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Vulture culture

Photo by Steven Woodward

Conflict-ridden Democratic Republic of Congo (DRC) is the latest poor country to fall foul of a type of investment company called a ‘vulture fund’. It is being charged $20,000 a week – which will eventually rise to $80,000 – by a Washington DC court. The charges are adding to DRC’s already unpayable debt burden of $11 billion.

Vulture funds – otherwise known as ‘Distressed Debt Funds’ – feed off the very poorest. Usually based in tax havens, the investment companies buy up developing countries’ debts for a fraction of their real value and then sue the country in question for full, immediate repayment, making massive profits in the process.

A well-known case regards a debt that Zambia owed to Romania. This debt was generated as far back as 1979, when Zambia was lent $15 million by Romania in order to buy Romanian tractors. Twenty years on, Zambia was unable to repay its debts and became eligible for debt relief. The Zambian and Romanian Governments were negotiating the cancellation of the tractor debt as part of this process.

Enter Donegal International, a fund set up by US entrepreneur Michael Sheehan, otherwise known as ‘Goldfinger’. Donegal was able to purchase the debt from Romania for $3.3 million and then sue Zambia, in the British courts, for $55 million – eventually winning $15 million in 2007, despite the judge expressing deep concern about the dishonesty of Sheehan and other witnesses.

In essence, some of the debt relief Zambia had been given was snatched back by a vulture fund. Presidential advisor Kalunga-Banda said paying Donegal meant foregoing ‘medicines that would have been available to in excess of 100,000 people’.

Zambia is far from alone. The International Monetary Fund claims that at least 54 companies have taken legal action against 12 of the world’s poorest countries, for claims amounting to $1.5 billion. If a country fails to pay up, the vultures go after the country’s assets abroad, threatening trade, investment and even aid agreements.

The DRC case was brought by a company called FG Hemisphere, which bought a segment of debt that was run up under notorious dictator Mobutu Sese Seko. FG Hemisphere has been awarded $100 million against the DRC and is now seeking to seize the country’s assets through courts in Hong Kong, South Africa and the US. When the DRC refused to disclose the location and details of all its assets – something it would find extremely tough to do – the Washington court imposed a weekly fine, which is still rising. And all to a country recovering from centuries of slavery, exploitation, imperialism and bloody conflict.

Given that the majority of vulture cases are believed to be brought in British or US courts, there are legislative measures under way in both countries to outlaw the practice. In the US, Democrat congress member Maxine Waters is leading the charge to ensure vultures cannot use US courts to ‘profiteer’ (which they define as making more than 6 per cent interest on any debt bought). The British Government has announced its intention to, in effect, end vulture action against countries already eligible for debt relief.

This is a good start, but pressure needs to be maintained to make sure these funds – which, unlike real vultures, feed off the living rather than the dead – are closed down once and for all.

Take action at: www.jubileedebtcampaign.org.uk/vultures
or email [email protected]

Nicholas Dearden,
Jubilee Debt Campaign

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