Signed Off on Bond Exchange, Casting Doubt in NY Fraud Case

Credit Suisse Reviewed Mozambique Projects and Signed Off on Bond Exchange, Casting Doubt in NY Fraud Case

Did Mozambique hide its debts to finance a tuna fleet or is it the U.S. Department of Justice that’s doing the fishing in its prosecution of a foreign business executive for his role in the selling ships to the African nation?

Last Thursday, the trial of Lebanese business executive Jean Boustani delved deeply into the due diligence that Swiss lender Credit Suisse conducted before doing a major Eurobond deal involving Mozambique. The underlying loans were used by a state-owned company EMATUM to purchase a modern tuna fishing fleet in 2013. The U.S. Attorney for the Eastern District of New York and attorneys for the defendant, ship salesman Jean Boustani, locked horns over an array of documents and the testimony of a London-based investment banker with Credit Suisse, Andrew Burton.

Mr. Burton, like other witnesses who prosecutors have called into the courtroom for this complex trial, never met Mr. Boustani. Instead, he was there to answer for measures the Swiss bank took prior to the bond exchange.

While the government sought to use Mr. Burton to show how the European bank’s rules had been broken in underlying transactions, he ended up attesting to the significant amount of diligence that his bank and others had conducted nearly three years after the initial transactions. The defense introduced into evidence a 56-page Credit Suisse internal memorandum detailing these efforts, as well as internal communications by bankers, not involved in the initial transactions, eager to move forward with the deal.

While valuations on the tuna vessels varied, and prosecutors tried to make an issue of these differences, the bank’s reasoning was consistent: Mozambique had an opportunity to substantially upgrade its fisheries and the purchase of a couple dozen or more vessels would be vital to capturing this potential game changer for the nation’s struggling economy. In the end, no red flags were left waving.

A secondary theme that ran through the prosecutors’ examination of Mr. Burton and previous witnesses was an effort to link this series of foreign transactions to the U.S. After all, only by doing so could they support the notion the U.S. had jurisdiction in the matter, a question that is usually resolved long before a trial begins. This tenuous connection, the government’s argument suggested, lay in a small number of secondary debt investors with offices in the U.S. who bought into bits of the deal, after the fact, through foreign intermediaries (and/or the nanoseconds that banking wires might touch a U.S. bank account.)

What is expected to be a five or six week trial has scarcely reached its midpoint as the prosecution’s case continues into this month. The cross-examination of witnesses by Boustani’s aggressive defense team suggests that the most interesting part of this case is yet to come.