Everything depends on Kroll being allowed to do its audit – Hanlon

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Everything depends on Kroll being allowed to do its audit – Hanlon

5:47 CAT | 07 Dec 2016

Kroll has started its forensic audit of the $2 bn secret debt and the three maritime companies controlled by the security services (SISE, Servico de Informacoes e Seguranca do Estado). Donors and lenders have made clear that any improvement in relations with government is conditional on the audit being assisted and not blocked. SISE and senior Frelimo figures tried to restrict the audit, particularly by excluding military and security aspects, but they were unsuccessful. But the fear is that they will try to limit the release of information and not cooperate with the audit.

This could be a problem because of long chains of linked loans and expenditures. Kroll’s skill is following such chains.

Africa Confidential argues that half of the $2 bn in secret loans is not accounted for, and that $900 mn has been further lent or used as loan guarantees for the purchase of arms and security equipment. Kroll will be expected to follow those chains. And Kroll will want to know precisely what was purchased, to look for inflated prices, kickbacks and other forms of diversion of money. (Africa Confidential, 18 Nov, available on http://www.rhula.net/pdf/Mozambique Weekly 11 NOVEMBER TO 18 NOVEMBER 2016.pdf)

This may take more than the initial three months. Starting the Kroll audit was enough to allow the arrival of the IMF team now in Maputo (see below) but there will be no further movement without confirmation of full cooperation and no agreements until publication of the full audit.

But there also seems to be broad (albeit not total) agreement by lenders and donors that they cannot keep adding new demands. The IMF will demand a harsh austerity package, and thus donors feel they cannot also demand prosecutions or return of stolen money. The assumption is that the Kroll audit will show substantial misconduct and illegal actions, and that it will be up to Frelimo to decide what response is required – particularly taking into account grassroots anger at the debt and subsequent economic crisis, in the context of municipal elections in 2018 and national elections in 2019. Will Frelimo risk losing an election to protect senior figures?

The audit is being carried out under the Attorney General’s (Public Prosecutors’) office, which directly links it to possible criminal action. On 21 November the IMF “Executive Board welcomed remedial measures already taken, including the launch by the Public Prosecutor of a criminal investigation into the debts incurred by certain state-owned entities, and an independent audit of these entities by an international auditing company.”

But it is also recognised that prosecution will take time, although initial steps can be taken soon after the release of the audit. It is widely assumed that Manual Chang will be made scapegoat, because as Finance Minister he said the loans were guaranteed; in fact, he had no right to say they were guaranteed because only parliament can give guarantees. But a deal which involved pleading guilty and receiving a suspended sentence would then be likely. Thus the outcome could be similar to that after the collapse of Banco Austral in 2001, with a forensic audit but no prosecution of senior Frelimo figures for stealing money or killing Siba-Siba Macuacaua.(See )

The debts were taken out under British law from the London offices of Credit Suisse and VTB, and investigations are already under way by British financial authorities into possible misconduct by the two banks. The next step could be for the Mozambican attorney general to open contacts with British financial authorities, both to pursue a joint criminal investigation and to attempt to retrieve money improperly put into foreign bank accounts. This would have some donor support, and might look good to voters – and could be abandoned after 2019 elections.

By Joseph Hanlon

Source: News Reports & Clippings