Bill targets ‘vulture funds’ that prey on poorest nations

May 7, 2009 at 12:22 pm Leave a comment

By Lawrence Dunhill

A group of MPs yesterday introduced a bill that aims to end the abuse of “vulture funds” which prey on some of the poorest countries in the world.

Labour’s Sally Keeble told the House how various hedge funds have been buying cheap sovereign debt before going through the UK courts to enforce repayment of the full amount.

She said: “This is a level of profiteering well in excess of anything that we have seen in the UK, and it is wrong that this country should be used as a haven for secretive and exploitative funds.”

The Developing Country Debt (Restriction of Recovery) Bill was introduced by Keeble and a cross-party group of 12 MPs.

The Northampton North MP singled out Donegal International and its boss Michael “Goldfinger” Sheehan, who was exposed by BBC TV programme Newsnight in 2007 for pocketing more than $12m of Zambia’s debt.

The country borrowed to buy tractors over 20 years ago, and while they tried to find a settlement with the creditors Donegal International swooped in to purchase the debt at a knockdown price of $3.3m in 1999.

Donegal, based in the British Virgin Islands, then went on to win $15.5m repayment in the High Court after demanding an astonishing $55m.

Such activity undermines UK and international efforts to reduce the unsustainable debts of developing countries, Keeble said.

A couple of years ago 110 MPs signed an early-day motion urging the government to follow the US in banning the vultures, but no definitive action was taken.

Keeble warned that the global economic downturn has created more debt problems and stressed the urgency for this bill.

The vultures are currently free to buy the debts on the open market – often very cheaply because of the small likelihood of it ever being repaid.

The World Bank reports that 12 countries including Ethiopia, Cameroon, Argentina and the Democratic Republic of the Congo have all been taken to court for claims amounting to $1.8bn (£1.2bn).

The Ten-Minute Rule bill would only allow the vultures to sue for the amount they had paid for the debt and force them to reveal who their investors are.

One-fifth of vulture cases take place in the UK with law firms such as Allen & Overy, Weil Gotshal, and Dechert all having represented the funds (Donegal, Kensington International and Elliott Associates respectively).

The bill is backed by anti-poverty group Jubilee Debt Campaign, which is leading a campaign against the activity.

“This bill would represent a major step forward in tackling these odious funds,” said the group’s director Nick Dearden.

“It cannot be right that companies are allowed, in British courts, to make enormous profits out of the suffering of millions of the world’s poorest people.”

The bill is due for its second reading on Friday 12 June.

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