BRITAIN IS being urged to help close down a legal loophole that lets financiers known as “vulture funds” use courts in Jersey to claim hundreds of millions of pounds from the world’s poorest countries.
The call came from international poverty campaigners as one of the vulture funds was poised to be awarded a $100 million (€74 million) debt payout against the Democratic Republic of Congo after taking action in the Jersey courts.
“The government could close this loophole tomorrow if it wanted to and stop tax havens becoming the ‘go-to’ destinations for vulture speculators. These people seek to profit by forcing the world’s poorest countries to pay them millions,” said Oxfam head of policy Max Lawson.
Vulture funds legally buy up worthless debt when countries are at war or suffering from a natural disaster and defaulting on their sovereign debt. Once the country has begun to stabilise, they cash in their cheap debt deeds, at massively inflated cost to the countries.
In the case before the Jersey court, to be decided next month, FG Hemisphere, run by Peter Grossman, is trying to collect $100 million from the DRC on a debt that appeared to start out at just $3.3 million.
The original debt was owed to the former Yugoslav government to build power lines.
Jubilee Debt Campaign, Oxfam and Christian Aid are just three of the big international charities calling for vulture funds to be banned.
“It would be catastrophic for the world not to close these loopholes. Offshore centres such as Jersey are the outriders for dangerous deregulated dealing . . . The Jersey government also needs to act fast to close the loophole before it is too late,” said Tim Jones of the Jubilee Debt Campaign.
Mr Jones will arrive in Jersey tomorrow to lobby the government to close the loophole.
Mr Grossman told a joint investigation by BBC's Newsnightand the Guardian:"I am not doing anything wrong. I am collecting a legitimate debt."
However, the investigation has found evidence that the debt was improperly acquired. The investigation has discovered that the original loan, owed to Bosnia, may have been illegally sold to Mr Grossman, according to the Bosnian authorities.
Bosnia’s police claim the former prime minister, Nedzad Brankovic, who sold the debt, was acting illegally as he did not personally own it. Instead, it belonged to the Bosnian state.
Zufer Dervisevic, chief inspector of Bosnia’s financial police, said Mr Brankovic acted illegally: “Of course it is illegal, that’s why we filed a criminal complaint. The financial police saw elements of criminal activity within the management’s actions and this crime is abuse of power.”
Although the Bosnian police have recommended Mr Brankovic be charged, no charges have been brought against him.
The critical ruling on the DRC comes when the country is facing yet another cholera outbreak. Boukari Tare, a Unicef sanitation specialist in the DRC, said the $100 million that could be awarded to the fund would save the lives of 200,000 children.
Outside his New York home, Mr Grossman was questioned on whether he thought his pursuance of $100 million from the war-ravaged country was fair. He replied: “Yeah, I do, actually.”
He added he was unaware the debt was tainted by any potential illegality and disputed its real value was $3.3 million.
Before turning to the Jersey loophole, Mr Grossman’s company had tried unsuccessfully to seize the DRC embassy in Washington as a downpayment on the debt.
The bid was turned down by the US authorities, but FG Hemisphere tried once more in the US before moving on to Hong Kong. Both actions were unsuccessful.
Despite previous success for FG Hemisphere in the English courts, winning $30 million from the DRC in 2007, the new Debt Relief Act in effect on the mainland meant Jersey became an attractive breeding ground for vulture funds as it did not apply there.
The International Monetary Fund has said vulture funds are engaged in claims seeking a total of $1.47 billion from the world’s poorest countries.
The DRC's hopes rest on an appeal next month, when the privy council in London will decide whether the $100 million award should stand. – ( Guardianservice)