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‘Vulture funds’ – UN expert welcomes UK law to halt profiteering, but warns the fight is not over yet

GENEVA (19 May 2011) – The UN Independent Expert on foreign debt and human rights, Cephas Lumina, has welcomed the United Kingdom’s initiative “to further limit the ability of unscrupulous creditors known as ‘vulture funds’ to use UK courts to recover extortionate amounts from poor countries engaged in international debt relief efforts.”

“However,” he warned, “the Act has not yet been extended to cover all UK overseas territories and dependencies, and ‘vulture funds’ are still allowed to operate in UK territories like Jersey, where such unscrupulous funds are currently suing the Democratic Republic of Congo for US$100 million.”

The UK adopted this week legislation to make permanent the Debt Relief (Developing Countries) Act 2010, which was passed in April 2010 temporarily restricting the actions of ‘vulture funds’ in the country. The Act was due to expire in June 2011, as a result of a sunset clause in the legislation, but has been made permanent with the enactment of the new legislation on Monday.

“‘Vulture funds’ have exploited the voluntary nature of international debt relief schemes by acquiring defaulted sovereign debt at deeply discounted prices and then seeking repayment of the full value of the debt through litigation, seizure of assets or political pressure,” he noted. “This erodes the gains from international debt relief efforts at the expense of both the citizens of distressed debtor countries and the taxpayers of countries that have supported international debt relief efforts.”

Mr. Lumina commended the UK for enacting this landmark legislation that will permanently protect the poorest countries in the world from profiteering by ‘vulture funds’ before UK courts, and called upon the international community to “follow the example of the UK and enact legislation to prevent ‘vulture fund’ activity within their jurisdiction as a clear indication of their commitment to find a durable solution to the debt problem”.

The Independent Expert also called upon the UK Government to use its powers to extend the new legislation to all Crown Dependencies and British Overseas territories.

In a statement released in April 2010*, the Independent Expert recalled that awards in ‘vulture fund’ litigation represent a substantial burden on the budgets of poor countries, diminishing the impact of debt relief and impacting on the capacity of their governments to fulfill their human rights obligations.

“Debt relief provides heavily indebted poor countries fiscal space to increase spending on basic social services such as health and education, thus promoting the enjoyment of economic, social and cultural rights and the achievement of the Millennium Development Goals,” Mr. Lumina said.

The Independent Expert hopes that the UK example will produce a positive ripple effect. “The enactment of similar legislation in other countries will ensure that the billions of dollars committed to debt relief for the world’s poorest countries will not be diverted to satisfy the greed of unscrupulous companies.”

Mr. Cephas Lumina was appointed Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights by the United Nations Human Rights Council in 2008. He is independent from any government or organization and serves in his individual capacity. The mandate covers all countries.

(*) Press Release (20.04.10) ‘Vulture funds’ – UN expert on foreign debt welcomes landmark law to address profiteering:
http://www2.ohchr.org/english/issues/development/debt/docs/vulture_funds_20Apr2010.pdf

Learn more about the mandate of the Independent Expert, visit: http://www2.ohchr.org/english/issues/development/debt/index.htm

OHCHR Country Page – United Kingdom: http://www.ohchr.org/EN/Countries/ENACARegion/Pages/GBIndex.aspx

For further information and media requests, please contact Brenda Vukovic or Jamshid Gaziyev (Tel: +41 22 917 9861 / +41 22 917 9183/ e-mail: ieforeigndebt@ohchr.org).