Thirty years ago, Mobutu Sese Seko, dictator of what was then Zaire and is now the Democratic Republic of the Congo (DRC), borrowed $30 million from a Bosnian energy company for an unsuccessful development project. Mobutu was notorious for borrowing money from the West and funneling it into his own bank accounts and he ruled autocratically, factors that call into question the validity of the $30 million debt.
The Vulture Fund FG Hemisphere, run by American Peter Grossman, bought DRC's debt for just over $3 million, and then sued the DRC in court in 2010 for $100 million, which is the amount of the original loan plus interest. It is estimated that in the DRC, which ranked dead last in the UN's 2011 Human Development Index, $100 million could purchase enough clean water to save the lives of 200,000 children.
What makes this particular case extraordinary is that the sale of the debt may have been illegal. The former Prime Minister of Bosnia, Nedzad Brankovic, has been charged with corruption in the case for selling DRC's debt to FG Hemisphere without proper authorization; adding to the outrage is the role played by a second notorious Vulture Capitalist, Michael Sheehan of Donegal International, in brokering the illegal sale. This situation raises the specter of corrupt officials selling sovereign debt to vulture funds for personal gain, as Brankovic is accused of doing.
In 2011, FG Hemisphere was awarded $100 million by a court in the Jersey Islands, and is attempting to compel payment by the DRC through numerous legal channels. Jubilee USA Network, along with our partners at the Jubilee Debt Campaign in the UK are attempting to persuade the Jersey Islands to outlaw Vulture Funds, as was done in the UK.
In the late 1990's, American Vulture Fund Red Mountain Finance bought $8 million worth of debt owed by the DRC to the London Club, and sued the impoverished country for $27 million. Red Mountain paid just $800,000 to the London Club for the debt. A court ruled in favor of Red Mountain, and when the DRC appealed the case, another court ordered the DRC not to make any other debt repayments without paying Red Mountain a proportionate share. Failure to pay off other debts would have been disastrous for the DRC, which promptly settled with Red Mountain out of court for more than $8 million in 2002.
Themis Capital & Des Moines Investments Ltd.
Beginning in the summer of 2008, Themis Capital and Des Moines Investments Ltd. acquired roughly $18 million of Congolese debt from Citibank and various other creditors. This debt dates back to the early 1980’s and the corrupt regime of former dictator Mobutu Sese Seko. In February 2009, Themis and Des Moines filed a lawsuit against the DRC, suing the nation for the principal $18 million plus decades of interest. In July 2014, after unsuccessful settlement negotiations, US District Judge Judge Paul A. Engelmayer ruled the DRC must pay the hedge funds roughly $70 million in principal and interest. This ruling is an unfortunate event for a country that needs money for development. Only 29% of the rural population has access to quality water sources in the DRC, a country ranked second to last in the United Nations 2013 Human Development Index.
"All these amounts claimed reduce resources available to the country and undermine its economic development and all actions for regional integration," said African Legal Support Facility Acting Director Mamoudou Deme. "The successful defense of these matters would represent an important message to vulture funds activities on the continent."