Despite what some think, Paul Singer is not the devil, and the only horns he has are for navigating midtown traffic. An aggressively low-profile 63-year-old billionaire and supporter of conservative causes, Singer is a bespectacled, gray-bearded man who shies away from being photographed but has rarely ducked controversy.

Singer’s main claim to notoriety is Elliott Associates, a $10 billion New York-based hedge fund he founded in 1977. It is Elliott’s affiliation with Kensington International, a so-called vulture fund (which represents about 1 percent of the hedge fund’s total business), that has led many to claim that Singer has bright red skin, a very long tongue, and a forked tail. He’s part of a new generation of investors—the vultures—who buy up the defaulted debt of developing countries on the cheap, then sue to recover 10 or 15 times what they paid for the notes. It’s a very good business, if you don’t mind being attacked by Congress, mauled in the press, and treated as a pariah by the do-gooders leading the global anti­poverty movement. (View a pop-up graphic showing how some poor countries are trying to beat their debt.)

Today, thanks in large part to dogged campaigning by Bono and economist Jeffrey Sachs, debt relief is the cause célèbre for celebs worldwide. In 2000, creditors including the International Monetary Fund, the World Bank, and the 19 nations known as the Paris Club slashed $45.3 billion from the debt of 23 countries in Africa and Latin America. Five years later, at the G-8 summit in Gleneagles, Scotland, an additional $41.8 billion was wiped out. Many banks and commercial creditors have followed suit, negotiating debts down to 5 or 10 cents on the dollar.

Not everyone is so eager to forgive, however. Vultures are currently tearing into several destitute countries in the British High Court, the U.S. District Court in Manhattan, the French Supreme Court, and other halls of justice. They buy up the bad debt of a country for pennies on the dollar, then sue for payment in full. So far, creditors have won judgments totaling $996 million from 11 countries, including Cameroon, Guyana, Sierra Leone, Nicaragua, and Uganda.

The do-gooders are livid about the success of vultures all over the world and are looking to file down their talons whenever they can. In April, the U.S. House of Representatives passed the Jubilee Act for Responsible Lending and Expanded Debt Cancellation, which would compel the U.S. to erase more debt of impoverished nations and push the Treasury Department to ensure that creditors don’t take advantage of them. (It doesn’t say how, exactly, Treasury would do that.) The bill is now being considered by the Senate. Meanwhile, the vultures continue to feast.

One of the pioneer vultures was Kenneth Dart, heir to a foam-cup fortune; in the late 1980s, he began purchasing the debt of struggling countries on the cheap. Singer got into the game in 1996, when he bought $20.7 million of Peru’s debt for $11.4 million, then sued in U.S. District Court in New York for full repayment, plus interest. In 1998, a federal judge threw out the case, ruling that Singer had purchased the debt “with the intent and for the purpose” of suing—a violation of New York State law. However, Singer won on appeal and was awarded $58 million. Then he persuaded a judge to declare him a preferred creditor, which forced Peru to repay him before meeting any of its other debt obligations.

Between 1996 and 2001, Kensington went after the Congo Republic, a former French colony emerging from a devastating civil war. Though the Central African country is oil-rich, war and endemic government corruption have kept 51 percent of its 3.9 million citizens living on less than $1 a day. Half of them have no clean drinking water, and the average life expectancy is just 53 years. The World Bank reduced Congo’s debt by $2.9 billion in 2006, and many commercial creditors followed its lead. But Singer refused to get in line on Congo. Kensington International, one of Elliott’s affiliated funds, purchased $32.6 million in loans for what a source close to the Congolese government says was less than 7 cents on the dollar. Congo had defaulted, and the banks holding the notes were happy to unload the apparently worthless paper. Kensington sued in the British High Court for principal plus interest and won judgments of more than $100 million in 2002 and 2003. “Most courts think that commercial contracts, no matter how nefariously obtained, are superior to any other legal basis for decisionmaking,” explains Matthew Martin of Debt Relief International, a London-based group that helps developing countries maximize their debt relief.

After beating Congo in court, Kensington dispatched a kettle of lawyers across the globe to chase down Congo’s assets. Last year, the fund seized $39 million in proceeds from an oil sale by Congo to a British trading firm. Kensington has filed four lawsuits in Manhattan Federal District Court, one of which accuses Congo and its state-owned oil company of violating the Racketeer Influenced and Corrupt Organizations Act, a piece of legislation normally used to prosecute the Mafia. Earlier this year, Congo settled all outstanding legal actions with Kensington for an undisclosed amount. Singer’s spokesperson says that Congo acknowledged the legitimacy of its debt to Kensington as part of the settlement.

