OUTRAGE AS VULTURE FUND SWOOPS ON ZAMBIAN RESOURCES

DDCI Press Release, 25th April 2007

Debt cancellation campaigning groups expressed outrage yesterday as a UK court ordered the Zambian government to pay US$ 15.4 million (Euro 11m) to a U.S. based debt collecting company, or so-called Vulture Fund, Donegal International. Donegal International and other corporations like it are typically referred to as "vulture funds" for their practice of buying the debts of impoverished countries at their lowest value from their private creditors.

Nessa Ní Chasaide, co-ordinator of Debt and Development Coalition Ireland said, "This case has highlighted the apparently legal, yet highly unjust, nature of vulture funds that target vulnerable, impoverished countries for their own profit. The injustice of this award is clear. For Donegal International the rewards are financial gain, but at the expense of fellow human beings in Zambia. We are calling on Donegal International to do the right thing and not to take this money from Zambia. We also call on them to cover all legal costs relating to this case".

Donegal International's claim originated in 1999, when Zambia was in the process of negotiating the clearing of a debt of US$ 15 million (Euro 11m) it owed to the Romanian government. Donegal International bought up the debt for a knockdown price of US$ 3.3 million (Euro 2.5m). Donegal International then sued the Zambian government for the full amount of the original debt, plus alleged interest and costs. This resulted in a demand in the courts for a staggering US$ 55 million (Euro 42m) from Zambia.

Ms Ní Chasaide continued, "The amount of money Zambia is being ordered to pay is well over half the amount of money the Irish government gives to Zambia in aid annually. The value of the Irish government investment is totally undermined by Donegal International's actions. We call on the Irish government to take steps to prevent these 'vulture funds' from undermining efforts to fight poverty, through pursuing debts from very poor countries like Zambia".

She continued, "This case further highlights the terrible impact of debt on the lives of people in impoverished countries and the urgent need for a comprehensive and just settlement to the international debt crisis."

The case has raised deep concerns among debt cancellation campaigners around the world about how 'vulture funds' can undermine existing progress toward achieving 100% debt cancellation for impoverished countries.

Guardian Zambia coverage
http://www.guardian.co.uk/debt/Story/0,,2064866,00.html

Court cuts vulture fund's claim

· Zambia's debt repayment reduced by $40m
· Judge says much of firm's evidence was dishonest

Ashley Seager
Wednesday April 25, 2007

A "vulture" fund seeking more than $55m (£27.5bn) from Zambia had its wings clipped in the high court yesterday by the judge who limited its claim to $15.5m and cut its award of costs because of its "dishonesty".

The judge also refused an application to extend a freezing order on Zambian assets in Britain to include assets held abroad, again citing the company's dishonesty.
US company Donegal International had purchased some Zambian sovereign debt from Romania in 1999 for $3.2m. It then pursued Zambia for the face value of the debt but agreed with the impoverished African nation in 2003 to accept $16m.

Zambia paid $2.5m that year before ceasing payment. Under the terms of the deal, any default meant the full value of the debt plus back interest, a total of $44m, would be payable. Interest since then took the claim to $55m.

Mr Justice Andrew Smith ruled in February that the 2003 agreement was legal but that the ratcheting up of the amount payable in the case of default was penal and struck it out. Yesterday he confirmed that the award would total $15.5m, the original amount outstanding plus $2m of interest.
He repeatedly criticised Donegal owner Michael Sheehan, and other witnesses Philip O'Rourke and Fisho Mwale, a former Mayor of Lusaka, for dishonesty.

"I do regard the dishonesty with which I was confronted to be rather serious ... I cannot regard this as a few casual lies in the witness box," he said. Much of the Donegal witnesses' evidence was dishonest, the judge said. As a result, he cut the award of costs to Donegal by a third, especially as Zambia had suffered extra costs of having to bring people from Zambia to rebut the Donegal witnesses's dishonest statements. Donegal's lawyers, Allen & Overy, were claiming £1.7m in costs so the judge's ruling will cost Donegal £600,000.

Mr Anthony Trace QC, for Donegal, admitted his clients had been "cavalier" but insisted they had won judgment on the 2003 Zambia deal and would have even if his clients had been "thoroughly dishonest". Allen & Overy refused further comment.

The judge did grant Donegal a 28-day freezing order on assets held by a Zambian company, Mofed Ltd, in Britain, worth about $10m, but refused to extend the order to Mofed assets held worldwide.
"I am not prepared, in all the circumstances, not least the conduct of Donegal in these proceedings, to extend the [freezing] relief on Mofed assets worldwide."

Donegal had also sought to lay claim on assets that Zambia may win in a separate trial in London against former president Frederick Chiluba and others for corruption. Judgment is due on May 4 so Mr Justice Smith deferred his decision.

Donegal hopes that if Zambia wins that case and gets more than $5m, it can claim the difference between the $10m of frozen Mofed assets and what it is owed. Debt campaigners welcomed the judgments. "We are extremely happy that Zambia's tenacity in fighting this case has seen the claim reduced by $40 million," said Trisha Rogers, director of Jubilee Debt Campaign.

International development secretary Hilary Benn said: "This is the first defence in a case of this kind that has ever been even partially successful, and its impact will be felt across the world. Vulture funds cannot continue to expect to profit from the world's poorest countries. The UK will help heavily indebted poor countries limit the impact of vulture funds."

Zambia was represented by William Blair QC, the prime minister's brother.

Backstory

Vulture funds prey on hapless countries who lack funds for basic health care or education, let alone paying millions of dollars to overseas investors. Often operating through shell companies in the Caribbean, they buy debt obligations in secondary markets at a fraction of their face value in the hope of enforcing them through the courts at full value. Commercial banks often sell the debt cheaply because of the low probability of it being repaid.

Action
Vulture Fund Wins $15 million from Zambia. Take Action Today: Never Again!

Jubilee USA Web story http://www.jubileeusa.org/

Tuesday, April 24 - Today at the UK Royal Court of Justice in London, a judge ruled that Zambia must pay $15.4 million plus a yet to be determined share of legal costs to Donegal International, the vulture fund that had sued Zambia for more than $50 million.

While the fact that Donegal was not awarded the full amount it sought is a small victory, the injustice of the result could not be more clear. Donegal, led by American investor Michael Sheehan, purchased the debt for $4 million. Donegal thus stands to make a major profit out of one of the world's most impoverished nations.

This year, Zambia expects to save about $40 million thanks to debt relief fought for by Jubilee campaigners and enacted by the IMF, World Bank, and US government. Donegal will now take nearly half of that amount. This money could have been used to build schools and clinics.

Enough is enough. Jubilee USA and debt campaigners around the world are working to try to stop Donegal from actually getting the money, and even more importantly, to make sure the vultures don't prey on poor countries any longer. We are working with allies in Congress who have committed to hold hearings on the practices of these vulture funds in May.

We also need you to TAKE ACTION TODAY to ensure that the vulture funds are stopped. CLICK HERE to write to President Bush and urge him to speak out about vulture funds at the G-8 summit in Germany to be held from June 6-8.

Also - Please add your voice to the Jubilee Debt Campaign UK Petition: http://www.jubileedebtcampaign.org.uk/?lid=2893

Write to the Irish Government to TAKE ACTION NOW CLICK HERE