The Tax Justice Network blog has a post from guest blogger and is by Nick Dearden of the Jubilee Debt Campaign, a man whose work I admire. As Nick notes:

“A court in Jersey has awarded a ‘vulture fund’ $100 million on the basis of a defaulted debt ‘owed’ by the Democratic Republic of Congo, allowing the fund to get around a British law which would prevent such action being taken. In other words, Jersey’s court has provided a loophole which has allowed a particularly unpleasant company to make money from one of the world’s poorest countries.

As Nick explains:

So-called ‘vultures funds’ buy up defaulted debt from developing countries for small amounts of money and then sue those countries for the face value of the debt — often adding extortionate fees and interest charges.

FG Hemisphere is one such fund, and has been pursuing a debt run up during the rule of dictator Mobutu Sese Seko in the 1980s. It was awarded payment a few years ago and is now busy going around the world trying to enforce its claim against companies with connections to DRC. Long-term investment in DRC is hampered as a result.

The original debt, which FG Hemisphere bought in 2003, was for $37 million. It has now risen to more than $100 million in principal, interest and fees, and is growing by around $27,500 a day, according to Jersey Court of Appeal documents seen by Bloomberg.

As Nick adds:

By rights this debt should have been written off as completely illegitimate — even the IMF’s own consultant in DRC told the institution to stop lending in 1978 because there was “no (repeat, no) prospect for Zaire’s creditors to get their money back in the foreseeable future”.

After a campaign by NGOs earlier in the year, the British Parliament passed a law just a day before Parliament dissolved for the General Election which would effectively make the actions of companies like FG Hemisphere impossible — insisting they take the same discount that the World Bank and IMF are taking on the debts of countries like DRC. However, because Jersey has not (yet) incorporated the law, DRC is still being harassed by the vultures there.

As such, FG Hemisphere won a judgement ordering Jersey-based mining company GTL to send “all future payments” on a mining contract with DRC’s state-owned Gecamines to FG Hemisphere. Gecamines Director General Calixte Mukasa told Bloomberg the decision was “incredible and revolting” and said the company will appeal.

In an understatement he concludes:

The very existence of vultures provides one more reason why ‘secrecy jurisdictions’ are a problem. Vultures are almost always set up in such jurisdictions — British dependencies being a particular favourite — as they provide the perfect cloak for investors in such funds and help protect them if things go wrong.

It is vital that Jersey incorporates the vulture law if the island is not to continue being used by some of the most reprehensible companies in the world. Moreover, the British government needs to make the law permanent across the UK — it is currently under threat from a sunset clause which could mean the UK Government reverses the law next year.”

Let me add a little flavour to this.

Geoff Cook of Jersey finance likes to claim (only this week in this case) that:

evidence showed that international finance centres like Jersey played a positive role in helping to enhance economic growth and alleviative poverty among developing countries.

This is blatantly untrue. The evidence, as noted by Nick Dearden, is that jersey helps impose poverty on developing countries.

get your facts right Geoff.

More important — Jersey has to get off the back of poor people and stop exploiting the developing countries of the world.

As I said, in a comment aimed at Geoff Cook recently:

Don’t for one minute think we just differ: that massively understates the situation. I oppose the abuse that you promote, which I think as shocking and as undermining of humankind as slavery was, and look forward to the day when it is outlawed by all civilised societies, including the one that will one day I hope prevail in Jersey.

And all the evidence supports my case.