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Archive for May, 2010

Iceland tops the ‘Environmental Performance Index’ – and Magma

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The ‘Environmental Performance Index‘ is an index that rates the environmental performance of 163 countries across several policy categories such as climate change, agriculture, fisheries, forestry, biodiversity and habitat, water and environmental burden of disease. When all is counted and added up, Iceland is the top performing country on the index that Yale and Columbia Universities published in January during the World Economic Forum at Davos in January.

As always, it depends on what is being measured. Iceland has long been a top performer on the Transparency International index over corruption though many Icelanders will claim that the Report of the Investigative Commission shows clear signs of corruption. It’s just not the kind of corruption that the TI measures. Corruption in Iceland doesn’t consist in taking a brown envelop to a judge to get a favourable ruling.

Though Iceland scores high on the EPI it doesn’t mean that there is a great sense of urgency among the Icelandic ruling class when it comes to environmental issues. There are many reasons for this, one being that nature is close to Icelanders, it’s there to be used, not just to be looked at as in so many other European country. Icelanders are still trying to conquer nature, overcome it – and often feel quite helpless as when a volcano suddenly starts to erupt (though this time it made a big part of the world feel equally helpless).

Iceland is also trying to harness nature and often the harnessing seems to be more important than protecting it. Recently, a Canadian energy company, Magma Energy, has divided opinions in Iceland by buying into the energy sector. Since only companies form the EU/EEA can own companies in the energy sector in Iceland it would seem to exclude Magma from ownership. But the holding company for Magma’s interests in Iceland is a Swedish Magma that has no other purpose but to own shares in Icelandic energy companies, set up solely as a holding company. – A clever way of avoiding rules or regulations or a sensible solution to attracting foreign investment to Iceland? Depends whom you ask.

The value of Magma’s investment isn’t clear. At first it was thought it would bring much needed currency to Iceland. Then it turned out, according to Icelandic media, that Magma bought Icelandic kronur at knockdown prices abroad on a market created by currency restrictions in Iceland, to pay part of the price and then borrowing the lion share of the price in Iceland.

Topping the EPI is sweet but deals and investments in environmentally friendly sectors like the sale to Magma Energy raises serious questions. The bank crash in October 2008 was a reality check of the Icelandic way of doing business and a bitter lesson. It will turn even more bitter if it turns out that nothing was learnt from it.

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Written by Sigrún Davídsdóttir

May 31st, 2010 at 11:00 pm

Posted in Iceland

Iceland local election: ‘The Best Party’ wins Reykjavik

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Icelanders seem to be drawn to superlatives: ‘The Best Party’ has won the most seats on the Reykjavik Council in the local council election last Saturday. The new party, one of many new movements all over Iceland in this last election, is led by the comedian Jon Gnarr who rose to meteoric fame with low budget comedy programs, first on independent radio then on tv.

There are four main political parties in Iceland, the Independence Party (conservative), the Alliance (social democrats), the Progressive Party (historically related to Scandinavian centre parties and the farmers’ movement, now some sort of a liberal leanings) and the Left Green (the name is self-explanatory, the roots are the Cold War socialists and communist). Contrary to the Scandinavian countries, with their strong social democratic parties, the conservatives have been the backbone of Icelandic politics since the founding of the Icelandic republic in 1944.

The most remarkable outcome of the local election is the rise of new and independent movements and lists, unattached to the four old parties. In the four biggest constituencies the old four lost between 30 and 40%.

Quite appropriately the journalist and writer Barbara Ehrenreich has been in Iceland and was yesterday interviewed on the political talk show, Silfur Egils, where she i.a. talked about her book on the rise of positive thinking, ‘The Relentless Promotion of Primitive Thinking.’ In view of Ehrenreich message the reactions of the political leaders were rather comic: the leader of the Independent Party in Reykjavik spoke of the party’s ‘surge’ in Reykjavik to a cheering crowd just as it had become clear that the party lost a set in Reykjavik and consequently the possibility to form a majority on its own. (To those familiar with UK politics the sound of her voice reminded me of Labour’s Neil Kinnock before the party lost in 1992). Anything to cheer at?

