Vulture fund's $100m DR Congo claim blocked

Vulture Vulture funds are also known as "distressed debt" investors

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The Privy Council has ruled that a "vulture fund" cannot collect $100m from the Democratic Republic of Congo.

Newsnight revealed last year that old Congo debts had been illegally sold to FG Hemisphere for $3m and the fund had then sued in Jersey where they were awarded $100m.

The award was against Congo's state-owned mining company Gecamines who successfully appealed to the Privy Council in London.

FG Hemisphere deny any wrongdoing.

Nick Dearden, Director of the Jubilee Debt Campaign, said: "We welcome the fact that these funds will not flow into the coffers of a secretive vulture fund which tries to unfairly profit from the past debt distress of impoverished countries.

Pursuit

Vulture funds, also known as "distressed debt" investors, buy up the debt of poor nations cheaply when it is about to be written off and then sue countries such as Zambia or Liberia or DRC for the full value of the debt plus interest which can be ten or 100 times what they paid for it.

Start Quote

Of course it was illegal”

End Quote Zufer Dervisevic Bosnian police

They pursue any companies which do business with their target country in courts around the world and try to force them to pay money to the fund instead of the country.

Critics say this holds poor countries to ransom and prevents them trading their way out of poverty rather than relying on aid. Until 2010 they often sued in the UK but Britain effectively made vulture funds illegal that year after the Liberian President Ellen Sirleaf Johnson made an emotional appeal on Newsnight.

It later emerged there was a loophole in the Debt Relief Act which allowed action still to be taken in Jersey. Jersey has announced that it will be closing that loophole shortly.

'Legitimate'

FG Hemisphere is run a New York financier called Peter Grossman. When Newsnight confronted Mr Grossman in Brooklyn about his vulture fund operation last year, he said: "I'm not beating up the Congo. I'm collecting on a legitimate claim."

However, a joint BBC Newsnight/Guardian newspaper investigation has established that the debt in question, which was originally a loan from Yugoslavia to Zaire 30 years ago, was illegally sold to Mr Grossman's fund, FG Hemisphere.

Zufer Dervisevic, who is the chief of the financial police in Bosnia, told journalists: "Of course it was illegal," and said that the man who organised the sale, former Bosnian Prime Minister Nedzad Brankovic, "should go to jail".

Mr Brankovic was Prime Minister of Bosnia until he was indicted for separate corruption charges - charges of which he was acquitted in 2010.

'Goldfinger'

The Centre for Investigative Reporting in Sarajevo obtained a police report, which is now with prosecutors, recommending that Mr Brankovic be prosecuted for his part in the sale of the loan to FG Hemisphere.

Bosnian police showed the Newsnight/Guardian team paperwork which reveals that FG Hemisphere paid $3.3m for the claim, of which more than a half a million went to another "vulture" operator who helped set up the deal - Michael Sheehan, an American who calls himself "Goldfinger" after the James Bond villain.

Asked by reporter Greg Palast whether he thought it was fair to take $100m from Congo for a debt for which he had paid $3m, Mr Grossman said: "Yeah, I do actually," but he denied paying just $3m for the claim.

Mr Grossman also said he did not know that the Bosnian police said the loan had been illegally sold to him.

Vulture funds are increasingly being blocked in US courts from collecting on the debts they buy up.

In 2011, China blocked FG Hemisphere's attempts to sue China Railways for the DR Congo money and of course the British route is now stopped.

We have been asked to add that Mr Grossman is clear in his response that the Bosnian police have not accused or implicated him or FG Hemisphere Associates in any wrongdoing.

For Mr Grossman's detailed response please click here.

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