Vulture funds in more depth

Find out what 'vulture funds' are and why it is possible for them to act like this.

What is a vulture fund?
'Vulture fund' is a name given to a company that seeks to make profit by buying up 'bad' debt at a cheap price, then trying to recover the full amount, often by suing through the courts. Such companies often describe themselves as 'distressed debt funds'. Some target failing companies; we are concerned about those that target poor countries.

Who are the vulture funds?
These companies tend to be quite secretive, and very many of them are based in tax havens. Some are owned by large (often US-based) financial institutions such as hedge funds. In other cases, there is no information on who owns them. Often companies are set up simply to pursue one debt, then shut down again. Donegal International Limited, for instance, the company that sued Zambia, is registered in the British Virgin Islands. Its only business is to pursue the Zambian debt. The court in London failed to discover who are the ultimate owners of Donegal, and of other sister companies such as Walker International, which sued the Republic of Congo. Donegal's sole director is a man called Michael Sheehan, who owns a company called Debt Advisory International, based in Washington DC, USA.

Haven't poor countries had debt cancellation?
Twenty-three countries (including Zambia) have now completed the Heavily Indebted Poor Countries (HIPC) initiative, and up to 17 more are eligible to do so. Countries completing HIPC secure cancellation of most debts to the World Bank, IMF, African Development Fund and the richest country governments. This cancellation is of huge benefit, and is proven to increase investment in essential services, particularly education.

BUT completing HIPC does not bring any guarantee that debt cancellation will come through. Even after debtor countries spend years meeting the harsh and undemocratic conditions set by the rich world in order to get HIPC debt relief, many creditors simply don't comply. That's why we need a better and fairer system. (Follow the link for more about HIPC).

How many other cases are out there?
It is very hard to know, as the companies do not publicise their actions. But we do that there have been at least 40 lawsuits by commercial creditors against Heavily Indebted Poor Countries, many still outstanding. Some companies have been deterred from lawsuits by campaigners. For instance, in 2003, the Big Food Group, owner of Iceland supermarkets and other companies, was suing Guyana for over £12 million. After an outcry by Jubilee Debt Campaign and partners, they dropped the case, saying "… the interests of both our Company and those of the people of Guyana, are best served by not proceeding." And in December 2002, Nestlé dropped a claim of $6 million against Ethiopia, after a campaign by Oxfam and others. But other companies have kept up claims and won.

Explore the issues

1. Read more about Zambia's case
2. Find out where Vulture Funds are operating now
3. Watch the Newsnight reports