The power base of the four traditional parties shrunk considerably in this election. No doubt, the fact that the parties have neither owned up to donations from banks and the business powers that were before the crash in 2008 nor faced their responsibility in it plays a big part. The Left Green didn’t have much stake in the boom but they have been sent in to sweep the floor clean and no sooner were they in power than they started to behave like the four other parties: very little transparency, fear of decisions and apparently not doing much to open up the business community and making sure that the old powers are driven out. That’s a great pity because the Left Green seemed to enter government loaded with political capital and trust, having been in opposition for the last decade and being lead by a politician, Steingrimur Sigfusson, who has been both consistent and vocal in his criticism of crony capitalism and bad environmental policies.

Voters not only vote to have influence and to further their own interests but also to confirm their own identity. What identity they were confirming by voting ‘The Best Party’ isn’t easy to gauge since the party programme is muddles, to say the least. It’s however clear that their identity isn’t heavily attached to the four major parties. And that should be very worrying for these four parties. Yet, it was only one politician, Dagur Eggertsson leader of the social democrats in Reykjavik, who unambiguously spelled it out yesterday that the surge of independent movements and candidates underlined the deep distrust of the four parties. The parties had to face up to it because this can’t go on, he said, if these parties are going to have a future.

After the UK election the only Labour politicians who said quite clearly that the party had lost badly were those who intend to run for the party’s leadership in September. Eggertsson was seen as a possible future leader of the party – he is eloquent and respected though apparently not very popular – but since the social democrats in Reykjavik did badly his chances might be damaged. If he now makes a point of being seen as someone who wants to reform his party he might have a chance when Johanna Sigurdardottir, the prime minister and present leader of the social democrats, steps down as everyone expects she will want to sooner rather than later. She never aspired to become a leader of this government, was about to leave politics, but was the only one in her party that had the necessary trust and respect.

If the Icelandic parties keep on touting politicians heavily connected to the boom years they will face independent parties and a major wipe out in the coming election (which doesn’t need to be held until in three years time) – there is talk now that the party leaders should think their position though no doubt no one is keen on election. But the voters have clearly shown that if the politicians of the main parties keep on being mealy mouthed about the boom years and the need to cleaning out in all corners of society the voters will jump at whatever ‘best offers’ there are – even a comedian with no clear agenda.

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Written by Sigrún Davídsdóttir

May 31st, 2010 at 5:35 pm

Posted in Iceland

Kreppa: Selective reflexions on justice

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(Part I)

By guest contributor Michael Schulz. A social scientist who has worked for 30 years as a humanitarian manager in development, natural disasters and conflict on missions for the Red Cross in Africa, Asia, the Middle East, Russia and Trans-Caucasus and was i.a. based in Ramallah for two years. The last 5 years Michael was a diplomat with a Red Cross delegation in New York, accredited to the UN. – His Icelandic connection is through his partner who gives Michael an ‘Icelandicness’ and the authority to speak of Iceland though seen through his European eyes. Michael takes a keen interest in all aspects of the ‘Kreppa’ (Icelandic for ‘crisis’) in a philosophical, historical, political, socio-economic and cultural context.

Rambling in Iceland these days, physically or virtually, it seems the island is out of space and time, that it is all about speed. Not least this Icelog’s entries are testimony to daily Kreppa news, news breaking at ever shorter intervals. For observers or social commentators it is at times not easy to keep abreast.

The Office of the Special Prosecutor (OSP) has in earnest started to reach out for suspects, those deemed most instrumental in the undoing of Iceland’s financial sector and, subsequently, the entire economy. Individuals are kept in custody while investigations continue, arrest warrants have been issued for others. Court decisions are appealed. Appeals against temporary detention have been turned down by the Supreme Court. Suspects are released from custody but banned from leaving Iceland. Some returned voluntarily to Iceland for interrogation, others are sought after by Interpol while resisting extradition from abroad or have gone into hiding. Elsewhere, voluminous bills of indictment have been brought before courts. And, as is reported convincingly, more of the same is to come. Calls are on for more white-collar-crime prison cells.

