Vulture wars
By Robert Friedman, FORTUNE international editor

(FORTUNE Magazine) - DENIS SASSOU-NGUESSO, President of the Republic of Congo, was back in New York City in early June, his first visit since last September, when his $82,000 Palace Hotel bill made headlines in this magazine and elsewhere.

This time the President of the oil-rich but dirt-poor African nation camped out on the 37th floor of the Waldorf Towers with a large entourage, as he spoke at the United Nations in his role as head of the African Union and prepared for a White House visit with President George W. Bush.

It couldn't be determined what his hotel bill was this time - suites go for $1,000 a night, and Sassou-Nguesso had taken most of the floor - but the Congo President wanted to make one thing clear: Just because he has been coming to New York for 20 years and staying in nice hotels "doesn't mean that back in Congo I live in a big house."

Sassou-Nguesso, a former military officer who has twice seized power through coups - and who says he lives in a modest two-bedroom villa in Brazzaville - is on a mission to correct the impression that his is a corrupt regime. He's particularly furious at the hedge funds and other creditors that own hundreds of millions of dollars of his country's sovereign debt - bought at a steep discount after the Republic of Congo defaulted on its loans - and that are trying to collect by chasing down the government's assets all over the world. Bank accounts have been frozen, court judgments obtained, and oil shipments seized.

"If this is not robbery, what is it?" Sassou-Nguesso asks. "Who is stealing from the poor?" He calls the hedge funds "snakes in the ocean," "vultures," and "thug gangsters" that make their home in tax havens, don't disclose their ownership, and stand to make huge profits on their investment in Congo's debt.

Although he didn't mention any names, the President was clearly referring to Kensington International, a Cayman Islands company that owns more than $100 million of Congo's sovereign debt and is controlled by Elliott Associates, a $6.5 billion New York City hedge fund. Kensington has been battling Sassou-Nguesso and French bank BNP Paribas in federal court in the U.S., demanding payment of the debt.

In March a judge rejected a motion to dismiss, allowing Kensington's RICO case to go forward. The case alleges a conspiracy by Sassou-Nguesso and others to misappropriate the country's oil resources for private gain. A report issued last year by Global Witness, an anticorruption group, backs up this claim, saying that the oil wealth of the Republic of Congo "has for too long been managed for the private profit of the elite rather than for the benefit of its entire population."

And World Bank president Paul Wolfowitz has set stringent conditions for consideration of whether to forgive its portion of Congo's $9.2 billion debt because of concerns about corruption.

Sassou-Nguesso says the corruption charges are unfounded, at least as far as government officials are concerned. "You cannot say there is no corruption," he says, "but we are fighting to reduce it." He went on to say that Wolfowitz had been unfairly influenced by creditors and that he hopes the "misunderstanding" will soon be corrected.

Negotiations on debt relief with the International Monetary Fund, the Paris Club, and the London Club are all moving forward, he added, and the country's state-owned oil company, SNPC, has been audited by international accounting firm KPMG and has made its financial statements available on the Internet. "How many oil companies are as transparent as we are?" he asks.

The KPMG report, however, stated that the company's accounts "cannot be certified or even audited" because of "weaknesses in internal monitoring." And Global Witness says that about $300 million, or one-third of Congo's 2004 oil income, was unaccounted for.

Says one sovereign-debt investor, who asked not to be identified because he is currently involved in litigation: "It's clear who the vultures are." Top of page