Emma Palmberg and Jennifer Kelly, Illicit Finance and Economic Threats Team
Week of Monday, December 27, 2021
Handcuffs and Money on the Mozambican Flag[1]
In 2016, Mozambican authorities uncovered a corruption scandal involving Mozambican government officials and "hidden debts" amounting to approximately $2.7 billion USD.[2] This led to an economic collapse and an increase in unemployment rates.[3] Judicial proceedings started in 2021 against several officials involved in the corruption; however, many Mozambicans are skeptical that all those responsible are not on trial as no high-ranking officials have been charged.[4] The Frente de Libertação de Moçambique (Mozambique Liberation Front - FRELIMO) party has governed Mozambique since 1992, enabling State-owned companies involved in the corruption scandal to monopolize economic opportunities.[5] Officials were likely successful in concealing their corrupt activities due to the ruling political party’s three decades in power and a lack of internal security controls to review financial transactions. Mozambican President Filipe Nyusi, who suggested he wanted to combat corruption, stated the culpable individuals were all junior officials and denied any high-ranking members of the government were involved.[6] International assistance to establish efficient corruption controls and better equip Mozambican law enforcement to identify corrupt operations will likely prevent similar scandals from occurring in the future.
From 2013 to 2014, three Mozambican State-owned companies covertly took out approximately $2.7 billion USD in loans, with Manuel Chang, Mozambique’s Finance Minister at the time, signing State guarantees for the loans.[7] The loans were meant to finance maritime surveillance, fishing, and shipyard projects under the management of a French company; however, the projects never materialized.[8] While there is no evidence that banking officials were directly involved in transferring funds beyond initially approving the loans, there is a roughly even chance that some bank officials were willing to cover up suspicious transfers in exchange for financial benefits. FRELIMO’s oversight of State-owned companies very likely provided an avenue to be directly involved in economic projects and secure funds, ensuring that the party and its members maintained wealth and political control. State oversight likely also limited private businesses’ ability to gain traction in various economic sectors, inhibiting the economic development of Mozambicans on a larger scale.
In 2016, the Mozambican government disclosed information on the loans, revealing it had taken them out from overseas banks, including Credit Suisse and the VTB, without informing the national parliament.[9] Mozambican authorities discovered the extent of the corruption, known as the “hidden debt scandal,” when they established the loans’ funds were transferred to high-ranking government officials instead of being used for the maritime projects.[10] The son of a former Mozambican president and 18 other individuals have been on trial since August 2021 for bribery, embezzlement, and money laundering.[11] Mozambican officials are likely using the public trial to demonstrate their intentions to combat corruption in Mozambique and regain trust from the Mozambican population. However, due to the extent of the corruption, it is very unlikely that authorities have apprehended all individuals involved. Due to the involvement of overseas banks, international authorities will likely be invested in the outcome of the trial, so future judicial action against acts of corruption in Mozambique will likely occur to prevent international audits into the Mozambican financial industry. Despite the current attempts to prosecute officials engaged in corruption, the long-term ramifications of their activity almost certainly hurt the Mozambican economy.
Mozambique’s currency, the metical, collapsed due to the scandal, leading to the worst financial crisis in the country’s independent history.[12] A significant portion of the foreign aid to Mozambique provides basic education to the population and addresses health-related issues such as family planning, battling tuberculosis, and securing clean water.[13] Following the corruption scandal, international donors temporarily suspended financial aid to Mozambique, further impacting the financial crisis.[14] The failing Mozambican economy is unlikely to recover without a greater focus on education and adequate public health services, likely resulting in increased crime rates. A lack of access to clean water will almost certainly result in preventable illnesses for the Mozambican population, putting pressure on the public health system. Citizens unable to afford private medical care due to the currency collapse will almost certainly face overcrowded hospitals and poor medical care. Any future suspicion of corruption within the Mozambican government will almost certainly lead to international donors discontinuing their aid permanently.
The Mozambican government has failed to take a firm stance against organized crime, with the corruption scandal significantly reducing its credibility in condemning criminal activities.[15] In 2018, the Mozambique heroin trade was estimated to generate $600-800 million USD annually, with one Mozambican expert stating approximately $100 million USD goes towards bribing members of the ruling Frelimo party.[16] It is very unlikely that the government implemented security controls to monitor illicit financial flows through Mozambique as government officials likely attempted to conceal their hidden debt operation. Criminal groups and individuals involved in drug trafficking likely took advantage of this weak security landscape to conduct illicit operations without the risk of detection. The loans’ high value likely indicates Mozambican government officials were driven by monetary gain, which drug traffickers likely exploited with bribes to ensure continued drug distribution. Mozambique’s lengthy coastline very likely makes it an ideal location for drugs to enter the African continent through sea routes from countries such as Afghanistan, as it is unlikely coastguards are capable of securing the entire seafront. Drug trafficking networks from neighboring countries such as Zambia likely capitalize on Mozambican corruption to transport drug shipments across the borders and generate illicit profits from domestic distribution.
