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Monday, 25 June 2012
Page: 7790


Ms PARKE (Fremantle) (11:06): I want to thank the member for Lyne bringing this important motion before parliament. I also want to thank Jubilee Australia for its advocacy on this issue. Not many Australians know about vulture funds, but the name sums it up quite well. Vulture funds buy debts owed by very poor countries for a small amount and then seek to enforce the full face value of the debt plus interest and fees in courts around the world, including here in Australia.

In November 2010 the New South Wales Supreme Court ruled that the Democratic Republic of the Congo must pay $30 million, plus legal costs and a $2 million court imposed fine, to a New York based vulture fund named FG Hemisphere Associates or FG Capital Management. As explained by the ABC's Damien Carrick on Radio National last year, the sum forms part of a debt incurred in the 1980s by the authoritarian government of what was then Zaire. The original $37 million loan, which has now ballooned to over $100 million, was for power transmission lines and a hydropower dam near the home of long-time dictator Mobutu.

The DRC is a country of around 66 million people, 80 per cent of whom live below the poverty line. DRC has been involved in a protracted internal conflict which has claimed around 3½ million lives, and it has very little infrastructure. It has gone through a process of debt cancellation, having completed the World Bank and IMF Heavily Indebted Poor Countries, HIPC, process and received some debt forgiveness from creditors. However, the vulture funds refuse to participate in the debt relief scheme and, in the case of FG Hemisphere, it instead began pursuing repayment of $100 million for the old DRC debt, which is $80 million more than the DRC would have been expected to pay for the debt under the HIPC process. FG has scoured the world in search of foreign assets belonging to the DRC. The vulture fund was able to bring the case in Australia because the DRC held shares in an Australian mining company. The DRC was forced to sell its shares to transfer the $30 million profit to FG.

As Jubilee Australia notes, this is not the first time the Congo has been targeted. In January 2009, a South African tribunal authorised FG Hemisphere to seize, for 15 years, payments owing to the DRC's state owned electric authority, SNEL, for electricity generated from the Grand Inga hydroelectricity facility and sold to South Africa. This should amount to $105 million. In March 2009 FG obtained a court order from the Royal Court of Jersey for an interim injunction upon the right of the DRC state owned mining company Gecamines to receive payments on its 20 per cent share in GTL. GTL was ordered to send all future payments owed to Gecamines to FG Hemisphere until the debt was satisfied. In 2010 a Hong Kong court gave FG Hemisphere vulture fund the right to seize the $350 million sum the China Railway Group was to pay a state owned Congolese mining company. While the actions of vulture funds in taking advantage of legal loopholes to profit from desperately poor countries have been condemned by the United Nations, IMF, World Bank, donor governments and civil society and while there have been multilateral initiatives such as the Paris Club to try to discourage vulture funds, it remains entirely legal for vulture funds to pursue their claims in court. As Jubilee Australia has described it:

The insatiable greed of a small number of individuals is undermining international debt relief initiatives. Money that thanks to debt relief, should be going to lifesaving medicines and schooling, is lining the pockets of wealthy investors instead. Without legislation to prevent it, these so called ‘vulture funds’ are free to profiteer from poor country debts in Australian courts.

The UK parliament, with tripartite support, passed legislation in 2010 entitled the Debt Relief (Developing Countries) Act, which limits the ability of creditors to use UK courts to recover extortionate amounts from poor countries engaged in international debt relief efforts. The landmark law, which was due to expire in June 2011 as a result of a sunset clause in the legislation, has been made permanent in April this year, with no opposition in the UK. The law has successfully kept the FG Hemisphere's vulture fund out of UK courts. I am confident that similar legislation would receive support from all members of this place and I look forward to it being the subject of a bill in the near future.

As noted by the United Nations independent expert on foreign debt and human rights, Dr Cephas Lumina, 'vulture fund activity erodes the gains from international debt relief efforts at the expense of both the citizens of distressed debtor countries and taxpayers of countries that have supported international debt relief efforts'. It does not make sense for Australia and other countries to give debt relief and foreign aid so generously while allowing vulture funds to take this money through litigation. I commend the member for Lyne for his motion, which brings this very important matter to the attention of the House.