Labour's proposals for an Overseas Loans Transparency Act
Dr Stephen Connelly and Dr Celine Tan have supported the Jubilee Debt Campaign with an academic opinion on the legislative, regulatory, and voluntary options by which “secret loans” and non-transparent lending could be curtailed.
Commenting on Wednesday's announcement by the Labour Party, Dr Connelly said:
“The Labour Party’s plans for an Overseas Loan Transparency Act, announced today, would make a significant step forward in tackling the secret loan crisis highlighted by Jubilee Debt Campaign.
“The Mozambique case has underlined how English law contracts law and courts allow lenders to cut corners on due diligence when lending to states, because the state will be assumed liable for debts incurred by wrongdoing officials – although a finding of fraud involving the lender may rebut this. This creates a significant moral hazard.
“At the very least these loan contracts should be made public at the time of signing, giving the state, NGOs and the public time to assess whether the debt has been incurred fairly and in accordance with constitutional requirements.
“A strong version of this proposal would add an enforcement mechanism, by placing a public registration onus on banks using English law loan agreements, or even better by regarding such contracts as void unless they are publicly registered within 21 days of signing.
“The principle is nothing new: if a bank wishes to take English law security over a company’s business the security will be void if not publicly registered. JDC's proposals back up the register with an effective, subtle and appropriate sanction: voiding.”