A/HRC/41/51 forward proposals for acquiring the debt. In 1999, just as Zambia was about to reach the decision point for comprehensive debt relief under the Heavily Indebted Poor Countries Initiative, Romania sold the debt to Donegal International for about $3 million, 11 per cent of the face value. 11. In 2003, in controversial circumstances involving allegations of corruption and the bribing of public officials, Zambia signed a settlement agreement with Donegal International by which it agreed to waive sovereign immunity from litigation and to pay approximately $15 million of the then $44 million face value of the debt. The agreement also included penal rates of interest in the event of default and the application of United Kingdom law to any future dispute arising from it. After paying off a total of $3.4 million, the Government of Zambia stopped fulfilling the terms of the agreement, arguing that it was tainted with corruption (A/HRC/14/21, para. 24). 12. In 2006, only months before Zambia was due to receive debt cancellation under the Heavily Indebted Poor Countries Initiative, Donegal International sued the country in the United Kingdom courts for a total of $55 million, nearly 17 times the amount the company paid for the debt. It finally received a favourable ruling, obtaining US$ 15.4 million. 13. The Government of Zambia reportedly recognized the judgment and allocated about 65 per cent of the amount received, already earmarked for health programmes, to service the debt (ibid., para. 25).13 As a result of the litigation, vulture funds removed from the country almost 15 per cent of its total social welfare expenditure, funds that could have been channelled instead towards education, health care and poverty alleviation. 14 B. FG Hemisphere v. Democratic Republic of the Congo 14. In 1980, the Democratic Republic of the Congo entered into a credit agreement with Energoinvest, a company based in Sarajevo, for the construction of a high-voltage electric power transmission facility. The country soon defaulted on its repayment obligations. 15. In 2003, the International Chamber of Commerce made two arbitral awards in favour of the company. In 2004, a District Court in the United States of America confirmed the amounts to be paid: $18.43 million and $11.725 million, plus 9 per cent interest and the costs of the arbitration. At that point, the company decided to transfer the right to recover the claim to FG Hemisphere, a company based in the State of Delaware (a tax haven in the United States).15 It reportedly purchased the debt for $37 million. 16 16. FG Hemisphere then pursued its claim on the debt by attempting to seize the country’s assets worldwide. In 2005, the Government’s failure to provide the courts in the United States with detailed information about the location of any assets worth more than $10,000 led to a weekly fine of $5,000, to increase periodically to a maximum of $80,000. 17 17. To enforce the 2003 rulings, FG Capital Management (formerly FG Hemisphere) managed to freeze hundreds of millions of dollars owed to the Democratic Republic of the Congo and obtained enforcement judgments from a number of courts around the world. In November 2008, a South African court effectively halted sales of electricity from the country by ruling that FG Hemisphere could seize any payments for services sold by the 13 14 15 16 17 See also See Romina Kupelian and María Sol Rivas, “Vulture Funds: the Lawsuit Against Argentina and the Challenge They Pose to the World Economy”, p. 9 and Thomas Laryea, “Donegal v. Zambia and the persistent debt problems of low-income countries”, Law and Contemporary Problems, vol. 73, No. 4 (Fall 2010). See Lydia Polgreen, “Unlikely ally against Congo Republic graft”, New York Times (10 December 2007). The sale was approved by the former Prime Minister of Bosnia and Herzegovina, who was investigated on corruption charges relating to his tenure at Energoinvest. See “Vulture funds–the key players”, The Guardian, 15 March 2011. See Michael J. Kavanagh, “Congo, U.S.-controlled venture lose $100 million vulture claim”, Bloomberg (3 November 2010). See Devi Sookun, Stop Vulture Fund Lawsuits: a Handbook, p. 45. 5