Since October 2017, Al-Shabaab, an armed extremist group unrelated to the Somali insurgents of the same name, has exploited the public’s dissatisfaction with the Mozambican government over the corruption scandal to recruit fighters to its insurgency in the northern province of Cabo Delgado.[17] The State’s hidden debts scandal has almost certainly led to increased poverty levels in already vulnerable regions. Al-Shabaab likely recruits Mozambicans by offering monetary incentives to individuals suffering from poverty and unemployment. The local population in Cabo Delgado is likely unwilling to report threats from Al-Shabaab due to a loss of trust in government and law enforcement officials following the State’s corruption scandal. Al-Shabaab also likely exploited government officials and law enforcement’s corruption to traffic weapons for their insurgency across Mozambican borders. An ample supply of weaponry almost certainly increases the threat of violence and endangers the lives of the population living in the Cabo Delgado region.
Manuel Chang, former Mozambican finance minister, was recently extradited to the US from South Africa, where he had been arrested at the request of the US.[18] He currently faces US charges related to loan corruption because some of the illicit funds went through the US financial system.[19] Other individuals related to the corruption incident are standing trial in Mozambique.[20] Chang’s extradition to the US likely suggests that the international community, especially the US, supports efforts to end corruption in Mozambique to protect their financial systems from illicit financing. Domestic and international corruption trials likely indicate a willingness to investigate and prosecute acts of corruption despite the time between the crimes and the trials. Prosecutions will likely positively impact further investigations into historical corruption cases in Mozambique by setting a precedent for law enforcement and judicial officials to follow, making it easier to identify patterns of corruption and bring perpetrators to justice. Prosecution of government officials will also likely reassure the Mozambican population that future corruption will not be tolerated. Mozambican authorities will likely implement stricter security measures, including controls to monitor financial flows through Mozambique, as a result of the corruption trials to safeguard against similar scandals in the future.
A workshop by the International and Ibero-American Foundation for Administration and Public Policies (FIIAPP) and the Spanish Agency for Development Cooperation (AEICD), partially financed by the EU, focused on bringing the justice systems of Mozambique, Portugal, and Spain together to work towards combating corruption.[21] Anti-corruption training has also been offered by the Basel Institute of Governance, through its International Center for Asset Recovery, to Mozambican prosecutors, judges, and investigators on anti-corruption and asset recovery.[22] Anti-corruption training will very likely provide Mozambican officials with better knowledge regarding fighting corruption, likely allowing for increased detection rates and more successful prosecution. Due to the extent of corruption in Mozambique’s government, effective investigatory and prosecutorial methods will very likely take a significant time to implement, allowing corruption to continue relatively unchallenged. During this time frame, there is a roughly even chance that individuals involved in illicit financing will attempt to develop inconspicuous methods of doing so, including laundering illicit funds through financial systems outside of Mozambique. Individuals will also very likely utilize cryptocurrency to transfer illicit funds domestically and internationally, which will likely succeed due to the ease of access and lack of validation required from financial institutions to trade on the cryptocurrency market. International cooperation and information-sharing will likely help limit the flow of illicit funds, such as those stemming from corruption, into the financial markets of trade partners.
The Counterterrorism Group’s (CTG) Illicit Finance and Economic Threats (IFET) Team recommends that independent authorities perform reviews on Mozambique’s financial sector and government departments to identify any illicit transactions internally or between departments and the private industry in Mozambique. Like Portugal and Spain, judicial partner countries could assist with external checks on government spending and detect financial transactions that indicate illegal financial activity. Mozambique’s anti-corruption officials should investigate the financial and political activity of individuals and State-owned companies that have been involved in Mozambique’s government for an extensive period. The investigation would very likely help detect other acts of corruption that have not been noticed, along with other possible illegal acts by these individuals and companies. To address corruption related to government-obtained loans, government projects that utilize loans should undergo a rigorous evaluation process. Individuals trained to detect corruption, fraud, and money laundering should be included in the evaluation process, with several signatures needed instead of one for loan approval.
