BY PIJ REPORTER
During the last days of the Peter Mutharika administration, the May 26, 2020 cabinet meeting approved a request by the Malawi Police Service to allow one of its suppliers, SF international, to obtain a loan of K4.4 billion from FDH Bank under a government guarantee. The loan allowed the supplier, SF International, owned by businessman Shiraz Ferreira, to supply vehicles to police.
Two years down the line, Ferreira wrote again, this time to the Lazarus Chakwera administration, asking for another guarantee for the same police vehicles contract. This time round, however, the Attorney General Thabo Chakaka Nyirenda has advised the government that such a move can not conform with the law or make financial sense for the government.
According to documents seen by the PlJ, FDH—through a letter dated October 5, 2022 –sought the government’s renewal of the loan guarantee but the Attorney General argues that in the first place the guarantee was granted illegally and a renewal of the same will only increase the government’s debt.
Ferreira did not respond to PIJ questions on the matter.
The FDH letter was addressed to the Minister of Finance but copied to the AG’s office, the Minister of Homeland Security and the Inspector General of Police.
Upon seeing the letter, according to documents PIJ has seen, the AG wrote back to the bank, communicating that the request to have the sovereign guarantee renewed has been rejected as initial granting of the guarantee was irregularly done.
“Sovereign guarantees can be issued only in the public interest, according to the Public Finance Management Act. Section 2 of the Act defines public interest as ‘something that is to the advantage, direct or indirect, of the people of Malawi.’ No public interest would be served if the guarantee that the Malawi Government issued to SF International is extended,” the AG argues.
In addition to the stated alleged irregular way the sovereign guarantee was issued to SF International, the Attorney General argues that SF International has been involved in a series of procurement malpractices.
“SF International has also been involved in illegal externalization of foreign currency using FDH Bank Limited, something that you fully know. The fact that you proceeded to conduct business with SF International when SF International has been involved in externalization of foreign currency using false customs clearance documents and false invoices indicates that you did not conduct proper anti-money laundering due diligence on SF International. No public interest would be served in extending a sovereign guarantee in favour of a money launderer,” reads one of the documents.
The PIJ could not independently verify details of the money laundering allegations the Attorney General has referred to in the documents.
However, the PIJ has previously reported on allegations that Ferreira faced tax dodging allegations and faced prosecution for such cases before. Fereirra’s lawyer Frank Mbeta was later arrested by the Anti-Corruption Bureau (ACB) for allegedly offering a bribe to an officer for Malawi Revenue Authority (MRA) to destroy evidence of illegal tax activities.
Ferreira has been named in our partner International Consortium for Investigative Journalism (ICIJ) leaked documents of users of tax havens in which money laundering allegations were cited.
Nyirenda Contradicts Kaphale
The position taken by Nyirenda is at loggerheads with one taken by former Attorney General Kalekeni Kaphale who authorized the signing of the guarantee after the cabinet approved the transaction.
Kaphale in a June 10, 2022 letter told SF International its request for the guarantee was in tandem with the Public Finance Management Act.
“I confirm that Cabinet, in its sitting of May 26, 2020, ratified the Consent and Guarantee for the facility that your Bank intends to extend to SF International Limited to enable the latter to procure, supply and deliver motor vehicles under a contract between SF International Limited, Malawi Government and Malawi Police Service,” wrote Kaphale.
Kaphale added; “I confirm that there was compliance with the Public Finance Management Act. I have been informed and do hereby confirm that the guarantee is consistent with principles of responsible fiscal management. Finally, the Minister has assured my office of his intention to report the issuance of the guarantee to the National Assembly at its current sitting.”
What is a Sovereign Guarantee and Why is this Controversial?
A sovereign guarantee is a government’s guarantee to a bank that the government will repay a loan on behalf of a person or company seeking to obtain a government loan if the person or company defaults on payment.
Critics argue that some politically connected suppliers to the government obtain such guarantees after obtaining lucrative contracts with the government, which proves they do not have capacity to carry out the contracts on their own, hence should not have been awarded the contracts in the first place.
The guarantees have previously caused controversy through dubious contracts awarded by the police and the military in the past.
In a scandal known as police food rations deal, one of the suppliers, Abdul Zameer Karim, obtained a bank guarantee after police provided a guarantee allowing him to obtain a loan from CDH Bank to supply food rations to police. Instead of police cancelling the contract after Karim indicated he had no funds to finance the supply of the food rations, Police committed to pay Karim through a CDH bank account so that he could repay the loan after supply.
Karim and some police officers connived to pay him via another bank, and the bank sued police for non-payment of the loan.
Can SF International Sue the Government for Action Taken?
According to the new documents, the AG argues that extension of the sovereign guarantee would unnecessarily increase the Government of Malawi’s debt position and says there is no obligation on the part of the Malawi Government to extend the sovereign guarantee which it previously issued.
The company has, however, threatened to sue the government if its request for renewal is not met. And the Attorney General has equally scoffed at the idea of court action by SF International.
He has pledged to vehemently defend against any such lawsuit and launch a counterclaim of K10 billion which SF International owes the government from other contracts.