A lobbying campaign to ease African debt is hoping to attract the support of the Democratic Congress by targeting a top donor to Republican presidential candidate Rudy Giuliani.
Lobbyists, lawyers and public relations aides hired by the Republic of the Congo have cited campaign contributions and lobbying expenditures by Paul Singer, a Giuliani backer and founder of the hedge fund Elliott Associates, as well as other executives at the fund.
Critics say Kensington International, a subsidiary of Elliott Associates, is a “vulture fund,” an investment group that buys up Third World debt at discounted prices and then sues for the full amount or more in court.
Congress has become more interested in these funds as the number of lawsuits has grown rapidly in recent years. Nearly $2 billion is at stake in numerous lawsuits brought by these funds. Debt-relief advocates contend that the suits have the potential to cripple developing countries as they try to emerge from debt. Many of the countries in court have been promised relief from their obligations by the debtors.
Fund managers, however, argue that their suits act as an incentive to corrupt African and Latin American governments that can pay their debts but refuse to do so to clean up their act.
Rep. Donald Payne (D-N.J.), who is the chairman of the House Foreign Affairs Africa and Global Health subcommittee, laid out one example of what he described as a predatory practice during a May hearing.
In 1979, Zambia leased agricultural equipment and services from Romania. Unable to pay off the debt, Zambia later reached an agreement with Romania to liquidate the debt for $3.28 million. Donegal International, an offshoot of Debt Advisory International (DAI), then stepped in to purchase the debt for the settlement amount. The firm then sued Zambia for $55 million. A court in the United Kingdom recently awarded Donegal $15 million, nearly five times what it would have paid under the settlement with Romania.
Vulture funds claim at least $1.8 billion is owed them by developing countries, according to a survey prepared for an International Monetary Fund (IMF) and World Bank meetings two weeks ago. Recently, eight new lawsuits have been filed against developing nations, including Nicaragua and Ethiopia.
Congo faces several suits as well, including one brought by Kensington International, a subsidiary of Singer’s Elliott Associates. The firm claims the Congolese government owes it roughly $118 million, according to the IMF and World Bank survey.
Congo’s law firm, Trout Cacheris, hired the Livingston Group and Chlopak, Leonard, Schechter and Associates in 2006 to make a lobbying and public relations push in Washington.
Congo’s lawyers, lobbyists and PR consultants have mounted an aggressive campaign, at a cost so far of nearly $5 million, in support of legislation they drafted that would severely clamp down on the funds, according to Justice Department records. A draft bill, stamped “confidential” and distributed by lobbyists on Capitol Hill, calls for a potential five-year prison sentence for “sovereign debt profiteering.”
Lobbyists have contacted the staff of prominent members of the Congressional Black Caucus, including Reps. Payne and John Conyers Jr. (D-Mich.), who is also the chairman of the House Judiciary Committee, and have met with Rep. Gregory Meeks (D-N.Y.) and State Department officials like Jendayi Frazer, assistant secretary of State for African Affairs, Justice Department records show.*
Congo’s lobbyists distributed fact sheets that raise questions about GOP donors, such as Singer, and alleged inaction by the Bush administration. One fact sheet distributed by Chlopak has a section entitled “Political Coincidence?” citing campaign contributions by Elliott Associates executives to GOP candidates, including Singer’s donations to Giuliani. Jay Newman, an adviser at the fund, is also noted in the document.
“Could this be why, even as hedge funds are targeted for closer scrutiny in the U.S., vulture funds remain below the radar?” reads the Chlopak memo. Later, it alleges the funds’ “political connections” may be “slowing the American reaction.”
The Livingston Group also noted GOP campaign contributions in its literature even though it was founded by a prominent Republican, former House Appropriations Chairman Bob Livingston (R-La.).
The firm distributed a fact sheet to Washington embassies that noted the funds’ “strong Washington connections.” Livingston noted Singer’s $1.7 million in campaign contributions to the Republican Party since Bush’s first presidential campaign as part of its effort to build support among the local contingent of foreign ambassadors.
An Elliott spokesman termed the memos “name-calling” generated by people who either are trying to curry “populist favor” or just do not understand how capital markets work.
“Our disputes have always been with sovereign [nations] who can pay, but refuse,” said the spokesman.
Administration officials, meanwhile, took issue with how Congo’s lobbying campaign has described its own actions against vulture funds.
“This doesn’t have a shred of credibility,” said Jennifer Zuccarelli, a spokeswoman for the Treasury Department, about the memos, adding, “Secretary [Henry] Paulson has said that he ‘deplores’ what vulture funds are doing.”
Zuccarelli said Treasury is working with the Paris Club, a group of countries that provide debt relief, to persuade them not to sell their claims to the funds. The department has also filed amicus briefs in several suits where the funds could undermine IMF policy, Zuccarelli said.
A spokesman for the Giuliani Campaign declined to comment. Representatives for several of the firms involved in the campaign against the funds declined to comment as well.
In addition to Livingston and Choplak, Trout Cacheris also brought on Michael Ledeen, a resident scholar with the American Enterprise Institute, as a consultant. Ledeen said he advises President Denis Sassou-Nguesso of Congo and has discussed vulture funds with other lobbyists.
“I have known him for more than 20 years. When this matter came up, he asked if I could help him,” said Ledeen. The scholar has earned more than $340,000 from the law firm, according to records filed with the Justice Department.
Companies associated with the funds have also had representation on K Street. Elliott Associates has spent more than $535,000 since 2003 on a number of firms, including Mehlman Vogel Castagnetti. DAI has spent $800,000 on its lobbying efforts since 2003, according to disclosure forms filed with the Senate.
Both financial companies have terminated many of their lobbying contracts or have reported little activity so far this year, however.
The suit against Zambia discussed in the House hearing in large measure led to renewed uproar from critics of the funds. “It is not illegal, but unscrupulous,” said Payne, who has been a vocal critic of the funds. The New Jersey Democrat called the hearing in May to discuss the issue.
“Some of these poor countries have very little expendable resources to spend on health and education,” Payne said.
The congressman argues there has been a “lack of scrutiny” by administration officials on vulture funds.
Legislative language that would require the Treasury Department to conduct more oversight of these types of funds has been introduced in both the House and Senate. But advocates say tougher measures are needed.
“If vulture funds bring these countries into court, they are very likely to lose because there are no legal safeguards,” said Neil Watkins, national coordinator for Jubilee USA Network campaigns against debt in the developing world.
Payne plans to keep pressure on the Bush administration and is considering writing more letters to Treasury Secretary Paulson and World Bank President Robert Zoellick.
“I’m going to move forward and see what next step we can do to keep a spotlight on the issue,” said Payne.
*The story originally stated that lobbyists had met with Reps. Donald Payne (D-N.J.), John Conyers Jr. (D-Mich.) and Kendrick Meek (D-Fla.).