Despite that concession, debt-relief advocates are appalled by such tactics. They say Singer and the other vultures are rapacious mercenaries, driven by an unconscionable greed that creates incalculable human suffering for millions.

The vultures are unapologetic; in fact, they claim they are the ones doing God’s work. Their argument goes something like this: Without vulture fund suits, primary debtholders would be left with worthless loans, the cost of borrowing would skyrocket for developing nations, and liquidity would dry up. “Vulture funds add liquidity,” says Mitu Gulati, a securities-regulation and corporate-law professor at Duke University School of Law. “Further, they can impose discipline by forcing lawyers to be clearer about what they mean in their contracts.”

Vultures also contend that indiscriminate debt relief rewards corrupt regimes and encourages the kind of wasteful spending that landed these hapless nations in this mess.

Last year, in an affluent Virginia suburb of Washington, D.C., a BBC Newsnight TV crew waited outside the handsome colonial-style home of Michael Sheehan, a 48-year-old lawyer and debt-relief expert. Suddenly, as Sheehan, a fleshy-faced man wearing glasses, with a baseball cap pulled low over his forehead, appeared in front of his house, investigative reporter Greg Palast ambushed him and asked about a lawsuit that Sheehan’s British Virgin Islands-­based Donegal International fund had filed against Zambia, seeking the payment of millions in bad debts. The suit had suddenly made Sheehan public enemy No. 1 for debt-relief crusaders. Palast, chasing his prey down the street with a large microphone, said, “I just want to ask you, Mr. Sheehan, why are you squeezing the poor nation of Zambia? Doesn’t that make you a vulture?” Squirming uncomfortably and avoiding eye contact, Sheehan kept walking. “No comment,” he muttered. “I’m in litigation. It’s not my debt.”

Although Sheehan sat for an interview with Palast later that day, the footage of him outside his home made him look like the perfect debt-relief villain, but that may be painting a black-and-white picture of a very gray world. Sheehan spent a significant part of his career running a nonprofit organization that helped poor countries find creative ways to reduce their debt. In the 1990s, his group arranged debt-for-equity swaps, through which a country could convert its liabilities into partnerships for forestry projects, orphanages, programs to treat such diseases as river blindness, and HIV-AIDS education. Sheehan estimates that he raised about $40 million in Africa, Asia, and Latin America between 1992 and 1996.

Then, in 1999, Sheehan parlayed his expertise into an opportunity to make big money. He found out about an obscure 20-year-old loan that Romania had made to Zambia, which used the money to purchase $15 million worth of Romanian-made tractors, trucks, and police vehicles. (“It was a bad deal for us,” says David Ndopu, a top official in the Zambian Ministry of Finance. “The police vehicles broke down after six months and just sat around in parking lots.”) Zambia had been trying to negotiate with Romania for a partial forgiveness, but talks broke off in early 1999. That’s when Donegal stepped in. Its representatives persuaded Romania to sell them the debt at a deep discount—$3.3 million.

At that point, Donegal was holding what was basically worthless paper. Zambia had agreed in its original deal with Romania to ensure sovereign immunity, which it hoped would guarantee that the country couldn’t be sued or have its assets seized if it defaulted on the debt. But surprisingly—and fortunately for Donegal—Zambian officials waived that immunity in 2003, leaving the country open to litigation. Donegal’s objective, an insider insists, was to arrange debt-for-equity swaps that would reduce Zambia’s debt significantly in return for a chunk of local currency, which it would then invest in government-sponsored projects like textile mills and a national lottery, taking a share of the profits. It was only after several years of fruitless negotiation, the Donegal insider says, that the fund declared Zambia in default and sued for principal plus a quarter-century’s worth of interest—a whopping $55.5 million.

The April 2007 judgment in British High Court sided in part with Donegal, but the judge criticized Sheehan for being “not merely careless but cavalier in presenting his evidence” on the witness stand and suggested that some of Donegal’s tactics bore an appearance of impropriety. The court awarded the fund a partial victory: $15.5 million, plus only two-thirds of the $1.7 million in court costs it was seeking.

Debt-relief activists were outraged: Zambia is one of the world’s poorest countries. Watching Western investors make off with more than $15 million that could have been used to build schools or clinics struck many as deeply immoral. Last spring, activists besieged Sheehan’s company with so many angry emails and phone calls that its server and phone system were knocked out for weeks. A top executive there alleges that physical threats were also made against Sheehan and his staff.

