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Credit Suisse Ignored Warning on $2 Billion Deal With Tycoon

Credit Suisse Ignored Warning Over $2 Billion Deal With Tycoon

(Bloomberg) -- Credit Suisse Group AG ignored warnings from its outgoing regional chief executive officer on the risks of lending $2 billion to Mozambique in a scandal that has landed the Swiss bank in a lawsuit and opened up questions about its due diligence.

A legal filing from Credit Suisse published last week has revealed that Fawzi Kyriakos-Saad, at the time the chief of the bank’s EMEA business, warned a group of dealmakers not to proceed with the initial stage of the multi-billion dollar financing.

It’s the first time the lender has confirmed that its managers had misgivings about the transaction, which ultimately generated a number of deals for the bank.

The money was meant to provide for a new coastal patrol force and develop a tuna fishing fleet for one of the world’s poorest countries. But the fundraisings would ultimately come to the attention of U.S. prosecutors who alleged that the contracts were a front for government officials and Credit Suisse’s own bankers to enrich themselves by as much as $200 million.

Emerging markets were a boon for bankers in the aftermath of the financial crisis and bond issuances soared. But lawsuits filed by the U.S. and Mozambique have exposed a darker side to some of the financings. In a London suit, Mozambique has questioned Credit Suisse’s decision making, saying the bank ignored red flags and turned a blind eye to the corruption of its own bankers.

The Swiss lender’s document provides a window into the bank’s internal preparations in late 2012 in the buildup to the deals.

Any transaction that involved a combination of the French-Lebanese billionaire Iskandar Safa and Mozambique shouldn’t go forward, Kyriakos-Saad said, according to the filings.

The warning was reported in an email from Andrew Pearse, who led the bank’s global financing group and was later to plead guilty to pocketing at least $45 million in kickbacks. It’s unclear at this stage precisely what Kyriakos-Saad objected to. But just a day later, the bank issued an announcement that the executive was due to depart the lender in a restructuring that saw a shift away from its regional attention on clients to a greater focus on the investment bank offerings.

Credit Suisse didn’t comment on the circumstances surrounding Kyriakos-Saad’s departure and the former executive declined to comment on the basis of his agreement with the Zurich-based bank.

Radar Stations

Safa, whose shipbuilding firm, Privinvest, was to supply the patrol vessels is fighting a number of legal challenges with Mozambique, with some of his companies named as defendants.

As part of its suit, Mozambique is seeking to cancel its government guarantee on the loans. The first project -- to supply radar stations, vessels and aircraft to a Mozambican state-owned company -- was nothing more than an “instrument of fraud,” the government alleged, with the express aim of diverting funds for bribes.

Prosecutors in an earlier American case alleged the company inflated the costs of equipment, sometimes by as much as 50%, to bankroll illicit payments.

The dispute has echoes of one involving Goldman Sachs Group Inc., where its bankers were charged with taking bribes from deals tied to fundraisings from a state-development fund, in this case Malaysia’s 1MDB. More than eight years later, Goldman Sachs is still seeking to contain the episode as it negotiates a $2 billion fine with federal agencies.

Credit Suisse has insisted all along that it was deceived by rogue bankers and couldn’t be held responsible for their “unlawful conduct” when it arranged the loans in early 2013. The Swiss bank said it carried out its usual due diligence before the transactions and was aware of the risk of bribery and corruption.

‘Good Partners’

Despite the knock-back, a Credit Suisse banker said they should try to persuade Kyriakos-Saad to demonstrate that the counterparties “are good partners to have in the deal,” the bank said in its filing.

Safa’s Privinvest has denied any wrongdoing in the circumstances surrounding the case. The group “takes such matters seriously, but rejects any claim that it acted improperly with respect to the supply agreements,” a spokesman said in a statement.

It wasn’t the first time that Safa -- who was later to be named as a co-conspirator in the U.S. proceedings -- had been flagged internally, Credit Suisse said in the London court filing.

The bank had previously designated the billionaire as “as undesirable client” -- one with whom it shouldn’t maintain a business relationship after he’d appeared on an external compliance database. An attempt to open an account in which he was the beneficial owner had also been previously rejected, Credit Suisse said.

After April 2012, the designation was removed when the lender was told that historic allegations weren’t being pursued.

‘Master of Kickbacks’

Still, Mozambique alleged that the bank’s internal records described Safa as a “master of kickbacks.” Credit Suisse said it wasn’t aware of the statement as the deal preparations stepped up.

The case has also drawn in a member of Abu Dhabi’s royalty.

Safa’s relationship with United Arab Emirates royals also helped Credit Suisse’s High Risk Advisory Team to approve the transaction, according to a separate legal filing from Surjan Singh. Sheikh Hamdan Bin Zayed Al Nahyan, the former deputy prime minister of Abu Dhabi, controlled a shipyard involved in the maritime project. Safa’s “increased connections” with Abu Dhabi gave the bank comfort to proceed, he said.

Messages left with the U.A.E’s National Media Council weren’t returned.

An attorney for the sheikh’s firm Al Ain Capital said that it held shares in Abu Dhabi Mar until May 2013. “Al Ain Capital had no knowledge or awareness of any impropriety by Abu Dhabi Mar,” the lawyer said in an email. Al Ain Capital has no dealings or business interests with Iskandar Safa, the lawyer said.

--With assistance from Borges Nhamire, Ellen Milligan and Alex Verge.

To contact the reporters on this story: Jonathan Browning in London at jbrowning9@bloomberg.net;Matthew Hill in Maputo at mhill58@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman, Ross Larsen

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