Practical Takeaways From the Latest Tuna Bond Enforcement
This post is a follow-up to our four-part series, Hook, Line, and Sinker, about Mozambique’s ill-fated attempt to launch a commercial tuna fishing industry, and the corrupt firms that pushed the effort and helped cause the country to lose more than $2 billion.
Recently, Mozambique largely prevailed in its claims against the Privinvest Group, the shipbuilder at the center of the doomed transactions known as the Tuna Bonds. A UK court concluded that Privinvest paid bribes to win related contracts, and awarded a net amount of roughly $1.9 billion to the country.
Privinvest has said it will appeal the ruling.
Up until the decision, Mozambique had been reaching out-of-court settlements with relevant parties, including Credit Suisse and VTB Capital Plc. – both of which provided or arranged billions in loans to build and support a commercial tuna fishing industry in the country.
While the settlements allowed the banks to keep many details out of public view, the court judgement offers a much deeper look at relevant facts. In doing so, the case provides some practical lessons for compliance professionals.
Don’t cut corners
The court decision reveals why the July 2013 Mozambique Fishing Feasibility Study, which was used to justify the projects that the loans would back, was so rife with problems – it was completely made up. Indeed, a Credit Suisse banker created the document, while fully aware of its unrealistic assumptions (quipping, for instance, that they “will only catch yellow fin and sell to Nobu!”).
Even if compliance officers felt that they lacked the technical knowledge to question the substance of the feasibility study, answers to more general questions – Who wrote the study? What are their qualifications? What other work have they done? – might have prompted further skepticism.
It’s not all bad
When U.S. and U.K. regulators resolved their enforcement actions against Credit Suisse in 2021, they (and media reports about the cases) pounced on a due diligence report that called the head of Privinvest a “master of kickbacks.”
Viewed in isolation, the description can appear damning. But due diligence reports often include varying degrees of negative findings, and a company that shies away from any hint of dirt may soon find itself short of options.
The judge in this case provides some reassurance for companies that come across similar red flags: “There was reference at trial to his having a poor reputation for business methods and integrity. I did not find that persuasive where it was based on unattributed rumour rather than evidence.”
In other words, while such warnings are certainly meaningful, companies are not expected to pull the plug whenever they appear. Rather, they should assess that red flag against other factors – in this case, it was those other factors that were too easily disregarded.
FCPA Compliance Consultant, TRACE