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How 'vulture funds' are preying on the globe's poorest countries

The biggest vulture The biggest vulture fund is Elliott Associates run by Paul Singer, a billionaire donor to US President George W. Bush and to US Republican presidential hopeful Rudi Giuliani. On one occasion, Elliott spent US$12 million on "distressed" Peruvian debt in 1996 and four years later forced Peru to pay almost US$58 million to redeem it. His company also bought some of Congo's debt for US$10 million and then sued it for US$127 million. The Congolese government was found to be corrupt and under US racketeering law, Elliott may be able to claim triple damages, reaping as much as US$400 million. Singer is reputedly worth more than US$16 billion and contributed US$300,000 to Bush's election campaign in 2000 and US$1.2 million in 2004. Source: The Guardian

Many debt relief campaigners had been hoping that the headlines about a US$50 million lawsuit against Zambia by a so-called "vulture fund" earlier this year would mark the end of this controversial legal action.

But as delegates sit down this week at the annual meetings of the IMF and World Bank in Washington, they will be presented with figures showing that the vultures are still dragging developing countries into the courts to recover unpaid debts.

Moreover, some top London law firms, who claim to support the UN's millennium goals of reducing global poverty, are making fortunes representing the vultures.

Vulture funds buy up sovereign debt issued by poor countries at a fraction of its face value, then sue the countries in courts -- usually in London, New York or Paris -- for their full face value plus interest.

Donegal International, an offshore vulture fund, burst into the spotlight this year when it won an award for US$15 million from impoverished Zambia in the UK High Court. Donegal paid US$3 million for some old Zambian debt, then sued for US$55 million, although the London judge reduced the award to US$15 million.

But that was the tip of the iceberg. A paper prepared for the IMF-World Bank meetings this week shows there are now US$1.8 billion of lawsuits against poor countries where people typically live on less than US$1 a day.

Eight cases were launched in the past year -- five against Nicaragua, two against Cameroon and one against Ethiopia. But the report warns the figures are far from complete and the real totals could be higher still.

It shows that of the 24 countries that have received debt cancelation under the Heavily Indebted Poor Countries initiative, 11 have been targeted for legal action by private creditors. And they have already seen awards in courts of just under US$1 billion -- money that could have been spent on schools and hospitals.

The IMF said litigating creditors were concentrated in the US and UK, as well as UK protectorate tax haven the British Virgin Islands.

"It's time for concerted action from the UK government, the IMF and the World Bank to tighten up the system and make sure the benefits of debt cancelation go to the people who need them," said Trish Rogers, director of Jubilee Debt Campaign. "We are calling for national and international regulation to stop vulture funds from operating."

Top London law firms are reaping the benefits from bringing many of the vulture funds' cases to court in London. One such is Allen & Overy, which represented Donegal against Zambia and billed their clients about US$4 million in fees. The average Zambian survives on less than US$1 a day.

But that was far from being an isolated case. Several London law firms have vulture funds as clients or have acted against the interests of poor countries.

Another big firm -- Weil Gotshal -- acted for a major US vulture fund, Elliott Associates, in the successful pursuit of Peru for US$55 million in 1995. Elliott is still a client of the firm.

Allen & Overy also counts among its clients British Virgin Islands-based Walker International -- another vulture fund, which has sued Congo-Brazzaville for US$13 million. Michael Sheehan -- the man behind Donegal -- is also a director of Walker.

Allen & Overy is acting for British firm Biwater, which was kicked out of Tanzania by the government of that country two years ago for failing to run Dar es Salaam's water system properly. Biwater is suing Tanzania for millions of dollars in a tribunal in The Hague.

Another vulture -- Kensington International, domiciled in the Cayman Islands -- is represented by law firm Dechert. In 2003 it sued the Democratic Republic of Congo for US$30 million, again in the High Court in London, although it was then represented by another London law firm.

While representing the vultures in court, law firms Weil Gotshal and Allen & Overy are members of a progressive organization called Advocates for International Development (A4ID), which aims to support the Millennium Development Goals for reducing global poverty. The organization also provides pro bono advice to poor countries that otherwise could not defend themselves when attacked -- by a vulture fund, for example.

"There is a lot of vulture fund activity in London because of the expertise the city has," a spokesman said.

A4ID grew out of the development charity Oxfam's "1,000 City Lawyers" initiative.

Oxfam's head of legal affairs, Joss Saunders, said: "We believe that vulture funds should be outlawed. They undermine debt relief initiatives and the financing of essential services such as health and education on which poor people depend. Oxfam would prefer that law firms do not act for vulture funds."

The big law firms, though, continue to claim they are acting responsibly.

Indeed, Allen & Overy senior partner Guy Beringer, said last year: "Clearly, we have to always be in the situation where ethical considerations are the fundamental guide for what we do."

The firm declined to comment for this article. A spokesman for Dechert said some of its lawyers were represented on A4ID's managing committee but had not acted for it to date.

A spokesperson for Weil Gotshal said: "Weil Gotshal has a long-standing commitment to pro bono firm-wide, with each office playing a significant role in both local and international activities. In London ... we are proud to have been involved in the formation of A4ID and to have an ongoing role as one of the trustees of this pioneering organization."

British Prime Minister Gordon Brown has criticized vulture funds and called for international action to ensure that they cannot thrive. He wants the World Bank to help poor countries eliminate their commercial debts and creditors to establish a legal fund to help countries defend themselves.

"We are determined to limit the damage done by such funds," he said.

There is an early day House of Commons motion signed by 110 members of parliament urging the government to follow the example of influential US Representative John Conyers, who is pressing US President George W. Bush to change federal law so that US courts cannot act in ways that contradict the country's foreign policy -- in this case, debt relief for poor countries.

Most vulture funds originate in the US, though, so a tightening of the law could push more of them to pursue cases in London if they can no longer get their way in the US, meaning that the vultures will continue to circle London for years to come.

James Lewis is the associate editor of Legal Business.????????
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