CTG and the IFET Team will continue to monitor developments and financial threats relating to the hidden debts scandal and general corruption in Mozambique. The IFET Team will consult with the AFRICOM Team to determine the threat level to other countries in Africa while reporting any imminent threat to the proper channels. Future reports will track and outline developments of threats of corruption, as well as implications for any local, regional, or international groups. CTG’s Worldwide Analysis of Threats, Crime, and Hazards (W.A.T.C.H.) Officers and Threat Hunters will continue to provide up-to-date reports on threats in the region.
The Counterterrorism Group (CTG) is a subdivision of the global consulting firm Paladin 7. CTG has a developed business acumen that proactively identifies and counteracts the threat of terrorism through intelligence and investigative products. Business development resources can now be accessed via the Counter Threat Center (CTC), emerging Fall 2021. The CTG produces W.A.T.C.H resources using daily threat intelligence, also designed to complement CTG specialty reports which utilize analytical and scenario-based planning. Innovation must accommodate political, financial, and cyber threats to maintain a level of business continuity, regardless of unplanned incidents that may take critical systems offline. To find out more about our products and services visit us at counterterrorismgroup.com.
________________________________________________________________________ The Counterterrorism Group (CTG)
[1] “Mozambique flag with handcuffs and a bundle of dollars” by Mehaniq licensed under Shutterstock
[2] Mozambique’s hidden debt scandal: Where did the $2bn go?, The Africa Report, October 2021, https://www.theafricareport.com/137710/mozambiques-hidden-debt-scandal-where-did-the-2bn-go/
[3] Ibid
[4] Mozambique: 'Hidden debt' trial exposes depth of corruption, Deutsche Welle, September 2021, https://www.dw.com/en/mozambique-hidden-debt-trial-exposes-depth-of-corruption/a-59052690
[5] “Grand corruption and the SDGs,” Transparency International, 2019, https://images.transparencycdn.org/images/Grand-Corruption-and-the-SDGs_Mozambique_FINAL.pdf
[6] Mozambique: 'Hidden debt' trial exposes depth of corruption, Deutsche Welle, September 2021, https://www.dw.com/en/mozambique-hidden-debt-trial-exposes-depth-of-corruption/a-59052690
[7] “Grand corruption and the SDGs,” Transparency International, 2019, https://images.transparencycdn.org/images/Grand-Corruption-and-the-SDGs_Mozambique_FINAL.pdf
[8] Ibid
[9] Mozambique's 'hidden debt' scandal trial begins, Africa News, August 2021, https://www.africanews.com/2021/08/23/mozambique-s-hidden-debt-scandal-trial-begins//
[10] Mozambique: 'Hidden debt' trial exposes depth of corruption, Deutsche Welle, September 2021, https://www.dw.com/en/mozambique-hidden-debt-trial-exposes-depth-of-corruption/a-59052690
[11] Mozambique's tuna corruption scandal puts justice on trial, BBC News, October 2021, https://www.bbc.com/news/world-africa-58733063
[12] Mozambique: 'Hidden debt' trial exposes depth of corruption, Deutsche Welle, September 2021, https://www.dw.com/en/mozambique-hidden-debt-trial-exposes-depth-of-corruption/a-59052690
[13] How Foreign Aid in Mozambique is Put to Work, The Borgen Project, January 2021, https://borgenproject.org/foreign-aid-in-mozambique/
[14] EU among donor groups suspending aid to Mozambique over hidden debt, Euractiv, May 2016, https://www.euractiv.com/section/development-policy/news/eu-among-donor-groups-suspending-aid-to-mozambique-over-hidden-debt/
[15] Mozambique Profile, Global Organized Crime Index, 2021, https://ocindex.net/country/mozambique
[16] “The Uberization of Mozambique's heroin trade,” London School of Economics and Political Science, 2018, https://www.econstor.eu/handle/10419/224816
[17] Mozambique, Global Centre for the Responsibility to Protect, December 2021, https://www.globalr2p.org/countries/mozambique/
[18] Mozambique Ex-Minister to be Extradited to US for Fraud Trial, VOA, November 2021, https://www.voanews.com/a/mozambique-ex-minister-to-be-extradited-to-us-for-fraud-trial-/6308065.html
[19] Ibid
[20] Ibid
[21] Support to fight corruption in Mozambique, FIIAPP, March 2021, https://www.fiiapp.org/en/noticias/apoyo-la-lucha-la-corrupcion-mozambique/
[22] Anti-corruption officials in Mozambique gain new skills through virtual training, Basel Institute on Governance, September 2020, https://baselgovernance.org/news/anti-corruption-officials-mozambique-gain-new-skills-through-virtual-training