Thus the suspects, so to speak, are on the run. This acceleration of actions had been longed for by the public and it came with somewhat a sigh of relief. Not least the recently published Black Report by the Special Investigation Commission (SIC) had delivered the contextual understanding of the deeply intertwined larger issues and details and who the actors were. It has not been the SIC’s mandate to deliver, as if it were, (legalistic) indictments or verdicts. These are matters of the OSP, public prosecutors, lawyers and courts.

As things stand today the SIC and OSP have exercised professional standards to the highest degree. Thus far it appears that irrespective of elite allegiances no actors or facts have been spared and the OSP, very laudably, is exposing the higher echelons of the banking sector not merely the lower ranks or dogs body. In following this path both special organs are making an important, albeit yet small, contribution towards the public’s belief in and the rehabilitation of credibility of public service institutions.

The Kaupthing wind-up Committee takes steps to salvage retroactively some of the loot. And, after long last, it seems even the tax authorities seem to realise that where fabulous wealth had been generated, irrespective of fraudulent means, revenues to the treasury might have been due.

Not to forget, after a new government has taken power in the UK and once by mid June elections are over in The Netherlands we are likely to watch another sequel of the Icesave saga. To be sure, a group of international banks is making legal claims on Landsbanki assets intended to cover roughly 90% of Icesave debts. If those claims succeed, only 25% might be covered ripping open another hole in the government’s vaults. At the same time, perhaps no coincidence, EFTA (the European Free Trade Association) reiterated that Iceland is legally bound to cover the minimum deposit guarantee to the tune of Euro 20000 per Dutch or British account holder.

Lets allow a short breath before events will rush us on and ponder a few questions that might have risen along the way:

The SIC and OSP are special organs. They have been purposefully placed outside the established judicial systems, in parallel or as an independent extension. One might therefore ask: what was the purpose? Was it not (also) a lack of trust and confidence in the established system? A lack of trust especially in those actors who built and governed the system? A lack that springs from the full knowledge of the partisan political patronage that governed the system and compromised and corrupted its independence?

The authorities had no real choice. It was at no point a realistic option to task the established system with the investigation and/or persecution. At the time the public was alert, up in arms (cooking pots and pans) and fully aware of the legal system’s deficiencies.

The repercussions from the onset of Kreppa were reverberating internationally and international scrutiny demanded – if not expressis verbis – transparency and independence of the process.

The authorities could not but meet mounting expectations and, to some surprise, went farther still and recruited internationally respected legal counsel (Eva Joly) also adding much needed extra legal expertise.

Adherence to those demands was, of course, implicit also an admission of systemic dysfunctions in the establishment.

If those system deficits were true would it not be legitimate to wonder how the traditional, established system can now be expected to manage independently and lawfully the impending onslaught of court cases, complex and with multiple international, political and legalistic, implications exposing powerful and well connected representatives of the local elite?

The OSP is scaling up, increasing its staff from 30 to 90, giving an indication that the case load will be quite massive. Reportedly it is not an easy task to find that many qualified persons in a small society of ca. 300.000. And, where to find the personnel to process the legal cases through courts, judges, assistants, prosecutors and defense lawyers, qualified and experienced to steer through a maze of fiercely fought arguments?

Yes, in a most recent appeal case the Supreme Court upheld a judge’s decision for the continued detention of two suspects under investigation. But was that simply a case in practice or a ruling to be subjected to critical scrutiny along political fault lines? Have not past appointments to courts raised eyebrows as selection criteria for judges other than qualification and merit prevailed?

Perhaps it is raising a question in hindsight as impending court cases seem headed for a course through the established system. But as a matter of principle one could wonder whether or not special courts, somewhat in analogy to the succeeding special organs SIC and OSP, seemingly (so far at least) uncompromised and independent, could do justice best to all parties concerned, including the public at large?

