Americans Milk Africa To Death

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Vulture funds buy up the debt of poor countries cheaply when it is about to be written off and then use a variety of devices to force the debtor nations to pay out.

They often recover 10 times what the speculator paid for the debt and it is poor countries in Africa or Latin America who are being targeted.

These companies are run by Americans through a maze of companies registered in offshore tax havens and they pursue legal actions in jurisdictions around the world. They have been condemned by the British chancellor, Gordon Brown, as "morally outrageous", and also by the International Monetary Fund and the World Bank. But no action is taken and they are still in business.

BBC TV's Newsnight team tracked down some of these vultures. Recently they have targeted Zambia and the Republic of Congo amongst others. Their bosses are coy about publicity. The biggest, Elliott Associates, told the BBC, "We have nothing to hide-we just don't do interviews."

The BBC Newsnight team caught up with one of them outside his house near Washington DC. Michael Sheehan runs an organization called Debt Advisory International which is linked to a web of British Virgin Islands companies including Donegal International which sued Zambia. He also sometimes appears to communicate under the name of Goldfinger - a bond speculator using the name of a villain from a James Bond movie.

On Thursday February 15, 2007 he won a case against the Zambian government in London which will probably net his company US$20 million.

A BBC Newsnight reporter asked Sheehan, "Why are you squeezing the poor nation of Zambia for US$40 million-doesn't that make you a vulture?"

He replied, "No comment. I'm in litigation. It's not my debt.�

Sheehan claims to act on behalf of a consortium of anonymous investors. The Newsnight reporter asked him if he felt guilty about freeloading on the backs of the countries and institutions who have given US$100 billion to relieve third world debt. "Aren't you just profiteering from the work of good people who are trying to save lives by cutting the debt of these poor nations?" he was asked.

Sheehan's reply was, "Well there was a proposal for investment. That's all I can talk about right now."

The Zambia case shines a light on the way vulture funds operate. Back in 1979 Romania sold Zambia tractors and gave them a US$15 million loan to finance the deal. The tractors were not of the highest quality. The tractors— and Zambia — were soon broke and the debt was not paid off.

By the mid 1990s various governments were beginning the process of debt forgiveness to the poorest nations with the multi millionaire Bob Geldof doing most of the shouting. Zambia was one of these Highly Indebted Poor Countries.

In 1999, Zambia negotiated with Romania to settle the debt for around US$3 million. Somehow Sheehan and his agents persuaded Romania to sell the debt to them instead. They then made payments to a number of Zambian officials and persuaded them to sign a document promising to pay US$15 million to Sheehan's company. A key figure was Fisho Mwale, an ex-mayor of Lusaka who was paid US$270,000 and made payments to others.

In the London case. Justice Andrew Smith said," I generally found Mr. Mwale to be a witness whose evidence I do not trust." Sheehan emailed one of his colleagues to say, "The deal is going to get done for political reasons because we are going to discount a bunch of whatever we get to the President's favorite charity." That president - Frederick Chiluba - left office in 2002 and is now under trial for alleged corruption.

Sheehan told the BBC Newsnight the money was not an offer of a bribe but "a charitable initiative" before adding, "You're contorting the facts; you're on my property and I would ask you to step off."

Zambia paid US$2 million to Donegal International but when a new president was elected he launched a corruption investigation which raised suspicions about the deal and the payments were stopped. This left Sheehan's firm US$1 million out of pocket - they had paid US$3 million and were paid only US$2 million. So they sued in the British courts for US$43 million plus a further US$12 million in interest.

Judge Smith said Sheehan was "deliberately evasive and even dishonest"; that he "deliberately gave false evidence" and misled courts around the world in pursuit of this claim. The judge thought US$55 million was too much but the law required him to rule in favor of the vulture fund and Zambia will have to pay around US$20 million — or half the annual savings to the Zambian budget of international debt relief. An ex-adviser to current Zambian President Levy Mwanawasa is Martin Kalunga-Banda. He estimates that US$20 million could pay for free education for 150,000 children.

Sheehan is also suing Congo along with other speculators such as FG Hemisphere and Elliott Associates. Elliott virtually invented vulture funds. They are owned by a reclusive billionaire called Paul Singer. In 1996 Elliott paid US$11 million for some discounted Peruvian debt and then threatened to bankrupt the country unless they paid him US$58 million. They got their US$58 million. Then Singer bought some discounted debt from Congo for about US$10 million.

