The Champerty Defense

The champerty defense, which was originally intended to crack down on rich aristocrats in medieval England, is an odd fit for dealing with twenty-first-century hedge funds. But campaigners are putting all their eggs in one last remaining basket after a slate of more ambitious bills originally introduced in 2023 failed one by one.

The original proposals were big swings, with provisions for a framework for restructuring debts in the event of a default and an effective cap on the amount of money that could be recovered by investors from struggling countries. Now, the bid to restore the champerty defense is the last bill standing.

Even the current, scaled-back version faces long odds. Just like last year, the legislation passed a key hurdle in the senate, but it still needs to be brought to the assembly floor by speaker Carl Heastie before the legislative session ends on June 17, and campaigners are scrambling at the last minute just to get a vote.

Then, assuming the bill gets enough votes to make it through the assembly, it will also need a signature from Governor Kathy Hochul. Hochul’s second-largest donor industry is securities and investment, according to OpenSecrets data from last year.

“The bill itself was consulted with many different stakeholders, with the goal to make it as political palatable as possible,” Ben Grossman-Cohen, director of campaigns for Oxfam America, told Jacobin. He added that in the process, the bill has lost some of the teeth of the previous versions, “but the goal is to get something passed in the legislature.”

Many of the bill’s supporters — a movement that includes longtime relief advocates like Oxfam, Jubilee USA, and Partners in Health — say they will press on regardless of the outcome, but it won’t be easy. A Bloomberg analysis the first time around showed that Wall Street firms spent more than $350,000 to lobby New York lawmakers over the bills. Meanwhile, Krueger has pointed to behind-the-scenes lobbying by Elliott to influence the legislation. Elliott did not respond to a request for comment.

Vultures Circling Overhead

Stiff opposition from Wall Street is to be expected, given how much money is at stake. Because a single player with a big enough position can take advantage of favorable trade rules, hold up negotiations for all creditors, and generally make life difficult for low-income nations, vulture fund behavior can be very lucrative.

Just ask Zambia, where a British court allowed investor Donegal International to seize $55 million for debt it purchased for less than $4 million. Or Brazil and Greece, both targets of Cayman Islands–based Dart Management, which hamstrung restructurings in both countries after their respective crises and raked in profits. Or the Democratic Republic of Congo, where FG Hemisphere won an arbitration award worth $108 million for a $3.3 million investment — a case so egregious that even a UK high court balked at it.

Then there’s Elliott. The grandfather of vulture funds spent $17.5 million for Panamanian bonds in 1995 and made $57 million. Elliott and affiliates also made a 400 percent profit on a similar bet in Peru in 1996, held out for fifteen years in Argentina to ultimately make another nearly 400 percent return, and joined the holdouts in Greece.

The firm’s enormous win in Peru is part of the reason for the champerty loophole that New York lawmakers are now trying to close: Elliott initially lost a champerty defense in federal court but won on appeal. During the litigation, the company lobbied hard and New York eventually blocked champerty claims for anything worth more than $500,000 in 2004.

Elliott’s returns and the New York loophole cracked the market wide open for a burgeoning industry and cemented the status of the vultures as permanent fixtures in the financial landscape.

The world got yet another reminder of that vulture power in 2022, this time in Sri Lanka. The Hamilton Reserve Bank — which denied to the Lever that it is a vulture fund — sued Sri Lanka for full repayment of $240 million worth of sovereign bonds. Hamilton became a thorn in the side of an exchange program agreed to by more than 95 percent of bondholders in 2024 that included private actors and major bilateral creditors like the Export-Import Bank of China, and the case between Hamilton and Sri Lanka remains in legal limbo.

Splashy headlines and fabulous wins have made vulture funds a perennial target for debt justice advocates, but within the United States and New York (the jurisdiction where a huge chunk of debt is sold), efforts to crack down on vulture behavior have almost all failed. A bill introduced in the US House of Representatives by Maxine Waters in 2009 — the Stop the VULTURE Funds Act — died in subcommittee. New York’s champerty bill is the next best hope.

The Spiraling Debt Crisis

For the Global South, help can’t come soon enough. Total debt in developing countries rose $3.5 trillion in the first quarter of this year to a record high of $106 trillion, and $7 trillion of that debt comes due this year, according to the Institute of International Finance. That puts extra pressure on cash-strapped nations to find ways of rolling over their obligations or paying them down.

One extra source of pressure: developing countries pay significantly higher interest rates than developed countries, meaning that once a debt overhang appears, it balloons rapidly. A UN Trade and Development (UNCTAD) analysis earlier this year calculated that in 2023, developing nations paid $847 billion in net interest — a 26 percent increase from just two years before.

That means budget cuts. Today more than 3.3 billion people live in countries that spend more on debt payments than on health or education, according to the same UNCTAD analysis.

“We’re in this age where the debt crisis has never been worse, and the answer cannot continue to be crippling austerity,” Chloe Dahleen, an advocacy specialist at Partners in Health, told Jacobin.

For Dahleen, the ripple effects of the global debt crisis can be seen on the ground in countries where Partners in Health — the global health organization cofounded by Paul Farmer — operates.

“For us, this isn’t some abstract Wall Street finance issue,” she said. “This is about struggling to provide high-quality health care in hospitals that can’t hire nurses, for example. We see colleagues and patients who deal with the tangible impacts of these squeezed health budgets day in and day out at work.”

Closing Loopholes

Yet even if the bill passes, its impact may be limited.

The current proposal excludes investors that have never sued debtor nations before, as well as investors that have previously cooperated in restructurings. That means that investors with no history of champertous behavior — a designation that almost certainly includes Hamilton in Sri Lanka — will be exempt.

There’s also the problem of the “eligible obliger” criterion that needs to be met by the debtor. The specific definition used by the legislation may only apply to nations and may exclude so-called sub-sovereign debt, or debt that isn’t explicitly guaranteed by sovereign nations. That could cut out a big slice of debts issued by national companies or agencies who don’t have that clear guarantee. Because of the eligible obliger definition, Puerto Rico (the target of a vulture fund threat that was ultimately rejected in 2020) would likely not be protected.

Then, there’s the fear that a particularly savvy vulture fund could simply create a special purpose vehicle with no champertous history and carefully sever it from the main investor.

“The champerty bill is not a silver bullet. There are things that might escape even if this bill does pass,” said Dahleen. “Nevertheless, it’s still really important and high time that we close this loophole in New York State law, to restore this legal defense.”

“We’re going to keep coming back until we close all those loopholes,” she added.

Advocates say that if the bill fails in the current legislative session, they’ll just try again in the next one. With the financial world marshaling its forces and billions on the line, it will be an uphill battle for advocates. But for many, it’s a battle they’re ready for.

“These financial giants are really powerful, and there’s definitely this prevailing view that you can’t get anything past the New York State Legislature without the approval of Wall Street, but that’s just not true,” Dahleen said. “These things are really hard-fought, and really hard-won. But I take a lot of hope from the fact that I can see that the movement for debt justice is growing every day.”