From Peter Grossman,
managing director, PG Hemisphere Associates, LLC.
I AM writing in response to your recent articles about my business, FG Hemisphere. You have now written many articles about our business and litigation against the Democratic Republic of Congo in Jersey.

Despite this, your paper has never once sought comment from us. I thought your readers might be interested in some of the additional issues involved, as neither the story nor the issues are as clear, uncomplicated and one-sided as your reporting would suggest.

I am constrained in what I can say about a matter in litigation, but I will say the following. First, we have tried to resolve this matter amicably with the DRC on numerous occasions over the past ten years.

We have even entered into four written settlement agreements over the years – all at very substantial discounts – including one last year where we spent several hundred thousand dollars preparing closing documentation, only to have the DRC walk away at the eleventh hour from the deal it had agreed.

Secondly, it is important to remember that these claims arise from an original claimant, Energoinvest, which went into the DRC, built electrical infrastructure worth many tens of millions of dollars and was not paid for this work. Energoinvest suffered its own tragedy during the Bosnian War and the company was very nearly destroyed in the process.

FG stepped in and provided the company with badly needed liquidity at a time when few if any others were equipped or prepared to do so. Vetted and approved by Energoinvest’s own counsel, we purchased these claims at fair market value. Given that these claims had not been paid in many years, that value was obviously less than the nominal amount outstanding, but that is the nature of any distressed asset purchase.

Providing a secondary market for claims of legitimate creditors like Energoinvest is fundamental to ensuring that private investment continues into high risk investment environments like the DRC. Moreover, we did not make the investment, as has been sometimes suggested, because the DRC was impoverished.

Rather, it appeared to us that the DRC was turning a corner politically, and that, in the long run, this development, combined with the country’s very abundant natural resources (now estimated to be worth 24 trillion dollars), would enable the country ultimately to resolve these claims at a fair and reasonable level.

The government can and does monetize these natural resources when it wants to. In the last two years alone, the DRC has sold state assets and concessions worth several billion dollars. We never expected, and have never demanded, 100% of the amount outstanding, or anything close to that. We are only in court now, reluctantly, because the DRC has been unwilling to complete any of the settlements that we have agreed over a ten year period.

We fully understand that the DRC confronts many serious problems. Unfortunately, retroactively diminishing the contractual entitlements of private creditors will not solve them.

That is only likely to make it even more difficult for countries like the DRC to raise capital and obtain investment in the future. While there is much to say on this subject, it is also important to point out that, under existing sovereign immunity law, we can only seize the commercial assets of the DRC.

That is, by law, we cannot seize assets that are earmarked for ‘sovereign’ purposes like development or poverty alleviation. The funds attached in Jersey are commercial assets of the DRC. These funds, even if released by the Jersey courts, would not be destined for the public treasury (where some portion might be used for poverty reduction), but rather will be deployed in mining-related activities.

Even if, hypothetically, the attached funds were to flow from the Jersey courts into the Congolese treasury, only about 22% of the DRC’s $7 billion 2011 budget is spent on housing, schooling, healthcare, or other social programs. So at best only 22% of any settlement paid to or recovery made by FG would be spent by the DRC on development or poverty reduction.

Thus the various examples given in recent press reports about what $100 million could do for development or poverty in the DRC are simply divorced from reality. And again, FG has never demanded a settlement at $100 million nor agreed settlements at anything close to that, and we are still prepared to settle this claim at a very substantial discount, as the DRC is well aware.

Finally, I would like quickly to address the suggestion in recent press reports that we were exploiting a ‘loophole’ by bringing our proceedings in Jersey in order to evade the UK’s Debt Relief Act of 2010. To begin with, we filed our action in Jersey in March 2009, a year before the UK law was passed.

Secondly, Jersey is the only ‘situs’ (the legal term for ‘location’) of the debt we sought to attach. The funds we have attached in Jersey, which derive from commercial cobalt sales made by an organ of the DRC State, are owed to the DRC by a Jersey joint venture company. Thus, we could not possibly have brought the action in England, as the judgments of the Jersey court themselves make clear.

There is more to the story, but I am hopeful that this letter will help you to appreciate that this matter is more complex than it has thus far been portrayed. We very much appreciate the opportunity to present these views.
80 Broad Street, 5th Floor, New York, NY 10004.