Government Agrees Need For Vultures Bill; But Stopped by Conservative MP

The British Government has published its response to the consultation on vulture
funds which it launched in July 2009. Despite a number of submissions from the
financial services industry opposing legislation, the Government clearly came out
supporting legislation.

We’d like to thank everyone who contributed to the consultation – your responses really
helped to ensure the Government position in favour of legislation. Full details can be
found at:

http://www.hm-treasury.gov.uk/development_action.htm

where you can also find details of the UK’s response on Haiti’s debt cancellation (more
below).

The Government estimates that legislation could potentially save £145 million for HIPC
countries. They believe legislation is necessary from the perspective both of fairness
(preventing some creditors free-riding on the cancellation of others) and development.

The Government suggests that legislation should have the following features:

Applicable only to HIPCs. They maintain anything wider would damage lending as a whole. Interestingly, they don’t accept that countries eligible for UK MDRI – the UK’s own debt cancellation scheme which goes beyond HIPC – should be eligible, as UK MDRI is (apparently) about poverty not debt unsustainability.

Reduction will be based on the HIPC Initiatives Common Reduction Factor (the amount judged necessary to return a country to debt sustainability)

Will include original creditors as well as ‘vulture funds’

Will not include transparency requirements as the purpose of the legislation is not a attack on creditor litigation, but only to better ‘enforce’ HIPC

Will apply to debts contracted before the legislation takes effect (obviously) and will apply to cases where awards have been made but not enforced

Will apply to foreign cases seeking claims in UK courts and discourage the enforcement of cases brought under UK law in foreign courts

In a move to pacify creditors, it will exclude any debt on which the creditor does not make an offer to settle on HIPC terms before initial litigation commences (we are concerned about this due to bureaucratic inefficiency in making HIPCs).

Needless to say, these principles were incorporated into Andrew Gwynne’s Bill which the
Treasury wrote and supported. Of course we would have liked the bill to go further, but it
represented a significant step forward.

Since that time, we have been frantically lobbying to ensure the bill becomes law. It
is now almost certain that the bill is dead – there simply isn’t enough time before the
General Election, so our latest action is to ask all major parties to make a manifesto
commitment to reintroduce the bill. We hope to get a commitment from Labour and the
Lib Dems in the next couple of weeks. In particularly we urge you to let Labour know your
feelings:

http://www.globalpovertypromise.com/vulturefunds

The bill was ‘killed’ by Tory MP, Christopher Chope, but we have been assured by the Conservative front bench that no instruction came from them. However, several interesting points came up
in debates which supporters might find useful:

The central concern of the Conservatives, the financial industry – and indeed the Government to some extent – has been that this is the ‘thin end of the wedge’. Repeated questions have been asked to ensure this is a ‘one off’ rather than the beginning of wider government interference in the secondary debt market (which we, and some Labour MPs, would like);

Lib Dem and Tory MPs raised the point, in a positive way, that this was a means of applying insolvency procedure to sovereign states. We would like to ensure that this is taken up and our work on vultures blends into wider work on a FTAP;

A critical objection raised by the financial industry and backbench Tories is that this bill would effect a seizure of property, and therefore contravene European human rights legislation. This is something we’ve fought off successfully because the bill is so limited, but which would need to be addressed in terms of wider legislation.

We attacked some of the law firms who represent vultures including Dechert. In the

past we’ve also criticised Allen & Overy for similar work. Both are part of A4ID.

In the midst of all this it's useful to be reminded of why we need this bill in the first place. The Democratic Republic of Congo, which has $11 billion of mostly illegitimate debt knowingly lent to the dictator Mobutu Seso Seko, is due to receive 90% debt cancellation in June.

Recently, the country's Debt Management Office has pleaded with creditors not to sell these debts on to vulture funds. Unfortunately, creditors like the First International Bank of Israel are threatening to do just that unless DRC improves its payment record. DRC is also continuing to run up massive debts as a result of failing to disclose its international assets (which would make the lives of vultures much easier). So far these fines amount to £2.7million.

Also, an interesting, somewhat related, case in Honduras where a 'disaster capitalism' company seems to be suing the country for work done on reconstruction during Hurricane Mitch. The company is subject to legal action in the US for fraudulent overcharging in the same country as part of a USAID project:

http://www.hondurasnews.com/2010/03/23/public-prosecutor-investigates-the-fhis

Lots more on vulture at the latest news page:

http://www.jubileedebtcampaign.org.uk/Campaign%20Latest+5006.twl

Thanks to all supporters for their help on this campaign. There are a few things we’re
asking for help with going forward:

Please take action, from your office or via your supporters, to put pressure on the parties to make a re-introduced vultures bill a manifesto commitment.- The Guardian are very interested in a long-term investigation into vultures. Anyone who’d like to be involved with ideas, pro bono help or money please get in touch.

One thing that’s really come to the fore in the campaign is the centrality of the secondary debt market to developing countries access to credit. It would be interesting to conduct a piece of research into this market and get a better understanding of it – let me know if you’re interested.

Jubilee Debt Campaign, 30/03/2010