In fact, the question had been raised in the past albeit without much of a tangible conclusion. Some argue against, citing the lasting undermining effects on the old system. Precisely for that reason others argue in favour as change was the order of times.

Beyond the numbers of staff, etc.: What if the independence and confidentiality of the legal system doesn’t hold? What if justice will not be done and cases are perpetuated endlessly on technical grounds, appealed time and again?

Not by any measure an easy question to answer. But law, legislature and the judiciary system, including prosecutors and lawyers, are a matter quintessential to the fabric and functioning of any society including Iceland. Perhaps questions should be answered prior to action?

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Written by Sigrún Davídsdóttir

May 30th, 2010 at 10:45 pm

Posted in Iceland

The Kaupthing-four free to travel again – widening investigation

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The four ex-managers of Kaupthing, recently held in custody in Iceland where the office of the Special Prosecutor is investigating Kaupthing, are now free to travel. After Hreidar Mar Sigurdsson, Magnus Gudmundsson, Ingolfur Helgason and Steingrimur Karason were released from custody they weren’t allowed to leave the country. That ban has now been repealed. The four of them have all been living in Luxembourg.

Sigurdsson was the bank’s CEO, Gudmundsson was the manager of Kaupthing Luxembourg, Helgason was the CEO of Kaupthing Iceland and Karason was the head of risk. Gudmundsson was kept as a manager after the Rowland family, owner of Blackfish Capital, took over Kaupthing Luxembourg but after he was remanded in custody Magnusson was dismissed from his job at Banque Havilland. After the collapse of Kaupthing the three other ex-Kaupthing managers set up a company in Luxembourg, Consolium and had i.a. business relations with Gudmundsson.

As I’ve mentioned in earlier Icelogs there are plenty of rumours around the Blackfish acquisition of Kaupthing Luxembourg. The Rowlands have from the first firmly denied any Icelandic connections or that there are any Icelandic owners among them. They claim that since they had already in mind to set up a bank buying a bank, although in a moratorium, was a simpler process than building up one from scratch.

That’s no doubt true in the sense that Kaupthing already had a client basis – but according to sources that I spoke to in Luxembourg when I was there last week it’s no easier, rather the opposite, when taking over an existing bank. Since Kaupthing was in moratorium the new owners will have been thoroughly scrutinised by the CSSF, the Luxembourg financial services authority. Buying will not have been a short-cut to get a banking license in Luxembourg.

The rumours haven’t died down and probably won’t until further light is thrown on Kaupthing’s operation by the OSP and the SFO, also investigating Kaupthing. After the OSP had meetings last week with authorities in Luxembourg, Belgium and representatives from the SFO and Europol it now seems likely that Luxembourg will become a party in these ongoing investigations and that the investigations will possibly be linked through Europol. Clearly, the possibly fraud that Kaupthing is being investigated for has ramifications far beyond Iceland.

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Written by Sigrún Davídsdóttir

May 28th, 2010 at 3:43 pm

Posted in Iceland

ESA: Iceland obliged to ensure Icesave repayment

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ESA, the Efta Surveillance Authority, has sent a letter of formal notice to Iceland. According to ESA, Iceland is obliged to ensure payment of the minimum compensation to Icesave depositors in the UK and the Netherlands. The letter, in all 15 pages, clarifies ESA standing on these vital issues. ESA monitors non-EU members of the European internal market.

Earlier, the Icelandic Government had argued in a letter to ESA that setting up a guarantee scheme had been enough to fulfill its obligations under the EU Directive on deposit guarantees. Hence, the government seems to be of the opinion that having very little funds in the guarantee scheme didn’t matter; it was enough to set up the scheme. ESA points out that the aim of having a guarantee scheme is to guarantee 20.000 EUR, not just setting up the scheme.

The Icelandic government had also argued that that the Directive might not be applicable if deposits are unavailable because of a major and general banking crisis. ESA argues that this is clearly not the case. – Consequently, ESA counters Iceland principal arguments, actually shreds them to pieces.

