Activities of Vulture Funds and Their Impact on Human Rights

18 May 2016 by CADTM , CETIM

Oral statement of the CADTM [1] and the CETIM

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Mr. Chair, The phenomenon of vulture funds is inextricably linked to states’ debt, and it affects most countries. Thus, the CETIM and the CADTM welcome the mandate that the Human Rights Council has given to the Advisory Committee regarding the effect of vulture fund activities on human rights, and we offer the Committee our support in pursuing its mandate.

First, it is appropriate to briefly explain these “vulture funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
”. Also known as litigating creditors, “vulture funds” are investment funds Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
that buy up, at negligible prices, states’ debt, in order to subsequently undertake legal action intended to force those states to pay the original full face value (the initial amount of the credit) at the time of the issuance, plus accrued interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. .

The course of their actions is generally the same: they buy at a very low price the debt of states that are heavily indebted, indeed on the brink of being insolvable, betting on an improvement of these states’ financial situation and speculating on the existence of seizable state assets or on the granting to these states of aid or other sums which could be seized. As soon as circumstances are favorable, they undertake legal action in a court of the country that is most receptive to their claim. Once a ruling has been handed down, they execute it by seizures, anywhere in the world, of the state’s assets or of claims of this state on a third party. These third parties are thus forced to pay the vulture fund and not the state that is their creditor.

It should also be noted that these vulture funds are often registered in tax havens such as the British Virgin Islands (Donegal international Ltd), the Cayman Islands (Kensington international Ltd) or even the state of Delaware in the United States (FG Hemisphere).

In reality, vulture funds are only visible part of what is called the “debt system”, a system based on the exploitation and the domination of peoples.
a system based on the exploitation and the domination of peoples It is notorious that a substantial part of foreign debt of most countries of the Global South is made up of debt that is odious, illegitimate and indefensible (from the point of view of human rights), arising from colonial heritage, embezzlement, corruption, conditions imposed by the international lenders, the financing of projects harmful to the populations and their environment and, in some cases, totally fictitious contracts.

It is worth clarifying that when one speaks of debt, one is speaking of both private and public debt as well as bilateral and multilateral debt, keeping in mind that they can change “category” by “changing hands, through the write-off of debt and its guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). , through the replacement of maturing debt by new loans, though rescheduling and partial forgiveness subject to conditions, through embezzlement and other fraud, bribes and fictitious registrations...” [2]

The “debt system” involves the use of public resources to pay creditors and speculators such as vulture funds, to the detriment of satisfying the needs and the basic rights of the population. To guarantee the repayment of the debt, structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

programs are imposed (through the international financial institutions such as the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
and the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

), regardless of the economic and social conditions of the country in question and the consequences for its populations. These programs often result in the elimination of public services and privatization of many sectors, thus very often depriving the most vulnerable of their basic rights. Debt also serves as an excuse to impose upon peoples unjust and often illegal austerity measures. On the other hand, the service of the debt is carefully provided for, whereas in the majority of countries it is the primary expense of the state.

Mr. President,
We shall not linger over the structural adjustment programs’ impact on human rights, for several United Nations reports have already dealt with this in depth. [3] Our point is rather to draw your attention to the close ties between foreign debt and structural adjustment programs and to the impossibility of dealing with vulture funds without going to the root of the problem, to wit the mechanisms by which states become indebted.

For several decades, the international financial institutions (the IMF and the World Bank) and their regional outposts have been imposing neo-liberal economic policies throughout the entire world. In those countries under the direct control of their creditors, the attack on social rights and the sovereignty of peoples is carried out through the conditions attached to loans and false debt relief. The World Bank acts in concert with the IMF in the countries of the Global South. It also promotes programs that dismantle social protection (through the “Doing Business” report) and favors land grabs (through “Benchmarking Business of Agriculture”), which results in a multitude of human rights violations, in particular violations of economic, social and cultural rights. Vulture funds accentuate these violations, for, taking advantage of the vulnerability of indebted states, they seek to siphon off public resources. Thus, the modest state resources available are in a sense grabbed by these speculators.

The Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

, an informal group comprising the 20 richest creditor states, who work as intermediaries for debt restructuring, also sometimes behave like vulture funds, as seen in Argentina. [4]

Faced with these wide-scale human rights violations, the Advisory Committee should recommend that states, at both the national and international level, take the following measures.

  • - The immediate adoption of laws against vulture funds, effectively blocking the actions of these funds before the national courts, following the example of Belgium and the United Kingdom, which adopted such laws in 2008 and 2010 respectively. [5]
  • - The suspension of debt repayment when its repayment prevents the public authorities from guaranteeing the basic human rights of their populations. It should be noted that human rights trump other state commitments such as those regarding its creditors, by virtue of Article 103 of the United Nations Charter, which has been reaffirmed many times by the United Nations human rights protection mechanisms.
  • - The carrying out of audits of public debt, [6] as recommended by Cephas Lumina, former United Nations independent expert on debt, in his guidelines adopted by the Human Rights Council. [7] With citizen participation, these audits make it possible to identify and cancel unconditionally illegal, odious, illegitimate and unsustainable debt. These audits can be combined with unilateral suspension of public debt repayment. They would also make available to states legal and political arguments with which to justify the repudiation/cancellation of illegitimate debt as well as contravene legal action by vulture funds.
  • - Specify, in the bonds issued by states, that any future litigation must be dealt with by national courts. This will make it possible to avoid unjust court rulings similar to the one handed down by the New York judge against Argentina.
  • - End the conditions imposed by the international financial institutions with a view to bringing their actions into conformity, in particular, with the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights. These international treaties enshrine in particular the right of peoples to self-determination and economic, social and cultural rights.

Finally, it would be particularly useful for the Advisory Committee to establish a register of vulture funds.

All these measures are based on international law and United Nations reports such as those of the United Nations Independent Expert on the effects of foreign debt and other related international financial obligations of states on the full enjoyment of all human rights, particularly economic, social and cultural rights. These measures are all the more urgent that there is now a great risk of another foreign debt crisis.

Geneva, 25th February 2015


[1The CADTM participated in 2009 in writing the booklet “Un vautour peut en cacher d’autres” which described in detail the activity of vulture funds and proposed ways to combat them:

[2Let’s launch an enquiry into the debt! A manual on how to organise audits on Third World debts. CETIM and CADTM, October 2006,

[3See in particular E/CN.4/Sub.2/1995/10, 4 July 1995; E/CN.4/Sub.2/1991/17, 18 July 1991; and E/CN.4/1999/50, 24 February 1999. See also Melik Özden, Debt and Human Rights, Geneva: CETIM, 2007:

[4In the case of Argentina, for example, on 29 May 2014, the Paris Club member states managed to reach an agreement providing for the repayment of Argentina’s odious debt. The 2014 agreement provides for the payment of $ 9.7 billion, of which $ 3.6 billion corresponds to punitive interest on overdue amounts.

[5In 2008, Belgium passed a law making money allocated for cooperation and development inaccessible and unseizable. In 2010, the United Kingdom passed a law in 2010 limiting the amounts of that vulture funds can demand in payment when these funds take HIPCs (heavily indebted poor countries – as classified by the World Bank) to court.

[6The CADTM network and the CETIM have just published a second manual on auditing debt. This publication retraces in detail the experiences of citizen and government audits carried out in all parts of the world. It is worth recalling that Ecuador was able to regain control of its indebtedness by carrying out a thorough audit of its public debt in 2007 and 2008, resulting in Ecuador’s decision to unilaterally suspend payment of a part of its commercial debt. In 2009, the Ecuadorian government then imposed on its creditors a major debt reduction. The resulting savings allowed the government to invest more in the social sector. It was a historic experience radically different from debt restructuring that, in the great majority of cases, benefits only the creditors. Although this book’s purpose is to train citizen movements for carrying out audits, we reckon that it also behooves the United Nations to take an interest in this sort of experience, indeed to financially and logistically support the setting up of debt audits, be they citizen, parliamentary, judicial or governmental.

[7See §§ 67-70 Guiding principles on foreign debt and human rights, A/HRC/20/23, 10 April 2012.

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