Monday, November 30, 2009

Vultures hiding behind the veil of corporate secrecy

Amongst the many unethical practices that go against the grain of natural justice, the activities of vulture funds chasing governments of impoverished countries for repayment of odious debts run up by past dictators and suchlike rank are truly repulsive. Especially so, when the country in question has been ravaged by war, pillaging, looting and civil strife, which was at least partially funded by external debt in the first place.

But there are other reasons for regarding the activities of vulture funds as unacceptable. And one of them is the fact that these funds typically operate behind a veil of corporate secrecy which prevents anyone from know who operates them and who benefits from these operations. TJN does not oppose a secondary market in debt, but we think that all markets should be operationally transparent: when courts allow vulture funds to operate behind the veil of secrecy they open up possibilities for corrupt practices, including tax evasion. Who can tell whether the people behind the vulture fund weren't involved in profiting from the original loan?

An article in the Independent this weekend reveals that the British High Court has ordered the Liberian government to pay US$20 million to two vulture funds, or face seizure of assets held in the UK. The two funds in question are based in the British Virgin Islands and the Cayman Islands. The funds trace back to a US$6 million loan advanced by the US-based Chemical Bank in 1978. Disturbingly, the debt has been shuffled around since that time to such an extent that no one is able to say how much interest has been paid on the principle, and whether any of the principle was repaid between 1978 and 2009.

Liberia ranks as second poorest country on the face of the planet. Interestingly it is also ranked as a secrecy jurisdiction, though this has not in any way helped the ordinary people of Liberia, especially since the ship registry for which the country is famous actually operates from a law firm in Virginia, U.S.A.

Everything about the case is shameful, not least the fact that British High Courts allow the vultures to operate behind the veil of corporate secrecy. At the very least, those who engage in distasteful activities should be compelled by the courts to reveal their true identity.

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