More ominously, the letter warns that the Icelandic so-called ‘emergency law’, passed Oct. 6 2008, that declared that Iceland guaranteed all deposits in Iceland but not in foreign branches, runs counter to EU principles of non-discrimination. ESA points out that it’s possible to make exceptions for particular types of deposits but that Iceland didn’t make any use of these possible opt-outs.

ESA points out that since negotiations are ongoing between Iceland, the UK and the Netherlands nothing further will be done for the time being. If however the dispute isn’t resolved the case might be brought to the Efta Court.

Is this good news for Iceland? Hardly – it shreds Iceland’s arguments for not paying the Icesave bill. The official Icelandic stance has been somewhat schizophrenic: that it needn’t pay but was going to, if the right terms were offered. It will be painful to swallow but the Icesave bill is really the price paid for the past sins of omission, omitting to fetter the banks but dreaming of Wall Street on the Atlantic.

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Written by Sigrún Davídsdóttir

May 27th, 2010 at 8:01 am

Posted in Iceland

The quiet volcano

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The eruption in Eyjafjallajokull hasn’t officially been declared as ended – but the volcano is still quiet. For the farmers south of the glacier the stillness comes as a huge relief. Now they can start preparing the work they would normally be doing at this time of the year. Geologists who follow the volcano say it’s still too early to say if the eruption has really ended or if this is merely a pause in the volcanic activities. For the time being the only news from Eyjafjallajokull is that there is, happily, no news…

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Written by Sigrún Davídsdóttir

May 26th, 2010 at 12:10 am

Posted in Iceland

Too big to fail – too complicated to scrutinise?

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‘Too big to fail’ is the crux in how to proceed now that the world’s financial system is slowly slowly being weaned off the life support machine of sovereign cash. But the SEC charges against Goldman Sachs indicate that this is only a part of the problem. Size isn’t the only issue: the big banks aren’t only too big to fail – but they are also too complicated to be scrutnised.

When governments all over the world had to pour the tax-payers’ hard earned money into banks there were whispers here and there that these new bank owners should take a long close look at the companies they were now investing in or taking over. But no, it hasn’t really happened – for many reasons. One is, as James Galbraith and William Black pointed out in their statements before the US Senate and the US House of Representatives recently, that white-collar fraud seems to be an embarrassment and lessons from earlier frauds haven’t been learnt.

The Icelandic banks weren’t involved in terribly sophisticated banking. They didn’t develop complicated products, hardly touched sub-prime loans though they were, as one ex-banker in one of the banks recently told me, ‘suckers for other banks,’ meaning that the Icelandic banks bought some mortgage related securities which the sellers, big banks, probably knew weren’t any terrific products but pushed them to buy by using their market power. But on the whole, the Icelandic banks didn’t practice the kind of banking where physicists and mathematicians were the model makers.

The Icelandic way of banking was mostly about constructing loans that the banks would lose money if the markets went down and the favoured clients would go unscathed. However, the markets went further down than anyone had envisaged, the banks collapsed and most of the big clients went bankrupt when they flow of easy money stopped. A recent casualty is Simon Halabi. Other names are house-hold names in Iceland and abroad such as Jon Asgeir Johannesson, Palmi Haraldsson and Bjorgolfur Gudmundsson. Others, like Robert Tchenguiz and Kevin Stanford, have seen their fortune hugely dented.

Even relatively small banks like the Icelandic ones pose substantial problems when it comes to investigating what exactly went on in them. When it comes to truly big banks, the staggering amount of documents spread over hundreds and even thousands of different system is an exorbitant obstacle. It was incredibly uplifting to read how this had been solved by Anton Valukas and his team working on the Lehman report: they found their way through what they aptly call ‘the Lehman Universe’ of 3 petabytes(!) of date, equivalent to 350bn pages, spread over a patchwork of 2600 different datasystems. (The outlines of how this was done are here, p. 28-35.) What they extracted from the 3 petabytes were emails and other illuminating material to throw light on what went on at Lehman.