A weary and wary Sheehan maintains that the media and the debt-relief movement have distorted the facts about his dealings with Zambia. “They knew Donegal’s mission was debt conversion,” he wrote in a December email, but “suppressed the information because it made us the perfect example of vultures attacking a really poor country.”

In Lusaka, Zambia’s dilapidated capital, I stop by the office of David Ndopu, who has closely followed the Donegal case. Faced with the aggressive pursuit and seizure of its assets, the Zambian government transferred $15 million—1 percent of its annual budget—to Donegal from a British bank account in October. “It was very painful,” Ndopu says.

But it is hard to see how Zambia’s increased financial burden is going to make things worse for the average Zambian. Musonda Kapena, who runs a humanitarian-aid agency in the countryside north of Lusaka, tells me that so little money is reaching rural Zambia—where most of the population lives—that $15 million more would hardly make a difference. In August 2006, as schools were desperately trying to obtain a few more pieces of chalk for their blackboards, Zambia paid $7 million for its president, Levy Mwanawasa (who is still in power), to lease an Italian-­made twin-turbine AB-139 Agusta helicopter.

Vultures and their defenders say that’s the kind of government expenditure their lawsuits can expose. Kensington’s lawyers dug up persuasive evidence of presidential profligacy in Congo to bolster their claim that vultures serve an important role. While these sorts of arguments don’t necessarily relate to the debt debate, they help the vultures’ case. Among the damning details in the Kensington case: During a United Nations conference in 2006, Congolese president Denis Sassou Nguesso and his entourage ran up a $100,000 bill at Manhattan’s Waldorf-Astoria hotel. The room-service bill for Sassou Nguesso alone came to $20,000 and included many bottles of the finest champagne. Kensington’s investigators also unearthed credit-card bills of one of the president’s sons, who ran the state oil company, showing large purchases at Christian Dior, Gucci, and Louis Vuitton.

Even in Congo, some nongovernmental organizations have reluctantly embraced the vultures as the only forces capable of effecting change in the country. Some opposition groups regret that the Congolese government settled the Kensington suits, because the government will no longer be forced to reveal financial records that expose corruption. World Bank economist Mark Thomas calls Elliott’s claim that it is helping root out corruption “self-serving” and, at best, “marginally relevant.” He points out that the Congolese government has never denied Kensington’s main charge: that it sought to hide oil profits in shell companies. But Congo did so, he says, only to avoid paying off the vulture funds. Moreover, many countries targeted by vultures, such as Nicaragua and Peru, operate with relative transparency. But they are being asked to pay dearly for the sins of regimes from the 1970s and 1980s. Call those sins the gifts that keep on taking.

Spurred in part by the Donegal case, world leaders are moving to help impoverished countries fend off the vultures. Led by Prime Minister Gordon Brown, the British government announced a plan, in cooperation with the World Bank, to help poor countries buy back their commercial debt at a discount; more than $8 billion has already been canceled under this program. Britain is also working to ensure that countries have access to legal advice to help them fight vulture fund suits.

Debt-relief advocates say the notoriety of Sheehan and Singer might make investors think twice before shaking down destitute countries. But they also say that there’s plenty of distressed debt out there waiting to be exploited. “The debtor countries have to be very careful. If something is lying dormant somewhere, forgotten in somebody’s books, they have to know about it,” says Vivienne Apopo, the African Development Bank’s representative in Lusaka.

Indeed, vultures can still take advantage of government malfeasance and a bribe-friendly environment to ferret out long-buried loan agreements and work them to their advantage. The vultures “go around and find a junior civil servant, who lets them photocopy an old agreement in the files,” Debt Relief International’s Martin says. “They find evidence that such a debt existed, and they pounce.”

And sometimes the prize is dropped right into the vulture’s nest: A few years ago, D.R.I. uncovered distressed debt that Slobodan Milosevic, the former Yugoslav president, allegedly gave to a crony as a wedding present. According to Martin, Milosevic was handing out secondary loans as gifts to people, telling them, “Here, you can sue on this.”

And Milosevic is hardly the only late, unlamented strongman who accumulated a basket of bad loans ripe for grabbing and litigating. In the 1970s and 1980s, Saddam Hussein, then awash in oil wealth, was a major lender to impoverished countries. The 2003 invasion of Iraq and the subsequent chaos threw decades’ worth of records into disarray—but the material may still be out there. “If somebody in Iraq knows where those documents are, who the hell knows what could happen?” says one debt-relief analyst.

It’s a pretty safe bet that Paul Singer—or some other shrewd vulture—is already circling.