The United States has opened an investigation into a financial transaction in Mozambique that has allegedly been used to buy arms. The scandal involves three major banks, including Credit Suisse and BNP Paribas.
The U.S. Securities and Exchange Commission (SEC) is investigating the sale of $850 million in bonds issued by Mozambique, with sales prepared by Credit Suisse, Russia’s VTB Group and BNP Paribas
The southern African nation said in October its debt was unsustainable and the International Monetary Fund suspended assistance to Mozambique when evidence of $2 billion in secret loans emerged.
The bonds were sold in 2013 to finance Mozambican state-owned fishing company EMATUM’s plans to develop tuna fishing in the impoverished nation, but the government later said it had also bought military equipment with the funds.
VTB Group’s press office said in a statement on Thursday that it executed the transactions with Mozambique state-owned companies “in compliance with appropriate policies”.
“The government of Mozambique confirmed to us that they were following the necessary internal and external legislation and that comprehensive information on the transactions was disclosed to creditors and investors,” VTB said, adding it followed strict internal policies in these local deals.
Credit Suisse and BNP Paribas declined to comment.
Credit Suisse shares were down 2.1 percent at 1041 GMT, and a Zurich-based trader said the drop was likely partly related to the report about the SEC investigation.
BNP Paribas’ shares were down 1.0 percent, broadly in line with the European banking sector, while VTB was up 1.1 percent.
The SEC in November asked bondholders for documents provided by Credit Suisse, VTB and BNP Paribas during the sale of the bonds, the Wall Street Journal reported, citing a letter sent to bondholders.
The letter also asked investors to share with the SEC all communications with the banks related to the bonds.
Two emerging market investors told Reuters they were aware the SEC is investigating the EMATUM loan.
“The SEC got in touch several months back, in fact in July. The SEC was looking to gather all relevant information and communication from VTB and CS to investors to Mozambique notes,” a bondholder told Reuters, declining to comment further.
The SEC declined to comment to both the WSJ and Reuters. Mozambique’s Ministry of Finance did not respond to Reuters requests for comment.
Financial watchdogs from Switzerland and Britain are also looking into Credit Suisse’s and VTB’s involvement.
Mozambique’s state news agency said on Wednesday the country would pay government employees only half their annual bonus.