctioned in Washington and London for its activities in Mozambique. Here’s what happened.

Between 2013 and 2016, Credit Suisse helped the government of Mozambique raise $2 billion for a tuna-processing venture. Mozambique is on the southeastern coast of Africa, across from Madagascar. It has a population of 30 million, and GDP per capita is $1,200, according to the CIA World Factbook. It has a young population in need of employment opportunities and economic development. The tuna business seemed perfect! Unfortunately, Mozambique had some corrupt government officials and Credit Suisse had some corrupt investment bankers. Most of the money raised was kicked back to these bad actors.

In 2018, charges were brought against three bankers, three government officials, and two middlemen. A year later, they pleaded guilty to money laundering and defrauding US investors in the project. Following that, regulators began an investigation into the compliance policies at Credit Suisse, leading to the $475 million in fines assessed this week.

Emerging markets investments are popular with alternative investors because they offer both growth potential and low correlation with developed markets. Broadly speaking, Africa is underdeveloped but holds great potential for growth. However, there are 54 different nations on the continent, with very different resources and very different levels of governance. This creates a trap: the risk of investing in a country with bad actors is great enough that countries with good actors can’t get adequate capital—especially if bad actors in developed markets, like the three Credit Suisse bankers, are interested in playing games.

In addition to $475 million in fines in the US and UK, Credit Suisse will forgive $200 million in debt remaining on the defunct tuna project.

Globalization increases the number of oversight agencies with jurisdiction on a given transaction. It has often led to great economic growth. In this case, it led to the people of Mozambique being saddled with even more debt instead of a viable agribusiness. 

The release of the Pandora Papers will lead to more fines. People who thought they were evading the SEC or the UK Financial Conduct Authority will find that they are, indeed, covered.  

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