Now, Singer's company has been awarded US$127 million in a British court but they want more. The British court accepted that Congo set up a system of front companies to try to keep oil earnings out of the hands of the vultures. These arrangements inevitably made it easier for corrupt government officials to take a cut as well. Using the British judgment about concealing earnings through front companies Elliott have now taken the case to the US where they can claim triple damages using the Racketeer Influenced and Corrupt Organizations (RICO) law.

This was brought in to combat Mafia money laundering by imposing massive damages but Elliott is now exploiting it to make US$400 million profit on a US$10 million investment. The funds comb the world looking for courts which will legally recognize their claims such as London, Brussels, Paris or wherever. Then they take those judgments back to the US and get court orders to seize the assets of those countries or any company which does business with them. FG Hemisphere even tried to take Congo's diplomatic buildings in Washington.      

There is a potential problem about suing in the US though, and this is where President George Bush could come to the rescue. Lee Buchheit is a partner at a New York law firm which defends countries when they are sued. Buchheit says the president has the power to "intervene, when appropriate, in maverick lawsuits commenced in US courts against foreign sovereigns". This principle is called international comity. In other words a stroke of the presidential pen could stop these actions. Traditionally the funds have spent a fortune on lobbying in Washington. Elliott's Paul Singer is very well connected. He is the biggest donor to Bush and the Republican cause in New York City, giving around US$2 million since Bush first ran for president. Elliott also uses lobbyists.

When Congo’s (Brazzaville) President Denis Sassou-Nguesso visited Washington to meet Bush the press were somehow supplied with Sassou-Nguesso's extravagant hotel bills and the story became what Elliott call "Sassou's lavish lifestyle" rather than the US$400 million which they were trying to extract from his country.

Debt Advisory International also has Washington lobbyists. Michael Sheehan's firm paid Greenberg Traurig US$240, OOO a year until their chief lobbyist-Jack Abramoff was jailed for bribing politicians on behalf of other clients. Many campaigners assumed the funds had political protection from Bush's administration but if that was ever true there are signs that the mood in Washington is changing.

Congressman John Conyers saw the BBC Newsnight film before a scheduled meeting with the president and decided to speak out. He said, "It was my job, I felt, to raise the whole question of this bond speculation that goes on at the expense of poor debtor countries, in which their debt is bought up and  then they're sued for the full amount. It's bought up at pennies on the dollar, and then they're sued."

Conyers heads the House Judiciary Committee and he wants to investigate vulture funds. He says he asked Bush two questions "one, about Paul Singer and Michael Sheehan; and two, whether he would be willing to stop this incredible misuse of our government's charity toward funding aid to our poorer nations". Bush put one of his White House staff on to the issue immediately and indicated that he wanted to curb the excesses of vulture funds.

The mood is turning. Belgium changed the law which allowed Elliott to sue Peru. New York has tightened up too. In the UK, Brown is expected to become prime minister and campaigners hope he will take action to follow up his strong words. "We particularly condemn the perversity where vulture funds purchase debt at a reduced price and make a profit from suing the debtor country to recover the full amount owed - a morally outrageous outcome," Brown said. This was five years ago and the Zambia case shows the vultures are still winning cases in London.

"Profiteering doesn't get any more cynical than this," says Caroline Pearce of the Jubilee Debt Campaign which calls for debt cancellation. "Zambia has been planning to spend the money released from debt cancellation on much-needed nurses, teachers and infrastructure."

Sheehan (aka Goldfinger) may face an investigation from Congressman Conyers' House Judiciary Committee and his email linking the Zambian deal to a donation may cause him problems. The BBC Newsnight went to Greenberg Traurig,  Sheehan's former lobbyists.

They have a beautiful office overlooking the White House. Frederick Shaheen is a regular visitor there and he told the BBC News night that these were the "places we have to go to help our clients get what they want". But attorney Shaheen is also an expert on the Foreign Corrupt Practices Act and he said any contribution to the former Zambian president's charity would be a problem. "You simply can't offer something of that value to a foreign official with the understanding you're going to get something in return." He had never seen the email before and said its wording would make him "extremely nervous" about the legal implications under the Foreign and Corrupt Practices Act. The US Treasury has now asked for the email and it is understood they have now got it.

Africa is being made to suffer by many Vultures, but who cares right? Cynicism abounds.

Black Star columnist Astles is based in Portugal. It's widely believed that the character of the European doctor in "The Last King of Scotland" is loosely based on Astles.

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