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Mozambique - Corruption

The scale and scope of corruption in Mozambique are cause for alarm. This corruption is a symptom of democratic and governance weaknesses in the country, and these structural weaknesses amplify a threat that has the potential to undermine Mozambique’s future development progress. As a consequence, Mozambique’s nascent democratic government and the significant success of the country’s development efforts are at risk.

A four-count indictment was returned on Dec. 19, 2018, by a grand jury in the Eastern District of New York, charging two executives of a shipbuilding company, three former senior Mozambican government officials, and three former London-based investment bankers for their roles in a $2 billion fraud and money laundering scheme that victimized investors from the United States and elsewhere. The defendants orchestrated an immense fraud and bribery scheme that took advantage of the U.S. financial system, defrauded its investors and adversely impacted the economy of Mozambique, in order to line their own pockets with hundreds of millions of dollars.

Proindicus S.A. Empresa Mocambicana de Atum, S.A. ("EMATUM") and Mozambique Asset Management ("MAM") were companies owned, controlled and overseen by the Government of Mozambique that performed functions that the Government of Mozambique treated as its own. The companies were created to undertake three maritime projects in Mozambique for and on behalf of Mozambique. Proindicus was to perform coastal surveillance, EMATUM was to engage in tuna fishing and MAM was to build and maintain shipyards.

Through a series of financial transactions between approximately 2013 and 2016, Proindicus, EMATUM and MAM borrowed in excess of $2 billion through loans guaranteed by the Mozambican government. Each of the companies entered into contracts with Privinvest to provide equipment and services to complete the maritime projects. The loan proceeds were supposed to be used exclusively for the maritime projects, and nearly all of the borrowed money was paid directly to Privinvest, the sole contractor for the projects, to benefit Mozambique and its people.

In reality, the defendants JEAN BOUSTANl, NAJIB ALLAM, MANUEL CHANG, ANTONIO DO ROSARIO, TEOFILO NHANGUMELE, ANDREW PEARSE, SURJAN SINGH and DETELINA SUBEVA, together with others, created the maritime projects as fronts to raise money to enrich themselves and intentionally diverted portions of the loan proceeds to pay at least $200 million in bribes and kickbacks to themselves, Mozambican government officials and others. The co-conspirators applied only a portion of the loan proceeds towards the maritime projects. In furtherance of the scheme, Privinvest charged inflated prices for the equipment and services it provided, which were then used, at least in part, to pay bribes and kickbacks. After conducting little or no business activity, Proindicus, EMATUM and MAM each defaulted on their loans.

The co-conspirators facilitated Privinvest’s criminal diversion of more than $200 million in loan proceeds, including more than $150 million in bribe payments to Chang and other Mozambican government officials that Privinvest paid to ensure that Mozambique would enter into the loan arrangements. In addition to the bribe payments, the alleged fraud also included approximately $50 million in kickback payments to Pearse, Singh, and Subeva, who assisted the conspirators to obtain financing for the loans through their investment bank and a second foreign investment bank.

On or about November 14, 2011, NHANGUMELE responded by email to BOUSTANI, stating: "Let us agree and look at project in two distinct moments. One moment is to massage the system and get the political will to go ahead with the project. The second moment is the project implementation/execution. I agree with you that any monies can only be paid after the project signing. This has to be treated separately from the project implementation ... Because for the project implementation there will be other players whose interest will have to be looked after e.g. ministry of defense, ministry of interior, air force, etc. ... in democratic governments like ours people come and go, and everyone involved will want to have his/her share of the deal while in office, because once out of the office it will be difficult. So, it is important that the contract signing success fee be agreed and paid in once-off, upon the signing of the contract."

On a daily basis, citizens experience petty administrative corruption at police checkpoints, health institutions, schools and government offices. Even more serious grand corruption and state capture exist at higher levels of government. These involve the pilfering of substantial sums from the public coffers and fostering damaging misconduct and abuses, for example, favoritism and nepotism in public appointments and procurements, conflicts of interest and insider dealing that benefit friends, relatives and political allies, and political party and electoral decisions that reduce democratic choices and citizen participation. More troubling are the allegation of linkages between corrupt government officials and organized crime.