Now that the activities of these fairly unsophisticated banks are being poured over by the Office of the Special Prosecutor in Iceland and the Serious Fraud Office in the UK it’s become abundantly clear what a painstaking process it is to trace assets over country borders. It’s difficult to do it even from one European country to another – plenty of legal obstacles to overcome – not to mention the towering summits to climb when it comes to countries like Panama, the British Virgin Islands or the Channel Islands (how shameful it is for the UK to have done so little to put pressure on these islands to cooperate in fraud investigations!)

As has so often been pointed out, the interconnected international markets ease the flow of money and the European market is constructed to facilitate the circulation of money and people. But very little, actually next to nothing, has been done to ease cross-border investigations.

When it comes to the big banks they almost without exception have parts of their operations in Luxembourg, Panama, the BVI and the Channel Islands, often running investment funds through these ‘secrecy jurisdictions.’ In order to fully understand how they operate it’s necessary to scrutinise their cross-border operations. The SEC charges against Goldman Sachs are well-defined and targeted – a clever way of striking but there are vast areas of Goldman Sachs and the other major banks that haven’t been scrutinised because it’s an almost insurmountable task.

These major banks aren’t only possibly too big to fail – they are also quite clearly too complicated to scrutinise. Not that it can’t be done – of course it can – but it takes a clever approach and joint forces of multi-lingual international teams and task forces from the individual countries’ regulators and financial services authorities. By joint efforts, possibly under the auspice of Europol, it would be possible to let information on the gigantic money machines that the banks are flow. – The situation with a borderless financial world and a world full of obstacles for investigations by regulators and financial services authorities is unsustainable and horribly skewed against justice.

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Written by Sigrún Davídsdóttir

May 25th, 2010 at 12:45 am

Posted in Iceland

Eyjafjallajokull: slowing down or taking a breath?

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The eruption in Eyjafjallajokull has diminished considerably. After heavy ash fall recently, threatening to bury some of the best farmland in Iceland under a thick layer of ash, the volcanic activity has now all but died out, no lava flowing and very little ash.

Is that it, then? That’s impossible to say, this is the third time that that volcano seems to be expiring – so far it’s only been a short period before the volcano has woken up again. Tonight, Icelandic geologists have flown over the crater. When the glacier was erupting with full force the plume rose 8km up into air. Now it’s no higher than 3,5km.

Martin Rietze is a photographer who specialises in landscape photos, taking a particular delight in volcanos. Here are some of his Eyjafjallajokull videos, taken in early May. Icelander with a good knowledge of the glacier and its surroundings wonder how he manages to get the views he does – he must have been climbing glaciers and mountains in the neighbourhood to get his views though some of the routes have been closed. However he did it, the result is spectacular. It’s also fascinating that you can here the thundering of the volcano but you also sense the presence of the photographer because though he remains invisible his shuffling movements can be hear.

Contrary to what foreigners might think it’s only a tiny part of the island that’s affected by the ash and the eruption. Other parts of the country are unaffected. Traveling in Iceland is always a thrilling experience. With the volcano adding to the thrill it’s an even greater experience than usual. Since the ash has affected travel in other countries there’s no need to avoid Iceland. On the contrary, an active volcano is a considerable addition to the wonders and thrills of Iceland!

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Written by Sigrún Davídsdóttir

May 21st, 2010 at 10:38 pm

Posted in Iceland

Does anyone remember Icesave?

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It’s as if Icesave has completely evaporated from the agenda in the three countries involved – Iceland, the UK and the Netherlands – but the accounts haven’t yet be settled. Iceland still owes money to the UK and the Netherlands as the two countries compensated the deposit holders according the EU insurance guarantee regulation.

The IMF has recently passed fund’s programme on Iceland to the next level. The prerequisite had been to solve the Icesave dispute – since it is a major economic variable – but Iceland found a way to satisfy the fund’s demand though nothing has been resolved. As so often, Iceland seems hell-bent on wriggling out of the Icesave fetters rather than solving the matter. It remains to be seen how the matter evolves now that there is a new government in place in the UK.

