Money Laundering

Foreign exchange transactions rather than domestic banking are the source of profit for Mozambican banks. For three profitable banks, their entire profit came from foreign exchange dealings, and other operations lost money. Even BCM showed a Mt 174bn profit on forex transactions, although it showed an overall loss for the year of Mt 508bn. These foreign exchange profits are one indication of why foreign banks would find Mozambique profitable. Two others are by the parent bank selling ‘technical assistance’ to the Mozambican subsidiary, and by holding the foreign deposits of the Mozambican subsidiary, and paying less than the market interest rates. This makes a bank like BCM somewhat more interesting than it might otherwise be.

But the centrality of foreign exchange dealings inevitably raises the issue of money laundering – converting illegal money such as bribes and kickbacks, money skimmed from aid contracts, income not declared for tax purposes, profits from drug dealing, etc. into legal money, eventually depositing it in a bank account, preferably abroad, where it can actually be used. Some of the money is initially in cash and passes through the exchange bureaus. Some is exported in cash, literally carried out in suitcases, and some is deposited in banks which transfer the money abroad. In many parts of the world, including Mozambique, controls are very weak. A former bank official told us:

One common form of money laundering, according to a senior bank official, is for a company to present an import document for, say, $2mn. Money is legitimately authorised to be transferred abroad to pay the charges. But the bank declines to stamp the original of the import document, so the importer can then go to another bank and make the same payment again, and then to a third bank. One bank actually questioned such a transaction by a well known trading company seen as being close to Frelimo, and the office of President Chissano intervened to resolve the problem, the banker said.

When BIM was established in 1994, it quickly attracted substantial foreign currency deposits, in part because it was the first bank to allow withdrawals from non-metical accounts without advance notice. Nevertheless, officials in other banks pointed to a growth in deposits that did not seem to be justified by the market, and darkly muttered about money laundering. Jorge Correia Rijo was a director of private banking for BIM’s parent bank, BCP in Portugal, but he was dismissed in March 1997 and charged with fraud in August 1997. He is said to have diverted hundreds of millions of dollars, particularly from Angolans but also Mozambicans. He issued what looked like BCP receipts, but in fact kept the money for himself. The head of one Mozambican trading company is said to have lost $5mn. Surprisingly, Rijo fled to Mozambique, where he was at first protected. In October he was involved in an accident when his car overturned near Xinavane, 120km north of Maputo. The ambulance that was moving him to a Maputo hospital was itself then involved in an accident (Diário de Notícias, 12 November 1997). This raised questions about money laundering at BCP and BIM. The BCP-appointed managing director of BIM, José Alberto de Lima Félix, began looking more closely at this issue, and at the beginning of December found things which worried him. He was shot and killed on 2 December 1997 – before he was able to tell anyone else what he had found. Three people were convicted of the killing, which was blamed on a botched car hijacking. Both his friends and banking experts remain convinced he was killed because of what he had discovered about money laundering. In 2001 BIM expanded its private banking business.

Collapse & Re-privatisation

The looting eventually became excessive, and both BCM and Banco Austral faced crises in mid-2000 and needed major restructuring.

In January 2000 Jardim Gonçalves’ BCP took over Grupo José de Mello in Portugal, which gave it control of BCM in Maputo. BCP already controlled BIM. On 25 January Gonçalves flew into Maputo for discussions with Prime Minister Pascoal Mocumbi, Planning and Finance Minister Luísa Diogo and BdM governor Adriano Maleiane. Finally, auditors were sent in to do proper accounts for BCM. At a shareholders meeting on 4 October 2000, BCM announced an accumulated $127mn loss up to the end of 1999, and said that a study of its accounts had shown the need for an additional $114mn in bad debt provision. This meant that the shareholders would have to put in $106mn in extra capital. The government’s share would be $52mn. This was provided in the form of government bonds rather than cash. In a statement on 22 March 2001, BCM announced a loss of $27mn for 2000. It said that 33% of the total credit portfolio was now considered non-performing, and that a further provision of $48mn for bad debts and ‘other items’ had been required – bringing the total bad debt provision up to $162mn (Mozambiquefile, April 2001) .

