When the story broke it looked like a simple case of corruption. Mozambique, one of the poorest countries in the world, had taken on $2bn of secret debt to buy some patrol boats from a little know Middle Eastern arms dealer and three years later had little to show for it except a few boats rotting in a harbour.

The International Monetary Fund (IMF) cried foul as it had not been informed about the credit and shut down its aid programme, bring the struggling African country to its knees.

It transpired the government had set up three shell companies and taken huge loans from Swiss-based Credit Suisse bank and the state-owned Russian lender VTB to purchase the equipment, most of which was never delivered.

The contractor that was acting exclusively and closed the deal with the government was called Privinvest, owned by Franco-Lebanese businessman, Iskandar Safa. An investigation found that money from the loans never arrived in Mozambique but had been paid directly by the two banks to Privinvest.

The IMF hired corporate investigators Kroll to get to the bottom of the deal, which found that hundreds of millions of dollars were unaccounted for and the few assets that were supplied were overvalued to the tune of several hundreds of millions of dollars. In short the whole deal looked like one of the biggest and most audacious scams of the century.

The US Department of Justice has since stepped with an investigation, as it appeared that several of the players had broken the US foreign corrupt practices laws. Several executives from Credit Suisse involved in the deal have since been arrested and admitted to receiving tens of millions of dollars in kickbacks. And while Russian bankers at VTB have been accused of receiving payoffs, albeit of more modest sums, the Russian bank says it has conducted an internal investigation and cleared its staff of wrongdoing.

Jean Boustani, the lead salesman for Privinvest, is now on trial in a New York court, facing charges of conspiracy to commit wire fraud, securities fraud and money laundering and corrupt practises. The former Mozambique Minister of Finance, Manuel Chang, was among others indicted, but he is currently facing extradition claims from both the US and Mozambique in South Africa.

They allegedly “took advantage of the United States 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.”

Boustani is the alleged architect of the deal that resulted in three contracts to supply the materiel and the jury broke for the Thanksgiving holiday last week but will return after the break to delivery their verdict on December 2. Three ex-Credit Suisse bankers have already pleaded guilty to charges of money laundering or wire fraud, and turned evidence against Boustani. When the loan guarantees became public in 2016, foreign donors to cut off support and Mozambique defaulted on its sovereign debt. It remains among the world’s most indebted countries.

Unlocking the wealth

The origins of the deal go back to 2010 when a  huge gas field was discovered off the Mozambique coast. Overnight Mozambique became home to the fourth largest gas reserves in the world. At the same time it started to become clear that the country had another assets as well including vast coal and other mineral reserves.

The economy was also starting to do well. Christine Lagarde, then head of the International Monetary Fund, commented at the fund’s “Africa Rising” Summit in Maputo in May 2014, the country had enjoyed some of the strongest growth in the whole of Africa after putting in an average of 7.4% annual growth in the two decades since the 1990s.

And Mozambique had the sea, maybe its most attractive asset. The fourth longest coastline on the continent, the Mozambique Channel is one of the great fishing areas of the world. Yet in 2013 only one registered vessel out of 130 licensed to fish in its offshore waters was Mozambique-owned.

The fish resource was being squandered. Fish poaching was being carried out on an industrial scale by boats from as far afield as China, Japan and Europe, both by organised criminals as well as by regular fishing companies who have seized the opportunity. In 2014 a think-tank chaired by Kofi Annan, the former UN Secretary General, had estimated that Africa lost close to $20bn a year from illegal fishing and logging, with Mozambique being one of the biggest victims, according to a report in the Financial Times at the time, not to mention lost revenues from transit fees for the numerous vessels transiting between the Cape and the Persian Gulf and Indian Ocean.

With modern day pirates, terrorists and drug traffickers abroad, developed countries police their coasts -- technically known as Exclusive Economic Zones, or EEZs—with a flotilla of coast guard vessels. But with the discovery of the gas field, Mozambique finally saw an opportunity to break out from the poverty cycle. The world was queuing up to invest and Mozambique could finally establish sovereignty over its coastline and monetize its EEZ.

The country’s president, Armando Guebuza, ordered the government to work out a plan. In 2011 the study was completed and Privinvest’s Boustani travelled to Mozambique to pitch the government with an idea of how to regain control over the coastline.

There were three main elements to Boustani’s plan: monitoring and protecting the country’s territorial waters; developing a home-grown fishing industry; and setting up the infrastructure for a national shipbuilding industry.

The Mozambique government carried out extensive due diligence on Privinvest, travelling to company sites, including the massive shipyards in Kiel, Germany and others in Abu Dhabi before awarding the contracts. Credit Suisse and VTB were brought in to syndicate the credits among domestic and international banks as well as organise a public Eurobond issue.

Taking control of the coast

The first step was to take control of the coast by setting up the ProIndicus national security firm, which consisted of 42 interceptor and offshore patrol vessels, six light maritime patrol aircraft, 16 coastline security and surveillance stations, a command and control centre, satellite surveillance and communication capabilities, and, most importantly, training a staff to make it all work.

