By Ashley Seager
GuardianFebruary 15, 2007
A so-called "vulture" fund has been given permission by a British court to enforce a claim for tens of millions of dollars theoretically owed by Zambia. The decision was immediately slammed by campaign groups who demanded that governments of rich countries moved to stop such funds reclaiming debt from poor countries who had supposedly already had their debts written off. The high court ruled that a claim against Zambia by the US company Donegal International, owned by US citizen Michael Sheehan, for debts incurred by the impoverished southern African nation more than a decade ago, was lawful. Zambia was represented by the prime minister's brother, William Blair QC.
"It is clear that while the actions of Donegal International were not strictly illegal, they were immoral," said Adrian Lovett, director of campaigns and communications at Oxfam. "Donegal should not take the money." Trisha Rogers, director of Jubilee Debt Campaign, said: "There is a clear need for a fair, comprehensive and binding framework for dealing with poor country debt which will ensure that commercial creditors will never again have the chance to profit in this way. "
Donegal bought the Zambian debt, with a face value of around $30m, from Romania in 1999, for less than $4m. Zambia had run up the debt, mainly for agricultural machinery, during the Cold War. Zambia approved the Donegal purchase at the time and later agreed to pay Donegal $15m for it. The judge had little choice but to say the contract was binding, although he is thought unlikely to allow Donegal's claim that interest and costs have inflated the amount to $55m. The amount claimed by Donegal is more than the total debt relief Zambia is due to receive as agreed at the G8 meeting in Gleneagles in 2005.
Gordon Brown has condemned vulture funds and a Treasury spokesman said: "By depleting the resources of developing countries' governments, these companies reduce the funds available for schooling and hospital treatment. This behaviour is socially irresponsible." Oxfam and Jubilee urged the chancellor to use his influence as chair of the International Monetary Fund's key decision-making committee to make sure that new regulations are devised that prevent private companies from bypassing international debt rules and pursuing debts from very poor countries.
The judge did not let Donegal off lightly. "I have been driven to conclude that they were at times being deliberately evasive and even dishonest," he said. Mr Sheehan was "not merely careless but cavalier in presenting his evidence". He pointed out that delays had been caused to the trial because "put at its kindest, some of Donegal's witnesses were less than candid".
BBC's Newsnight broadcast a report on Wednesday night purporting to show an email from Mr Sheehan offering $2m to the then president Frederick Chiluba's favourite charity when Donegal bought the debt. Mr Blair called it a "bribe" but Mr Sheehan told Newsnight it was a "charitable initiative". The US Justice Department later asked the BBC to hand over the documents to assess whether Mr Sheehan, a resident of Washington DC, had committed a crime under the US Foreign Corrupt Practices Act.