Initially there was substantial concern about the dominant place BCP would have in the Mozambican financial sector. Gonçalves returned to Maputo for further meetings. At a 24 October 2000 press conference in Maputo, Gonçalves made clear that the government had accepted BCP control of both BIM and BCM, and thus of more than half the banking system. In exchange BCP would put up its $54mn needed to recapitalise BCM. He also said that, although he knew where the losses had occurred, he would not explain this to the press because the losses had occurred in 1999 and earlier, before BCP controlled the bank (Mozambiquefile, November 2000; Metical, 26 October 2000). Gonçalves and the government had reached a deal: a curtain would be drawn over the past. Nothing would be said or done about losses and fraud before 2000, and the two sides would simply plug the hole. In exchange, Gonçalves could dominate the Mozambican banking system.

By this time it was clear that there was also a crisis in Banco Austral, and there was a serious danger that misconduct there was simply to be buried as well. Carlos Cardoso was editor of Metical, a faxed daily newspaper that had become the voice of the developmental state group and increasingly the scourge of the predatory state group. He was investigating the bank scandals and money laundering, was increasing pressure for information on Banco Austral and BCM, and was asking why nothing was happening to prosecute those who had been named in connection with the 144 billion metical case. On 22 November 2000, he was gunned down as he was driven home. The assassination was during the rush hour on a busy street. It seemed intended to be a public execution, a warning to those who opposed the predatory state group, and a statement that the killers were protected. For more than a month, the investigation was blocked at high level. Finally, in response to international and domestic pressure, an investigation was launched and six people were arrested, including Vicente Ramaya and Abdul Satar Carimo’s son Momade Assife Abdul Satar (known as Nini). The prosecution alleges that they killed Cardoso to stop him writing about the 144 billion metical case. The trial will determine if they carried out the killing, but there is a widespread view that the 144 billion metical case is not the reason, and that it was Cardoso’s investigations into other banking frauds. This paper is the result of continuing some of those investigations (see Hanlon's Debate on page 113).

Meanwhile, Banco Austral was in trouble. At the insistence of BdM, KPMG carried out an audit in November 2000, which was submitted on 15 January 2001. That audit showed provisions for bad debts and other problems had been underestimated by $50mn, and that 31% of loans should be considered bad debts instead of the 11% assumed by the bank managers. Bad debts predating the privatisation in September 1997 exceeded $18mn. And the bad debt provision for post-privatisation loans meant in just three years Banco Austral had given $20mn in loans which would not be repaid.

And as KPMG began to look more closely at the accounts, it found a number of other holes. On individual loans, it found ‘irreconcilable differences between the balance sheet and the support details’ that required the writing off of $4.3mn. It also concluded that $500,000 of loans to employees could not be recovered. And it found holes of $1.3mn in the accounts of transactions between headquarters and branches and $1.7mn in the suspense accounts. This is nearly $8mn, a considerable amount of which is likely to have been frauds. Of this $8mn, only $1.6mn dates from before privatisation, according to KPMG. Thus, the KPMG report suggests that of bad loans, bad accounting, theft and fraud, $20mn were pre-privatisation and $26mn were incurred in just three years of private management. KPMG also called for the write-off of $6.8mn, of which $4.1mn is of

Southern Investments Moçambique was only registered in December 1999 and is owned by Koonjambu Murganthan, managing director of Banco Austral, and Jamú Suleman Hassan, one of the Mozambican owners.

In October 2000, the Banco Austral board agreed with BdM to increase the capital and begin cleaning up the bank by 31 March 2001. But by then, SBB was no longer interested. Cleaning up the bank crisis there, the Malaysian government had chosen SBB to be one 10 ‘anchor banks’, and a difficult bank in Africa was no longer of interest. But it was not until the board meeting on 3 April 2001 that Investil announced it was not prepared to put in new capital; instead, it simply handed back its shares to the government. The Malaysian staff of the bank was angry and distributed an anonymous document to the press headed ‘Reasons for Southern Bank Pull Out From Mozambique’. In slightly erratic English, it argued that

And it attached a list of alleged non-performing loans given to politically well-connected people. The three owners of Invester – Octávio Muthembe, Jamú Hassan, and Alvaro Massinga – each had personal and company loans in excess of $2mn from Banco Austral; according to the list half were non-performing (not being repaid). Other political figures were also failing to repay significant loans (Metical, 24 September 2001).