I’m not convinced that a Tory + LibDem government will make a difference for Iceland. According to a source who has raised the Icesave dispute with a leading Tory minster the answer was that the Tories shared Labour’s view on Icesave and didn’t really see any reason for a special lenience towards Iceland.

The report of the Althingi’s Investigative Commission tells a rather aggravating story of how Icesave was handled but in Landsbanki and elsewhere. Contrary to Kaupthing that founded its internet accounts as a UK subsidiary that consequently was guaranteed by the UK deposit guarantee scheme Landsbanki established Icesave as a branch. That gave Landsbanki greater freedom to move the Icesave money around, i.a. to lend it out in Iceland, exactly what the UK FSA was worried about but didn’t hinder.

The report shows very clearly that Landbanki’s management was time and again asked to change the Icesave set up. In early July the FSA thought it had an agreement in place with Landsbanki, intended to be fulfilled by the end of 2008: the bank promised to move Icesave into a UK subsidiary, to cap interest rates – and to limit Icesave to £5bn.

But Landsbanki thought otherwise. The Landsbanki management was willing to consider moving the accounts into a subsidiary but unwilling to cap to either interest rates or the amount they took in. The Landsbanki management seemed to be sure that Icesave was under the Icelandic deposit guarantee scheme that according to EU rules guaranteed deposits up to €20.000.

FSA now threatened the bank to use its powers to protect UK deposit holders. The Icelandic Central Bank and the Icelandic Financial Services Authorites, FME followed these exchanges of view. Some Icelandic civil servants contemplated whether Icelandic authorities could intervene, no action as taken and at a political level the problem didn’t seem to exist.

Early September 2008 trade minster Bjorgvin G Sigurdsson and chairman of the FME Jon Sigurdsson met with the Chancellor of the Exchequer Alistair Darling. Darling’s impression was that the Icelanders didn’t understand the gravity of the situation. And probably they didn’t: although there were different views on Iceland’s legal obligations to to guarantee the €20.000 that EU rules demanded nothing was done in Iceland to clarify the issue – an utterly shocking disregard of the alarming effects that Icesave cave to have for the Icelandic economy.

But FSA didn’t make use of any drastic means, only kept threatening Landsbanki that sought legal opinion on the FSA’s power to coerce the bank into seting up a subsidiary. The bank’s legal advicers doubted that the FSA had the authority to order the bank to take action and the bank continued to resist the FSA demands. In the end the HM Treasury did inded take action and made use of an anti-terrorist legislation to freeze all Icelandic assets though the intention was only to freeze Landsbanki’s assets.

The report shows clearly that Icelandic regulators didn’t pursue the matter with Landsbanki. Funnily enough, the FSA was more adamant in this matter – certainly not because they were dying to pay but because they wanted clarity – than Icelandic authorities and politians that seemed blissfully unperturbed by the possible consquences of Icesave.

In the aftermath of the collapse, Bjorgolfur Thor Bjorgolfsson who with his father owned 40% of Landsbanki vehemently claimed that the bank had done everything in its power to move Icesave into a subsidiary and solve the burden of Icesave on the Icelandic state. The Report tells a very different story: the bank did everything it could to counter FSA’s attempt in this direction. In this matter, as in many others, Bjorgolfsson’s account isn’t trustworthy.

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Written by Sigrún Davídsdóttir

May 19th, 2010 at 11:55 pm

Posted in Iceland

Ripples from charges and investigations

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Following the charges brought by Glitnir’s wind-up committee at a court in New York and an international freezing order on his assets from a court in London Jon Asgeir Johannesson has resigned from the boards of the two companies where he has represented the Landsbanki resolution committee, the supermarket chain Iceland and House of Fraser. Following Johannesson’s conviction in Iceland in the so-called Baugur case in 2008 he was forced to resign from all boards in his Icelandic companies since a conviction bars anyone from being on a board but the Icelandic conviction didn’t seem to affect his foreign activities. The Glitnir charges recently brought against Johannesson in Iceland didn’t seem to have any effect in this direction but it’s unclear if his decision now was a voluntary one or if he was under pressure to resign.

