Academic journal article The George Washington International Law Review

State-to-State Debts: Sovereign Immunity and the "Vulture" Hunt

Academic journal article The George Washington International Law Review

State-to-State Debts: Sovereign Immunity and the "Vulture" Hunt

Article excerpt


In 1979, Zambia borrowed $15 million from Romania to purchase tractors.1 Nearly thirty years later, that debt came back to haunt her. Donegal International, Limited ("Donegal"), a private investment fund, purchased Zambia's debt from Romania in 19982 and sued Zambia in 20053 for more than $55 million.4 The 2007 litigation in a British court was closely watched in financial, legal, and development circles.

Debt-relief advocates were more than just spectators; they were vocal advocates of Zambia, and of the developing world, in general. 5 They denounced Donegal and other distressed debt investors6 like it that purchase the sovereign debt of poor countries at deep discounts and then sue the debtor nations seeking windfall judgments.7 The critics call them "vulture funds" because they prey on financially vulnerable countries.8 Rather than profiting affluent Western investors, pro-development non-governmental organizations (NGOs) such as Oxfam International ("Oxfam") and the Jubilee Debt Campaign ("Jubilee") insisted that the $55 million Donegal sought should go to worthwhile endeavors in Zambia where average income is less than two dollars a day, life expectancy is forty-five years, and 15 percent of the adult population is afflicted with HIV.9 They were especially aghast that the suit came at a time when the Heavily Indebted Poor Country ("HIPC") Initiative eliminated some of Zambia's other external debts.10 In fact, by a strange coincidence, the amount sought by Donegal was nearly equivalent to Zambia's debt relief for 2007.11 One activist complained that, "Zambia ha[d] been planning to spend the money . . . on much-needed nurses, teachers and infrastructure: this is what debt cancellation is intended for not to line the pockets of businessmen based in rich countries."12 The situation was analogized to "surrendering your seat on a crowded bus in favor of an elderly woman only to watch a teenager wearing a varsity wrestling jacket jump into it."13 One magazine labeled the business of the funds a "reverse Robin Hood scheme."14

Debt-relief advocates directed particular ire at Michael Sheehan, the U.S. businessman in charge of Donegal. A British journalist staked out Sheehan's home and ambushed him one morning, asking "[W]hy are you squeezing the poor nation of Zambia for $40 [sic] million-doesn't that make you a vulture?"15 One commentator observed that Sheehan "attracted the vilification suitable for mid-level [James] Bond villains" and marveled at the over 60,000 results of a Google search for the words "Sheehan" and "vulture."16

Notable personalities got in on the act: former British Prime Minister17 Gordon Brown called the vulture funds' activities "per- verse" and "morally outrageous";18 former South African President Nelson Mandela spoke out against them;19 and Hollywood actor Danny Glover, representing the TransAfrica Forum NGO, lobbied the U.S. Congress for legislation against the suits.20 The presence of wild animals completed the circus-like environment: pro-Zambia NGOs brought an actual vulture into London's Royal Courts of Justice to hammer their point home.21

Despite their efforts, on February 15, 2007, the court awarded Donegal a $55 million judgment.22 The debt-relief advocates decried the verdict, continued their criticism, and pressed for policy changes to prevent future suits.23 The activists, while disappointed in the outcome, achieved a small victory for their cause by successfully using the Donegal v. Zambia litigation to raise awareness of sovereign debt issues.24 It is understandable that their campaign became something of a cause célèbre.25 Zambia, one of the world's least developed countries26 (LDCs), was a sympathetic defendant, especially compared to the demonized Sheehan and Donegal, his off-shore limited liability vehicle specially created to buy distressed debt.27 Only the most cold-hearted of observers would not have felt some compassion for the poor African nation victimized by wealthy Western bankers and attorneys. …

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