Vulture Fund - Vulture Funds in Africa

Vulture Funds in Africa

It is the activities of American vulture funds in countries such as Zambia, Liberia, the Congo republics and other heavily indebted poor countries in Africa which have caused the most concern. In 2002 the British Chancellor (and later Prime Minister) Gordon Brown told the United Nations that it was “morally outrageous” and perverse that the vultures made vast profits by buying up the debts of these poor countries cheaply and then suing for ten or a hundred times what they paid for them.

The IMF and World Bank agree that vultures endanger the gains made by debt relief to poorest countries “The Bank has already delivered more than $40 billion in debt relief to 30 of these countries...thanks to this, countries like Ghana can provide micro-credit to farmers, build classrooms for their children, and fund water and sanitation projects for the poor” wrote World Bank Vice President Danny Leipziger in 2007 “Yet the activities of vulture funds threaten to undermine such efforts” and he went on “the strategies adopted by vulture funds divert much needed debt relief away from the poorest countries on earth and into the bank accounts of the wealthy”.

It was the case of vulture fund Donegal International against Zambia in 2007 which focused these concerns. Michael Sheehan who ran the fund and who apparently went by the name of “Goldfinger” bought an old Zambian debt from the 1970s for $3 million and sued for $55 million in the British courts. He was ultimately awarded $15 million. A series of attempts was then made in Britain and the United States by organizations such as Oxfam and the Jubilee Debt Campaign to change the laws so that vultures would not be able to collect on their awards.

In 2009 a British court awarded $20 million to vulture funds suing Liberia. Before the vultures could collect their money a Debt Relief (Developing Countries) Act 2010 was passed in the UK parliament in 2010 after the Liberian President and 2011 Nobel Peace Prize Winner Ellen Johnson Sirleaf appealed on the BBC Newsnight programme for the vultures to “have a conscience and give this country a break”.

That act caps what the vultures can collect—they had to settle with Liberia for just over $1 million—and effectively prevents them suing for exorbitant amounts of money in UK courts. Nick Dearden of the Jubilee Debt Campaign said of the change: "It will mean the poorest countries in the world can no longer be attacked by these reprehensible investment funds who grow fat from the misery of others." The law was made permanent in 2011 but there are still havens for this activity, such as Channel Islands and The British Virgin Isles. Another vulture fund, FG Hemisphere of Brooklyn, sued Democratic Republic of Congo for a debt from Yugoslavia in the 1970s which it had picked up for just over $3 million.

FG sued in Hong Kong, Australia, and Jersey which was not covered by the UK law against vultures. The Chinese government blocked the attempt to sue in Hong Kong but the Jersey court awarded $100 million to FG. FG’s owner Peter Grossman was doorstepped by freelance reporter Greg Palast and asked whether he thought it was fair to take $100 million for a debt he had paid $3 million for. He said “Yeah I do actually…I’m not beating up the Congo I’m collecting on a legitimate claim”. He denied paying just $3 million for the debt but Newsnight said Bosnian police had shown them documents showing that the debt was sold to FG for $3.3 million of which more than half a million went to Michael “Goldfinger” Sheehan who had helped set up the deal.

The Jubilee Debt Coalition is now calling on the Jersey government to ban vultures collecting there too and Jersey is consulting on making that change. Jubilee's Tim Jones went to Jersey in November 2011 to ask the government to ban vulture funds there too. He told The Guardian that the Democratic Republic of Congo "desperately needs to be able to use its rich resources to alleviate poverty, not squander them on paying unjust debts".

Vulture Fund FG Hemisphere run by financier Peter Grossman is attempting to enforce an ICC arbitration award for $116 million owed by the Democratic Republic of Congo. The award was originally issued by an arbitral panel of the International Chamber of Commerce (ICC) in favor of Energoinvest DD of Bosnia in the amount of $39 million and then sold to FG Hemisphere. The award was issued by the ICC in respect of unpaid construction contracts pursuant to which Energoinvest supervised construction of high-tension power lines for transmission of power from the Inga–Shaba dam in Congo; the power lines are still in service. Sales of assets by Energoinvest have been criticized by opposition parties in Bosnia as having been "an abuse of power" by the management who defend themselves on the basis that the company had to sell assets in order to pay salaries after it was impoverished and broken up in the break up of the former Yugoslavia.

Since acquiring the arbitration award, FGH has been engaged in a world wide campaign to enforce it by registering it as a judgment in jurisdictions in which it identifies assets of the Congo DRC. FGH has also been in settlement negotiations with Congo DRC for ten years offering discounts of as much as sixty percent of the award. Exasperated at its inability to settle the debt, FGH has resorted to enforcing its judgment rights, including in the courts of the United States, Hong Kong and now Jersey.

Although the World Bank and the development community used to favor debt for development conversions to resolve outstanding debts, they changed their policy on the issue in the 1990s when the World Bank's international development association arm decided to fund buy-backs with bilateral development assistance loans. In order to depress the price of the debtor country debts concerned, they strongly recommended to debtor governments that they refuse offers for inward conversion into local currency.

This policy of discouraging compromise on external debts owed by severely indebted lower income countries grew into the cancel the debt campaign championed by Oxfam and Jubilee. Accordingly, the collection of the Energo debt has been condemned by a broad range of NGOs. It has also been condemned by UNICEF, a UN agency that pioneered debt for development swaps with the World Wildlife Fund in the 1990s.

Grossman and other distressed debt investors have recently been targeted by the development community and the liberal press, including the BBC and Guardian news organizations with "name and shame campaigns" in order to try to influence the vote of the government of Jersey in considering anti-vulture legislation.

The anti-debt movement is now advocating that the debt of middle-income countries should also be forgiven. This is an argument which is not likely to be well received by European governments which are concerned by the prospect of a default by Greece on its external bonds.