Lawmakers in Belgium have voted in favor of a new law governing “vulture funds.”
The law will effectively place a limit on how much the funds can claw back from government debt, which they buy incredibly cheaper from countries that are in serious financial difficulty, according to AFP.
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Belgian lawmakers show widespread support
The vast majority of Belgium’s major political parties voted in favor of the new law, which allows a Belgian judge to determine whether a fund is acting as a “vulture,” and attempting to profit from a potential default. If they do so, the fund will be prevented from claiming the face value of the bond, and will only be able to claim the discounted price paid.
Belgium was recently dragged into a legal battle between a group of U.S. “vulture funds” led by NML Capital Management and Argentina. Court cases have rumbled on for over ten years concerning over $1.3 billion of defaulted debt.
In recent developments, NML requested that Argentinian accounts be frozen in the Belgian capital of Brussels, drawing the country into the complicated legal wrangling. Such a move is outlawed under the new law, which gives Belgian judges the power to overrule legal decisions made in courts in foreign countries.
U.S. firms lobbied against new law
The new law has important implications for the continued operation of clearing house Euroclear, which handles a huge amount of global financial transactions. This March a U.S. judge demanded that Euroclear block any payments related to Argentine bonds, and ordered the company to notify NML and other hedge funds about any activity.
Socialist MP Ahmed Laaouej was responsible for proposing the law, and claimed that its passing was a “victory over the vultures of finance” which occurred “despite strong pressure from several national and international lobby groups”.
“These pressures came from representatives of American finance and law firms operating in Europe and defending the interests of some clients, in this case vulture funds,” said Laaouej to AFP.
“This law is a strong signal to unscrupulous investment funds which speculate in a shameful manner on the back of people in difficulty,” he added.
The new law will curtail the influence of foreign rulings on legal proceedings in Belgium, and is an interesting precedent for rulings on “vulture funds.”