After the murder of Cardoso and the agreement to bury the sordid history of BCM, a few senior figures decided to take a stand, and thus Banco Austral became an important site of contest between the predatory state and developmental state groups.

Most senior government figures simply wanted Banco Austral closed, because that would be the easiest way to bury the corrupt history, as had also been done with BCM. Surprisingly this was backed by the World Bank and most donors, who did not want to see more money being thrown at the bank. But the IMF and key figures in the Ministry of Planning and Finance opposed closure, on the grounds that it would actually be more expensive and because it would destroy faith in the banking system.

The central bank (BdM) intervened and took over the operation of the bank, appointing a new board. The new chair was António Siba-Siba Macuácua, BdM director of the department of banking supervision and a highly respected economist. Arlete Georgete Jonasse Patel, the government nominee on the old board, was retained on the new board. Arguably these are the people who should have been watching more closely to ensure that the crisis did not occur, and who should have intervened earlier. Adriano Maleiane told a press conference on 3 April 2001 that Banco Austral needed a recapitalisation of about nearly $150mn.

BdM advertised for a foreign bank to take over 80% of Banco Austral – all but the 20% reserved for employees – which would leave nothing for the state or Mozambican investors. The bidders were ABSA (Amalgamated Banks of South Africa) and Banco Comercial e de Investimentos (BCI), a Mozambican bank headed by former finance minister Abdul Magid Osman and partly owned by Caixa Geral dos Depositos of Portugal, which had been a bidder for BCM. The Council of Ministers was split, but eventually preferred ABSA. Osman can be seen as part of the developmental state group, while ABSA had taken over Commercial Bank of Zimbabwe (CBZ) in similar circumstances, including the need to more than double bad debt provision. In 1998 ABSA became a 26% shareholder of CBZ and provides technical support. The Zimbabwean government retains 20% of the bank and the International Finance Corporation (part of the World Bank) took 15%. ABSA turned the bank around, and Euromoney magazine twice voted CBZ the best domestic bank in Zimbabwe. But CBZ maintains very close links to President Robert Mugabe. CBZ chief executive is Gideon Gono, who said in August 2001 that ‘our role as CBZ is founded on deep roots of patriotism’. Gono is described by the Financial Gazette as ‘the government’s trouble shooter’. It would appear that the Council of Ministers hoped for similar deferential treatment by ABSA if it was given Banco Austral. ABSA was to begin its due diligence audit on Monday, 13 August 2001.

But António Siba-Siba Macuácua had the backing of high level figures from the developmental state group, and was instructed to try to clean up the mess and identify the crooks. In particular, Finance Minister Luísa Diogo had been stressing that bad loans must be chased up and money recovered. On 19 June Banco Austral published in the daily Notícias a list of more than 1000 individuals and companies with overdue loans. No such list was ever published for BCM. But the Banco Austral list did not contain the names of any important political figures; instead, Siba-Siba began negotiating with the big debtors. He forced the closure of a restaurant owned by former Banco Austral managing director K Muganthan and by early August was said to be putting pressure on political figures, including Tourism Minister Fernando Sumbana and former Banco Austral chair Muthemba. Repossession proceedings were begun on houses and three petrol stations built with loans to prominent figures which were not being repaid (Metical, 24 October 2001).

One former banking official told us: ‘Banco Austral was run politically. There were bad loans, letters of credit without cover, transfers of money to ministers, and many favours to people. Decisions were taken by officials outside their mandates and which violated rules and procedures, and perhaps the law.’ He went on: ‘In both Banco Austral and BCM, it is impossible for the board not to know that frauds were occurring. This is public money, and there is a criminal responsibility.’

But on Saturday 11 August, António Siba-Siba Macuácua was murdered and thrown down the stairwell of Banco Austral’s 15 storey headquarters in downtown Maputo. A senior figure in the developmental state group arrived first on the scheme, sealed the site, and called in the South African police to investigate; clearly the Mozambican police could not be trusted. It was another very public killing – a message saying that too many questions were being asked. After Siba-Siba’s death, the repossessions and attempts to recover bad debts were halted (Metical, 24 October 2001).

