Thursday, 8 April 2010

Austral Bank: Malaysians Accused of Crimes

Almost a decade after the collapse of the privatised Austral Bank, the Mozambican Public Prosecutor’s Office has decided that the ruin of the bank did involve criminal behaviour, and that somebody ought to stand trial.

But the people whom the prosecutors wish to charge are in Malaysia, and there is no intention to charge their Mozambican partners.

Austral was once the state-owned People’s Development Bank (BPD). Under pressure from the World Bank and the IMF, the government privatised it in 1997. 60 per cent of the shares were purchased by a Malaysian-Mozambican consortium headed by the Southern Bank Berhard (SBB) of Malaysia. SBB took 30.4 per cent of the shares, while its Mozambican partner, Invester, a company headed by former Industry Minister Octavio Muthemba, took 29.6 per cent. The state kept 40 per cent – as matters turned out, that was a very poor business decision.

Under the new, private management, the bank changed its name and embarked on a wave of reckless lending. The bad loans accumulated, and pushed Austral to the verge of bankruptcy.

On 3 April 2001, at the bank’s Annual General Meeting, the private consortium refused to provide the funds needed to recaptalise Austral. Instead, they just handed their shares back to the state, and the Malaysian directors and managers made a quick exit from the country.

Belatedly, the Bank of Mozambique revealed that prior to the collapse, it had issued several warnings to Austral. Despite this there was no improvement in the bank’s management, and no sign of the promised fresh injections of capital from the new owners.

The central bank stressed that the whole point of privatizing the BPD had been that the private shareholders “would guarantee the capital and know-how required so that, within three years, the institution would become modern and competitive”.

Instead the bank was looted. The Bank of Mozambique did not use that term, of course, preferring the euphemism that the Austral credit portfolio was “of poor quality”. Too late, the central bank, in 2000, imposed limits on any further expansion of Austral credit. In late 2000, the Austral management was still promising to raise more capital and shareholder loans. Nothing of the sort happened.

Now, according to a report in Tuesday’s issue of the independent daily “O Pais”, prosecutors have decided to charge the three key Malaysian figures, Koonjambu Muganthan, Marcus Young and Leong Yit Ket with the crime of “violating rules of management”.

This crime, the prosecutors’ dispatch says, is committed by “anyone who is directly responsible for disorganizing production or the provision of services, through the absence of management, of accounting control or accounting disorganization, which causes losses”.

But this is a crime that only be committed by people who are in executive control, which, as far as the Public Prosecutor’s Office is concerned, lets the key Mozambican figures in the consortium off the hook. Those figures are Muthemba himself, who was chairman of the Austral Board of Directors, Jamu Hassan and Omaia Salimo, who were members of the board, and Alvaro Massinga, who sat on the bank’s Supervisory Board.

The prosecutors determined that the positions held by the four Mozambicans “did not allow them to take part in the day-to-day management of the bank, since they did not have executive functions”. Management had been entrusted to an Executive Directorate, headed by Muganthan as Managing Director.

It was this Executive Directorate which had the powers “to pursue the objective of the company, including granting or not granting loans. Hence any act which could disorganize the accounts and cause losses should be blamed on the Executive Directorate, unless there is proof that others were involved”.

Furthermore, Muthemba, Hassan, Salimo and Massinga had not asked the bank to issue loans, apart from personal loans for themselves, the prosecutors claimed. Those personal loans “were granted within the powers of the Executive Directorate. Few cases are known where the Board of Directors had to decide on whether or not to grant a loan”.

Nonetheless when the four Mozambicans “asked for loans for themselves and/or allowed loans to be made for companies which they and their relatives owned, they were not unaware that they were breaking the law and violating the Credit Policy Manual”.

A law of 1991 is very clear. It states that a bank cannot grant credit in any way to members of its own bodies (such as the Board of Directors), or to its own managers, consultants or agents. The Bank of Mozambique was supposed to supervise application of this law, a task in which it manifestly failed.

The Credit Policy Manual also bans loans to members of the Board of Directors or their relatives, or to companies in which a member of the board has a holding of more than 10 per cent.

The prosecutors’ dispatch ticks off Muthemba, Hassan, Salimo and Massinga. It says their behaviour “is to be condemned on moral and ethical grounds”. Such conduct can be punished “through an administrative process in the Bank of Mozambique”. In other words, the prosecutors will not start criminal proceedings against the four – the central bank should start administrative proceedings.

The four did not repay their loans – but even this is unlikely to lead to them appearing before a court. They did not respect the repayment terms reached with the bank, and so are in default.

But the prosecutors say it is up to the bank to set in motion the legal mechanisms to collect the money (except in the case of loans transferred to the state – only in those few cases will the public prosecutor act). Austral was purchased by the South African banking group ABSA, which was then taken over by Barclays. So will Barclays now insist on Muthemba and his friends repaying the loans?

The prosecutors say that they can find no signs that Muthemba, Hassan, Salimo and Massinga interfered in the activities of the Executive Directorate – so they cannot be accused of violating the rules of management.

Instead, a case will be opened against the three Malaysians. But they were allowed to leave Mozambique unhindered in 2001, and have not returned to the country since. There is no extradition treaty between Mozambique and Malaysia – so the chance that these three men will ever stand trial for ruining the bank is remote indeed.

Meanwhile, no progress at all has been reported in the second Austral Bank case – that of the murder of Antonio Siba-Siba Macuacua, the man whom the central bank appointed interim chair of Austral immediately after the April 2001 collapse.

Siba-Siba embarked upon a vigourous debt recovery programme, and even published the names of hundreds of debtors in the main daily paper, “Noticias”. He was murdered on 11 August 2001, and the killers threw his body down the stairwell at the Austral headquarters.

Two people were arrested in connection with the murder in December 2008 – the Austral director of credit, Benigno Parente Junior, and a security guard, Jose Passaje. In May 2009, a Maputo judge ordered their release on the grounds that there was insufficient evidence for the case to go to trial.

Since then no further developments in the case have been reported.

source: AIM NEWS
in: Club of Mozambique

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