The Jubilee Debt Campaign have warned the UK government that London courts could be used by vulture funds trying to sue Greece in the wake of agreement on last week’s debt writedown.
They called on the Chancellor of the Exchequer, George Osborne, to introduce legislation making such practices illegal.
Although the Greek debt reduction scheme - the Private Sector Initiative or PSI - received a high enough level of participation to proceed, 31 per cent of foreign issued private holders still held out against the deal.
US law firm Bingham McCutchen, which has an office in London, has been trying to organise a group of funds which refused to participate in the Greek offer in order to take further means of getting paid the full value of their bonds. Some bonds have been written with recourse to English law, meaning it would be London courts which hear their cases.
Many of these funds are believed to have bought Greek bonds for a fraction of their actual value, because of the Greek crisis, with the aim of holding out for full repayment. Such funds are known as vulture funds.
If such lawsuits are effective, they will not only take money from highly indebted Greece, but will eat into funds contributed to so-called 'bail-out' packages by countries like the UK.
Nick Dearden of Jubilee Debt Campaign said that Greece's European neighbours ”have done enough damage to the Greek economy through a series of bank bail-outs”. He added, “Now our courts could be used to squeeze the last drop of blood out of the Greek people”.
Dearden said it was “ironic” that “the vulture funds will also eat into the so-called 'bail-out' funds, meaning less money for debt repayments to British banks”.
In 2010, the UK passed a law preventing vulture funds from profiteering from the debts of highly impoverished countries in British courts. But the law does not apply to countries not in this category.
“As we’ve seen in cases involving African countries, these funds are assisted by unscrupulous corporate law firms,” explained Dearden.