Hidden debts trial: 9 December 2021 – AIM report

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Hidden debts trial: 9 December 2021 – AIM report

5:17 CAT | 10 Dec 2021

Photo: O País

Finance official takes refuge in shop-worn claims about “national sovereignty”

Mozambique’s former Deputy Finance Minister, Isaltina Lucas, on Thursday excused all the illegalities committed in the case of Mozambique’s “hidden debts” as justified on grounds of “defence and security” and “national sovereignty”.

The term “hidden debts” refers to the loans of over two billion US dollars obtained by three fraudulent, security-related companies, Proindicus, Ematum (Mozambique Tuna Company) and MAM (Mozambique Asset Management) from the banks Credit Suisse and VTB of Russia, on the basis of illicit loan guarantees signed by the then Finance Minister, Manuel Chang.

Giving evidence to the Maputo City Court, Lucas, who was National Treasury Director when the debts were contracted, justified the rush in 2013 and 2014 to obtain state guarantees on the grounds of “secrecy and urgency”.

She had been assured that the three companies were vital for state security by Chang (currently wanted on fraud charges in both Mozambique and the US), and by the then director of economic intelligence in the security service (SISE), Antonio Carlos do Rosario, one of the main accused in the Maputo trial. It never occurred to Lucas that these two people might not be telling her the entire truth.

She knew that the loan guarantees were illegal, because they smashed through the ceiling on guarantees fixed in the 2013 and 2014 budget laws. But she did not worry about such details, because her superiors had told her the project was vital for national security.

In 2013, the loan guarantees signed by Chang, when expressed in Mozambican currency, amounted to over 43.4 billion meticais. The ceiling on loan guarantees in the 2013 budget law was 183.5 million meticais. Thus Chang signed guarantees that were 237 times the legal limit.

The only way to legitimize the guarantees would have been to amend the budget law in the country’s parliament, the Assembly of the Republic, but Lucas said “this was not done because it was a matter of security requested by SISE”. Likewise no attempt was made to obtain a legal opinion on the loans from the Attorney-General’s Office (PGR), or approval from the Administrative Tribunal, the body that vets the legality of public expenditure.

Furthermore, the Finance Ministry did not audit any of the three companies, and this again was justified on security grounds. The company Ernst & Young, however, did audit Ematum. But Lucas did not mention that the 2015 audit was never completed.

The Ematum CEO at the time, Felisberto Manuel, told the court in November, that “The 2015 accounts were never closed. Had the accounts been closed, the company would have had to declare bankruptcy”.

The 2016 and 2017 accounts were also never closed. The company was in a desperate situation “and the shareholders took no action”, said Manuel.

Lucas made the by now familiar claim that Ematum was not just a fishing company, but had a security component. But she could not explain what exactly this component was. Judge Efigenio Baptista noted that its sister company, Proinducus, had such security-related assets as patrol vessels, aircraft and radar stations. What equivalent assets did Ematum possess?

Lucas could not answer, “I was not involved in the supply contracts”, she said. So why was she convinced that there was any security component at all to Ematum. It was “verbal information” from Rosario, she replied.

She repeated the claim that the government had taken over much of the Ematum debt because it had been used for defence purposes and not for fishing. In the initial restructuring the governing took responsibility for 350 million dollars of the initial 850 million dollars debt. Then, said, Lucas, the proportions were “corrected” so that 500 million dollars became a government responsibility and 350 million were to be repaid by the company.

But what was purchased with the 500 million dollars?, Baptista insisted. “I don’t know”, replied Lucas,

When the company Kroll Associates carried out a forensic audit of the three companies in early 2017, it found a 500 million dollar hole in the Ematum accounts – and rejected the excuse that the money had been siphoned off for defence purposes. The Defence Ministry insisted that it had never received anything purchased with the Ematum loan money.

At Chang’s insistence, Lucas became a non-executive director of Ematum, but told the Court she could not remember most of what she had done as a director. She had attended meetings of the Ematum board but had little recollection of what had been discussed.

When public prosecutor Sheila Marrengula asked how Ematum expected to pay for its enormous costs (such as insurance of 44,000 dollars a quarter for each of the 24 boats, and mooring fees of 258 dollars per day per boat), Lucas replied “a non-executive director does not guide the company”.

“Did you give an opinion of this?”, asked Marrengula. “I have no memory of this”, Lucas replied.

So what was discussed at the meetings she attended? “Questions of operations were discussed”, she replied. “I have no exact memory of this. I recall vaguely the question of modifying the boats to comply with Mozambican regulations”.

Was there any discussion of the exorbitant prices charged by the Abu Dhabi based group Privinvest, the sole contractor for Proindicus, Ematum and MAM. Marrengula reminded Lucas that Privinvest charged Ematum over 22 million dollars for each fishing boat, when the world market price for longliner tuna fishing vessels is around two million dollars.

“I don’t recall if this matter was ever discussed at the Board of Directors”, said Lucas. “I don’t know if it was discussed after I left Ematum in 2015”.

She told the court her salary, as an Ematum non-executive director, was 188,000 meticais a month (almost 3,000 US dollars at today’s exchange rate, and considerably more at the rates of 2014) – a great deal of money for doing, on her own admission, virtually nothing.

Marrengula asked Lucas if she knew anything about “success fees” (a polite term for bribes) paid to those involved in the three companies. “I’ve never heard of this”, she said.

Source: AIM