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Guernsey Lawmakers To Shut Out 'Vulture Funds'

by Jason Gorringe, Tax-News.com, London

25 October 2012


Draft legislation that would prevent 'vulture funds' using Guernsey courts to chase the debts of heavily indebted poor countries has been forwarded to the States of Deliberation as part of the island's legislative approval process.

The legislation would be introduced to support the Heavily Indebted Poor Countries (HIPC) Initiative, which was launched in 1996 by the World Bank and the International Monetary Fund. This program aims to ensure that no poor country faces a debt burden that it cannot manage. Since its launch, members of the international financial community have worked together to reduce the external debt burdens of the most heavily indebted poor countries to within sustainable bounds.

Despite the HIPC Initiative, some commercial organisations have established so-called "vulture funds", which acquire the debt plus accumulated interest of these heavily indebted poor countries at substantially below face value, only to pursue full payment of those debts in courts around the world, undermining international debt-relief and -reduction efforts.

Guernsey's Chief Minister, Peter Harwood commented:

"Whilst we are not aware that Guernsey has ever had a case of a vulture fund pursuing a debt against a Heavily Indebted Poor Country through its courts, we have always said that we are strongly committed to preventing vulture funds bringing such a claim here. If the States supports this proposal, that commitment will be enshrined in our law. We will firmly close the door on vulture funds."

"Through last year's Policy Council consultation, Guernsey's people, businesses and the States have shown that they support the HIPC Initiative and oppose vulture funds. I am pleased we have an opportunity to underline that."

"As an international finance centre, and as a responsible member of the global community, Guernsey takes its international responsibilities seriously. Legislating to prevent claims by vulture funds being enforceable in our courts is a clear demonstration of that."

The legislation mirrors that of the United Kingdom's Debt Relief (Developing Countries) Act 2010, which was the first law of its kind barring 'vulture funds'. The law limits the amount that can be recovered by creditors, commercial or otherwise, from HIPCs to a level set out by the HIPC Initiative - 150% of the value of a country's annual exports, which is considered to be a sustainable level.

TAGS: court | compliance | interest | law | Guernsey | offshore | legislation

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