Vulture Funds - Shock, Horror!
It is not often that one attends a talk that, with the introduction of two words, opens one’s eyes to a seedy financial underworld, of whose existence one has no previous knowledge. The emphasis was on Third World Debt and the effect that Vulture Funds (some may refer to them as gangsters) have had on the development of 3rd world countries, and their ability to access debt relief.
The two words earlier referred to were VULTURE FUNDS.
The distaste I felt is not unique to me.
Shocking
Shocking is the legal reality that as result of the legal assignment of a large amount of 3rd world debt to private entities, many 3rd world countries now find themselves unable to access debt relief offered by multi-lateral institutions that would help their development, as a result of being held hostage by private entities, referred to as vulture funds.
Sobering is the thought that the legal assignments or settlements are often procured between vulture funds in dubious circumstances, and involving politicians who, having no doubt received individual incentives, sign off the soul of their countries for the proverbial loaf of bread.
Sad is the fact that most countries do not retain lawyers when negotiating their debt agreements.
Unsurprising
Unsurprising is the high rate of success that vulture funds experience in the courts, given the legal facts that characterise most of these cases.
44 creditors have filed suit.
55% have won!
ADB estimates some countries have litigated debts amounting to up to 14% of their GDP.
Reassuring is the knowledge that there are bodies for example the HIPC, the World Bank, and the ADB that are seeking to lessen or eradicate the negative effects of vulture funds on 3rd World countries.
Some Notorious Cases
Elliot Associates v
Danigole v
Hillary Benn said:
“This is the first defence in a case of this kind that has ever been even partially successful, and its impact will be felt across the world. Vulture funds cannot continue to expect to profit from the world's poorest countries.”At the US House Committee on Foreign Affairs, Congressman Payne is looking into the issue:
"Thus, a few Americans are begetting fortunes at the expense of the misfortune and further impoverishment of millions of Africans. This is morally reprehensible and exploitative.”Jesse Jackson says:
“They prey upon the poorest nations, taking resources from the most desperate peoples -- billionaire scavengers pocketing the funds that might go to feed children whose families live on less than $1 a day. They are called the vulture funds. They protect their scavengings with fat checks to politicians and lobbyists. One of the leading vulture firms is led by major donors to President Bush. Now it is time to put an end to this disgrace.”
O’Sullivan’s perspective on the Issue
It is not the purpose of this paper to consider whether there is any moral or economic justification for the business of such funds in maintaining international capital flows. The purpose of this paper is to consider the methods which some of these funds employ and to emphasise that whilst they may be strictly legal (at least in some cases), they rightly attract moral condemnation.
The actions of Donegal that were exposed in the English proceedings included unlawful practices such as obtaining and using confidential information, use of sham constructs to conceal agency relationships and the giving of deliberately false evidence in two jurisdictions and misleading evidence in a third.
While so called investors are permitted to use such unattractive business practices to procure for themselves massive gains at the expense of unsuspecting and impoverished nations there are serious problems in the fight again poverty
Closing Quote
International community must focus on methods of vulture funds in obtaining some of the debts, to ensure they can’t operate with impunity
2 Comments:
I'm not buying this talk. I think it is fair to say that if you borrow money you should repay it. Just because our leaders have pocketed the money doesn't mean we should be forgiven.
Come December we will elect thieves to watch over our resources and then when things go bad we want mercy.
If anything, the west was built by borrowing and that is the way it should be in Kenya. The way I see it, even in retail banking Kenyans don't like repaying their loans.
If we can't repay, let us not borrow. That's the hard truth. As for vulture funds, the risk justifies their aggressiveness.
Perhaps if it was an ordinary banker lender relationship, but when you have funds that resort to the sort of practices that were detailed in this case, you realise that these funds are resorting to illegal practices both to obtain their securites and to enforce them!
And a stop has to be put to that sort of thing!
An excerpt from O'Sullivan's paper is instructive:
Donegal’s Conduct in Acquiring the Debt
It was Zambia’s case that Donegal, through its agents, had engaged in or fermented corruption in order to acquire the debt. In particular, it was alleged that Zambian officials were told that Donegal would make a donation to the Presidential sponsored housing initiative (subsequently referred to by Donegal in an internal email as a contribution to “the President’s favourite charity”) if Donegal acquired the debt in order to induce them to prevent Zambia acquiring it. The charity in question was known as the Presidential Housing Initiative (‘the PHI’). The Judge did not explore the issue but Donegal accepted that the charity might in the end have been used in a corrupt manner.
The Judge accepted that Mr O’Rourke or Mr Mwale had made it known to a senior official, one Mrs Chibanda, before the debt was assigned that Donegal might support the charity. He also accepted that when other officials recommended accepting the Romanian terms for the buyback in early January 1999, Mrs Chibanda rebuffed them. He found that her response was ‘unjustified’ and ‘difficult to understand’, and that she should have referred the matter to her superiors.
The Judge declined, however, to draw the inference that Mrs Chibanda was improperly motivated in acting as she did, or that she had been improperly influenced by Donegal.
Zambia’s conduct in obtaining acknowledgement of the debt
Donegal obtained from an official in the Zambian Government a letter acknowledging the assignment of the debt to Donegal and stating that it was originally borrowed for commercial purposes. The letter was in due course relied upon by Donegal in the BVI proceedings in support of its assertion that Zambia had acknowledged the commercial nature of the debt and did not dispute the same.
Zambia alleged that a few days before the letter was signed Mr Mwale went to the official’s office, produced the letter for signature, and told the official that ‘there will be something in it for all of us’. In due course, the official received $4,000 in cash from Mr Mwale. It was the official’s evidence that the payment was made pursuant to Mr Mwale’s promise made before he signed the acknowledgment. It was Mr Mwale’s evidence that the payment was a family gift made when the official was suspended from his job and was in financial difficulties.
The Judge held that he “generally found Mr Mwale to be a witness whose evidence I do not trust” and rejected his evidence on number of matters related to the signature of the acknowledgement and other matters. However, the Judge concluded that the evidence of the official of a bribe was “simply not sufficiently convincing and robust” to make good the allegation of bribery.
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