The Incredible, Shrinking 'Tuna' Scandal
A federal prosecution that was grabbing headlines months ago appears to be coming down to earth in a courtroom in Brooklyn, New York. Earlier this year, the U.S. government announced that it had indicted former officials of the Mozambican government and a handful of business executives. The case sounded like a lurid tale with allegations of corruption, bribery and fraud along with dishonest appointees, misbehaving bankers and swindled investors.
Early reports relied upon the indictment and described conspirators who inflated equipment and services prices, and then retained the profits or used them for bribes. The U.S. government contended that defendants “created fake competing bids from contractors”, rolled-out “maritime projects as fronts to raise money to enrich themselves”, and at the same time intentionally diverted loan proceeds.
As for Mozambique’s government, the indictment painted a picture of a well-hatched scheme to bribe Mozambican officials to win government contracts in connection with coastal surveillance, a tuna fishing fleet and shipyard construction. The alleged debacle became known as the “tuna bond” scandal, after Mozambique defaulted on $2 billion in loans it used to pay Privinvest, an international shipbuilder, for the systems and equipment. Those assets have never been used, which is a genuine loss.
The criminal case in New York, once a focus of international attention, has shrunk considerably in the meantime. The prosecution now looks like an attempt to prove run-of-the-mill commercial kickbacks rather than a hair-raising abuse of power.
To be sure, the government has elicited a pair of guilty pleas from two international bankers: Detelina Subeva and Andrew Pearse. Subeva is a resident of Bulgaria, and Pearse of the U.K. The substance of their respective pleas may well reflect the shakiness of the government’s underlying case and the remaining charges.
Pearse pleaded guilty to a single count and acknowledged his role in a purported kickback conspiracy – a far cry from where the case began. A significant admission, certainly, but also not a case of wholesale government corruption or systemic fraud. When it came to the remaining counts of the indictment, Pearse announced that he was not guilty, and the prosecutors offered no challenge. As for Subeva, she entered a guilty plea on a single money laundering charge but pleaded not guilty to three fraud counts.
All these developments leave the pending case against Jean Boustani, an executive at Privinvest, on shaky ground. Boustani has pleaded not guilty and moved to dismiss the indictment against him. Privinvest itself has not been charged.
The government is continuing with its case against Boustani. But prosecutors are acknowledging their evidence might be weak. In a recent submission to the court, the government stated: “The government’s ability to prove its charges is an issue for the jury at trial.”
In other words, the allegations contained in the government’s indictment might not be a tidy match with reality. Discovery in criminal cases is more limited than in civil lawsuits and right now prosecutors appear reluctant to put all of their cards on the table.
Also, the government has not had the easiest time justifying its contention that a courtroom in Brooklyn is the proper place for a trial involving allegations of corruption in Mozambique. As a legal principal, U.S. law disfavors prosecutions predicated upon extraterritoriality without a showing of statutory authority and a nexus with the U.S.
The government asserts that the Dodd-Frank securities law broadened the government’s authority to pursue people like Boustani. But prosecutors also concede that the connection to the U.S. is a legal prerequisite.
The indictment against Boustani does not allege he acted in the U.S. nor that he directed a conspiracy from there. In fact, Boustani was scooped up in transit outside the U.S. and then brought to New York.
Trial is set for early October. Between now and then we may yet see additional surprises. Boustani’s motion to dismiss is still under consideration. But one thing is almost certain, this case is a shadow of its original self.