NAACP Calls for Passage of New Federal Legislation to Regulate International Vulture Funds and Prevent Further Exploitation of Poor and Underdeveloped Nations

WHEREAS, a ―vulture fund is a financial organization that seeks to profit by buying up poor country debt in default on the secondary market for pennies on the dollar, then trying to charge up to ten times the purchase price by suing impoverished countries in U.S. or European courts. This practice comes at the expense of the citizens of these indebted countries — some of the most impoverished in the world — as well as taxpayers in countries like the United States, who bear part of the cost of debt relief; and

WHEREAS, vulture fund activity has increased in the past three years as vulture funds attempt to seize monetary resources newly freed by debt relief. Vulture fund activity has resulted in a large and growing number of lawsuits against countries made eligible for debt cancellation by the 2005 G8 debt deal (the Multilateral Debt Relief Initiative); and

WHEREAS, more than two-thirds of the lawsuits brought by vulture funds are adjudicated in U.S. or UK courts. In the majority of cases, vulture funds sue in courts located in New York, Paris and London because these courts are viewed as more creditor-friendly and more efficient; and

WHEREAS, vulture funds tend to be quite secretive, and many of them are based in tax havens. Some are owned by large, often U.S.-based, financial institutions such as hedge funds. In other cases, there is limited or no information on who owns them; and

WHEREAS, at least 20 Heavily Indebted Poor Countries (HIPCs) have been threatened with or subjected to legal action by commercial creditors and vulture funds since 1999. The debtor governments have almost always lost. When the debtor governments lose, impoverished countries have been obliged to pay the original debt, interest and fees accrued since the debt entered arrears, as well as the hefty legal costs of the plaintiff; and

WHEREAS, as of late 2007, 11 of 24 HIPCs surveyed by the IMF were facing litigation from 46 different commercial creditors. Of these, 25 creditors had received court judgments amounting to roughly US$1 billion on original claims of US$427 million; and

WHEREAS, the potential cost of vulture lawsuits in the HIPCs currently being sued represents 18% of annual health and education spending, 59% of debt service and 5% of budget revenue; and

WHEREAS, HIPC countries currently facing lawsuits from the greatest number of private creditors in 2007 were the Republic of Congo, Cameroon and Uganda, which were being pursued by eight, seven, and six vulture creditors respectively; and

WHEREAS, of special concern are countries rich in natural resources which have attracted more lending from private creditors, including the Democratic Republic of Congo and Sierra Leone; and

WHEREAS, one of the most egregious vulture fund cases in recent years is that of Donegal International vs. Zambia, in which a vulture fund bought Zambian debt for $3.28 million and sued the Zambian government for $55 million seven years later after the Zambian government had received debt cancellation. As a result, Zambia was required to pay Donegal $15.4 million, 65% of what Zambia was saved in debt relief delivered in 2006;

THEREFORE, BE IT RESOLVED, that the NAACP strongly supports forthcoming legislation and grassroots efforts to limit vulture fund profits and decrease the incentive to purchase/litigate on sovereign debt and increase transparency through mandatory filing in U.S./UK for purchasers of sovereign debt; and

BE IT FURTHER RESOLVED, that the NAACP strongly supports forthcoming legislation and grassroots efforts that will establish an international bankruptcy framework binding on all creditors, which would force vultures to comply with debt cancellation and/or debt restructuring efforts; and

BE IT FURTHER RESOLVED, that the NAACP strongly supports efforts to achieve an international commitment among sovereign creditors not to re-sell their debt claims; and

BE IT FURTHER RESOLVED, that the NAACP strongly supports efforts to increase and improve multilateral efforts to buy-back vulnerable debt; and

BE IT FINALLY RESOLVED, that the NAACP strongly supports efforts to provide funds for legal advice and representation for impoverished countries to minimize the additional harmful impact of costs incurred as a result of vulture litigation.