On Monday 13 August, ABSA went ahead with its audit, and it took over the bank on 31 December 2001. Those who robbed the bank, through fraud and bad loans, clearly hope for the same deal as was done over BCM and CBZ – draw a curtain over the past, fill the hole, and begin anew.

In October 2001, as part of a global campaign against money laundering, the government of Mozambique also moved. On 18 October BdM published rules requiring foreign currency dealers to identify clients and take a photocopy of the passport of anyone changing more than $1000. And on 8 November, it presented a money laundering bill to parliament which would somewhat reduce banking secrecy and make investigation of money laundering easier.

But the number of commercial banks increased to 12 in September 2001, with the new Merchant and Investment Bank (BMI), whose main shareholder is registered in the tax haven of the British Virgin Islands. Shareholders include the government’s own National Social Security Institute (INSS), a number of prominent Frelimo politicians and Alberto Chissano, a brother of President Joaquim Chissano.

Conclusion

The assassinations of José Alberto de Lima Félix in 1997, Carlos Cardoso in 2000, and António Siba-Siba Macuácua in 2001 all seem to have occurred because they knew too much about fraud and corruption in the Mozambican banking system, which has been pervasive and high level. This is not simply loans that will not be repaid, but outright theft, money laundering, and illegal foreign exchange dealings. Many people had their hands in the honey pot; others decided not to look too closely and are guilty of not carrying out their jobs. It is admitted that more than $400mn disappeared from the banking system in the 1990s: $100mn cash injections to BCM during 1992-96, $162 mn BCM bad debt provisions in 2000 and 2001, and $150mn needed for Banco Austral recapitalisation. The losses are probably much larger. One banker that we interviewed told us that a notoriously corrupt banker had told him:

And he does seem to be protected; although he has been named in several newspaper articles, he has apparently never been investigated.

The roots of the problem are varied. In part they lie in a socialist banking system which depended on individual honesty and integrity rather than regulation and which failed to introduce regulation until it was to late. The Bretton Woods institutions must bear some of the blame for pushing privatisations of the banks that prominent Mozambicans warned were dubious; privatisation did not solve the problems, and the government had to pay in the end. The international financial institutions also accepted a culture of corruption in exchange for obeisance to the neo-liberal agenda of the free market, privatisation, and small government. Donors can take some credit, too, for looking the other way; too many careers depend on pretending that Mozambique is the World Bank and donor success story. Indeed, as Szeftel (2000b:429) notes,

As we have seen, there is an on-going struggle inside the Mozambican elite. Using the terms of Peter Evans (2000:44-8), we can see one group promoting the ‘predatory state’ where everything is for sale, including justice This group uses presidential patronage for personal advancement and gain. Predation in this case was less on the state, and more on a banking system being privatised under international financial institution pressure – but in the end using state money to fill the holes and state power to cover their tracks. They have been increasingly opposed by the proponents of a ‘developmental state’, who see this level of greed and corruption as counter-productive – personal gain is being bought at the cost of long-term damage to the economy. Although the proponents of the developmental state have important positions in the government and private sector, they are not a coherent organised group, and the murders of Cardoso and Siba-Siba show that key individuals can be picked off. Attempts to create islands of integrity have also failed.

As we noted above, all banking systems support preferred entrepreneurs, and with the move to capitalism it is not surprising that banks were used to support a new national bourgeoisie. The line between this and ‘corruption’ may not be well defined. What is clear, however, is that whoever ordered the killings of Cardoso and Siba-Siba knew that their own actions, if exposed, would be seen within Mozambique as corrupt. This is not a case of foreigners defining what constitutes ‘corruption’, but rather of Mozambicans themselves knowing that their activities would be considered so unacceptable by their colleagues and compatriots that they had to kill to prevent the knowledge becoming public.

Joe Hanlon is a research fellow in the Development Policy and Prace group, Open University, Milton Keynes, UK and author of five books on Mozambique; j.hanlon@open.ac.uk

Endnote

This paper is based in part on interviews with a number of past and present senior banking figures in Mozambique, who cannot be identified. The Bank of Mozambique refused to speak with us.

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