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Hidden sovereign finance

Lupo-Pasini, Federico (2021) 'Hidden sovereign finance.', Capital Markets Law Journal, 16 (2). pp. 165-186.


Recent scandals in the sovereign debt market have highlighted the risks associated with hidden debt transactions. These are sovereign debt transactions in favour of a central government, substate entity or state-owned enterprise, whose entire existence or whose terms have not been fully disclosed in violation of local administrative or constitutional requirements. The phenomenon was first reported with regard to the Mozambique hidden loans case, but it likely extends to many other countries. The multifaceted nature of this phenomenon makes it difficult to provide a coherent picture. Lenders involved in hidden debt include private banks, state-owned banks, governments, and commodity traders. Products include loans, government guarantees, derivatives, and trade financing schemes linked to commodities exports. The goal of the paper is to provide a framework to analyse the legal and regulatory landscape applicable to these transactions with specific focus on the legal obligations of lenders. At present, there are a number of voluntary standards and guidelines for lenders. These include the UNCTAD’s Principles on Promoting Responsible Sovereign Lending and Borrowing, the recently approved IIF/G20 Voluntary Principles for Debt Transparency. This essay argues that hidden sovereign finance is a multifaceted legal problem, which presents three distinct components: the violation of the borrower’s laws governing public financing, the possible presence of corruption, and the active hiding of the transaction. This means that any effective policy to tame this phenomenon must rely on these three pillars: civil litigation in commercial courts, criminal prosecution of corruption, and loans disclosure to put sovereign finance under closer public scrutiny. In order to make the analysis simpler, I focus on English law and on the practice of English courts.

Item Type:Article
Full text:Publisher-imposed embargo until 05 April 2023.
(AM) Accepted Manuscript
File format - PDF
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Publisher statement:This is a pre-copyedited, author-produced version of an article accepted for publication in Capital Markets Law Journal following peer review. The version of record - Lupo-Pasini, Federico (2021). Hidden sovereign finance. Capital Markets Law Journal 16(2): 165-186, - is available online at:
Date accepted:16 March 2021
Date deposited:08 April 2021
Date of first online publication:05 April 2021
Date first made open access:05 April 2023

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