Following the freezing order Johannesson was obliged by the WuC to hand over a complete list of his assets within 48 hours. However, the WuC has declared that it won’t inform publicly whether Johannesson has met this obligation or not. First when Johannesson was presented with the charges in New York Johannesson indicated that he wouldn’t try to defend himself, the cost would be exorbitant. He has now changed his mind and will use all available legal powers to fight Glitnir’s WuP.

Magnus Gudmundsson, ex-manager of Kaupthing and, until recently, of Banque Havilland, was released from custody on Friday as was expected. Afterward, he issued a statement underlining his innocence, the harrowing effect that the case was having not only on him but his family and that he was co-operating fully with the Office of the Special Prosecutor. He pointed out that he had traveled to Iceland on his own accord for the questioning at the OPS.

The last statement could be seen as a message to ex-executive chairman of Kaupthing Sigurdur Einarsson who has been unwilling to travel to Iceland since he couldn’t get an assurance that he wouldn’t be taken into custody. There are rumours that the families and close friends of those who have been put into custody are very upset with Einarsson since his unwillingness to show up for questioning can very well have made life more difficult for the three who were placed in custody. Hreidar Mar Sigurdsson and Ingolfur Helgason were released from custody today. Sigurdsson isn’t allowed to leave the country until next week.

Asked yesterday on Silfur Egils, a political chat show on Icelandic tv, the French-Norwegian ex-magistrator and now French MEP Eva Joly, advising the OSP, said that Einarsson wouldn’t have anything to fear if he was innocent. The fact that Einarsson has chosen not to show up and is now on Interpol’s wanted list doesn’t change the course of the investigation, according to Joly. She was stoic about complaints that custodial sentences and Interpol arrest warrants were too severe but pointed out that many felt an acute discomfort over the treatment of alleged white-collar criminals. Only few identify with drug sellers and thieves but the whole establishment could usually identify with people who are charges with white-collar crimes. (You can watch the interview here; it’s in English but the programme begins in Icelandic.)

But there are more bad news for ex-Kaupthing high fliers. The bank lent in all ISK32bn (now £16m) to 80 key-employees to buy shares of the bank. Twenty of these 80 got ca 90% of these loans – and 50 of these 80 people are still working at Arion, the New Kaupthing. Hreidar Mar Sigurdsson borrowed ISK5,8bn and Sigurdur Einarsson borrowed ISK7,8bn. At the time, these loans were presented as a salary boost to these employes. In hindsight, this looks more like part of the extensive share ‘parking’, alleged to be part of market manipulation. The only collaterals for these loans were the shares themselves but the borrowers gave personal guarantees as well. A few of the employees had been allowed to place the shares in limited liabilities companies.

Shortly before Kaupthing collapsed the board of the bank decided to release these employees from their personal guarantee, thereby underlining that the employees weren’t meant to make any loss on these loans but only to pocket the dividend. The extent of these loans didn’t become public until well after the collapse. The loans have been a bone of contention for a long time, also with the tax authorities, symbolising so much of what was wrong with banking the Icelandic way.

The Kaupthing wind-up Committee has now decided that the employees shouldn’t be released from their personal guarantee. They now have ten days to either repay the loans or renegotiate the terms. The WuC has also declared that it will try to circumvent the right to put the shares into limited liabilities companies meaning that those with companies will also be hit. This will no doubt put many of the employees under severe financial strain since the loans were in many cases far beyond what the salaries of these people justified.

In the Althingi Investigative Commission’s Report it’s clear, from statements from ex-Kaupthing employees that they saw themselves as held hostages by the bank since they were not meant to sell their shares. This underlines the sense of share ‘parking’ by the bank. In the end, the loans that were supposed to enrich these chosen employees might well end up bankrupting them, showing the bank’s cynicism in serving its own interests rather than the interests of its employees.

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Written by Sigrún Davídsdóttir

May 18th, 2010 at 12:42 am

Posted in Iceland