The second step was to set up Ematum, the state-owned company that was to be basis of a home-grown fishing industry. This consisted of 24 trawlers and three long range patrol and support vessels and the necessary spare parts, equipment and training.

The third contract, was awarded to MAM, which formed the basis of a modern Mozambique shipbuilding industry. It put in place the infrastructure and facilities needed to maintain and repair the ProIndicus and Ematum vessels, as well as other vessels working in the country’s oil and gas industry.

The company included a 180m long mobile maintenance vessel and port facilities at Pemba and Maputo and two major maritime centres. A dedicated training facility, the Mozambique Maritime Institute, was set up and a full range of training courses necessary to ensure that suitably qualified personnel were available. MAM should have become immediately operational, earning money from the servicing of oil and gas industry vessels. The contracts also included intellectual property to enable Mozambique to build and sell more of these vessels to other customers around the world.

During the Brooklyn trial it came out in evidence that the Defence Attaches of the United States, France, Germany and the Netherlands had visited the ProIndicus facilities. Admiral Gary Roughead, the former Chief of Naval Operations for the US wrote a report saying: “The capabilities provided by Privinvest are a suitable foundation to begin to meet the ROM’s needs and meaningfully enhance maritime security, economic growth and industrial shipbuilding and ship repair capability for Mozambique.” Another retired US Admiral, Stanley Bryant, testified that, as a turnkey project, the costs were not unreasonable, according to testimony given during the US trial.

Where did it go wrong?

So what went wrong? Corruption is endemic in Africa and quickly infected the project, catching up the western and Russian bankers involved in putting the financing into place. Three ex-Credit Suisse bankers have pleaded guilty in the US trial to diverting up to $50m from fees that should have gone to their employer, which the bankers have admitted to in court. Makroum Abboud, the senior VTB banker involved in the deal allegedly received $2m as part of the side deals, but he has not been charged.

During the trial Cicely Leemhuis, Deputy General Counsel of VTB, testified that VTB had conducted an internal investigation and were satisfied no money had been paid to Abboud, and indeed Mr Abboud has subsequently been promoted, according to testimony in the trial.

Boustani has not denied making success fee and commission payments to people in Mozambique, as well as political donations to FRELIMO, the ruling party and the presidential election campaign of Felipe Nyusi. There has been no suggestion that any of the decision makers at the time the contracts were awarded received bribes or other payments, or that any payments were made in advance of any contract being signed.

But the problems in bring off a deal of this size in a country like Mozambique are many. Riddled with corruption and vested interests, creating an entire new industry will disrupt existing corrupt client-based systems of kickbacks and bribes and so will meet with resistance. Vested interests prevented fishing licences being issued, even though they left Europe with all necessary certification to catch tuna in Mozambique’s waters. Real estate for bases was made available 18 months late, and even then without the necessary permits and authorisations for the various sites. Crucially the local contractors failed to find enough workers to attend the training courses that were a vital part of the contracts.

In the US trial it was claimed that the debts were some way secret but the large scale recruiting drive, the construction of new facilities and the display of the newly purchased equipment as part of the television coverage of the IMF’s “Africa Rising” summit were widely publicised. Moreever, much of the money was raised as a syndicated loan and hence many potential participants were given full documentation on project they were being asked to finance.

Other commentators have questioned the viability of these projects, but the business logic of the deal was sufficiently convincing to get a syndicate of international banks to put up $2bn in financing that lead to the construction of most of the three pieces necessary to make the project work.

Despite the scandal that grew up around Privinvest, Mozambique’s potential and the progress made as part of the investments is now starting to pay dividends as other investors begin to arrive to pick up where Privinvest left off. Tens of billions of US dollars have already been committed by some of the largest energy and natural resource companies in the world to tap Mozambique’s potential. As a result of the investment made in the various maritime projects, Mozambique is beginning to derive significant revenue from the protection and maintenance of these offshore installations that was their original justification. A week ago rating agency Standard & Poor’s upgraded Mozambique from financial default to award it a Stable Evolution Perspective rating.

The fast patrol boats previously purchased are now being used in the north of the country to assist in operations against the Islamic insurgents and the trawlers have been seen catching tuna and swordfish for Ematum’s successor company, TUNAMAR, from their base in Maputo.

More tellingly none of the supposed victims of the deal lost money; the US investors all made profits on trading. Ematum made all promised LPN payments through to 2016. VTB said they still have a current expectation that all loans will be restructured and ultimately repaid. Summing up, the defence attorney said: “This is a murder trial where the victim is still alive,” according to trial documents.

Boustani claims that he is innocent and that the project can still deliver on its promise as the potential is still here. During his testimony Boustani appealed to the government to follow through on the original ambition: “These projects are historical projects. These projects can make billions for the Republic of Mozambique. And they are game changers in Africa and for the economy. All what the government of Mozambique needs to do, and I urge them and please to President Nyusi, put the plug in the socket and activate this project. That's it.” The world waits to see the result.