Victims of corruption are often those without political power, such as the poor. Police officers are often corrupt, due to a lack of financial resources and training. Bribes and kickbacks are common in education, health, and public utility sectors. Mozambicans perceive corruption in contract negotiations among large infrastructure and transport projects. President Guebuza has business interests in almost all areas of economic activity. Hiring decisions are often based on personal connections or nepotism. Whistle-blowers are rarely protected and can suffer negative consequences for reporting corruption.

The Attorney General addressed the corruption problem in his 2001 annual report to parliament, calling for a purge of the police force in order to rid it of all who have links with organized crime. In his strikingly honest report to parliament, he stressed the sharp rise in violent crimes, which has created a climate of insecurity, fear and uncertainty, without an adequate response from the authorities.

Mozambique has made great strides, particularly since the signing of its peace agreement in 1992 and its first multi-party elections in 1994. Corruption spread rapidly over the following 20 years and soon reached into virtually every sector, function, and level of government. The scale and scope of corruption in Mozambique reached alarming levels and potentially posed a risk to the country’s nascent democratic government. Corruption was so endemic that it became the norm for citizens and businesspeople, who tolerate it in order to get things done and gain access to basic public services. Low-level government officials use corruption to supplement meager incomes, while high-level government officials use corruption to enhance their wealth and reinforce political power, and economic elites use it to consolidate their position and prevent competition.

Despite the government's strong anticorruption rhetoric, corruption in the executive and legislative branches was widely perceived to be endemic in 2009. The World Bank's Worldwide Governance Indicators reflected that corruption was a serious problem. Petty corruption by low-level government officials to supplement low incomes, and high-level corruption by a small group of politically and economically connected elites continued to be the norm. Corruption largely resulted from a lack of checks and balances, minimal accountability, and a culture of impunity.

Local non-governmental organizations (NGOs), such as the Center for Public Integrity, and media groups continued to be the main civic forces fighting corruption, reporting and investigating numerous corruption cases. Mozambique ranked 116 out of 178 countries in Transparency International's 2010 Corruption Perception Index, up from a 2009 ranking of 130 out of 180 countries. The law requires that all members of the government declare and deposit their assets with the Constitutional Council, but does not require that such information be made available to the general public.

Anti-corruption law in Mozambique provides for strict accountability and harsh penalties, but rule of law and enforcement are weak. The government is increasing transparency through new laws such as the 2004 Anti-Corruption Act. Since 2004, the Internal Audit Department has had its own budget line, which has resulted in increased funding. An Anti-Corruption Strategic Plan for the health, education, finance, police, and justice sectors was launched in 2006. The Administrative Tribunal, an independent body, ensures the legality of government spending, but its lack of resources and educated workers hampers its effectiveness. Courts that are understaffed and influenced by the executive branch often refuse to prosecute corruption cases, and the legislature cannot win enough votes together to pass stronger laws or appoint an ombudsperson to oversee the executive branch. The Central Office for the Fight Against Corruption can investigate corruption, but cannot prosecute it.

Corruption thrives in Mozambique because government is not sufficiently accountable to the citizens of the country or to the law. This system is facilitated by a lack of independent oversight from the National Assembly, a judicial system that puts politics above the law, and a lack of transparency. While some laws and regulations exist on paper that provide a framework for good governance, few control mechanisms are established or operate in reality to ensure that these frameworks function honestly, transparently and in accordance with the public good.

These dynamics are at work at both the elite and administrative levels. However, it is the grand corruption at the elite level that sets the tone for and limits the ability of even those brave individuals who want to make a difference to do so. Low pay and poor conditions of service make lower-level officials more likely to participate in corruption, but leadership by example and effective oversight both within government and by the public are the keys to reducing administrative corruption.





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