Sigrún Davíðsdóttir's Icelog

Kaupthing – a High Court ruling Monday

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The two ex-Kaupthing managers, CEO Hreidar Mar Sigurdsson and Magnus Gudmundsson manager at Kaupthing Luxembourg, have appealed the Reykjavik County Court ruling on custody to the High Court. The court is expected to rule on the appeal tomorrow. Following the County Court ruling Sigurdsson’s custody is 12 days while Magnusson is to stay in custody for 7 days. Both are kept in solitary confinement.

Since the investigation has been ongoing for about a year many are wondering why custody is necessary now. People familiar with investigation of this sort point out that the two managers might have been shown evidence or introduced to certain aspects of the case that the investigators don’t want them to share with others who are no doubt at the heart of the investigation.

It seems that the investigators still haven’t had the material from the searches in Luxembourg delivered. Authorities in Luxembourg have to sift through and decide what can be delivered. According to sources close to the searches the material seized was a lot more than originally planned for. Part of this material might also be of interest to Luxembourg authorities. This part of the investigation will be of great interest to those who fight for greater transparency in the world of finance. Consequently, the case is somewhat of a test for Luxembourg: how eager is Luxembourg to have its finance sector scrutinised?

Iceland is small, and so far a closed world. Luxembourg has the same characteristics. Why would all the banks in the world seek to operate in Luxembourg, not to forget accountants and incorporation services if it weren’t for the secrecy there? There are clearly not that many clients in this lilliputian country.

It’s still not clear who the lawyers are on the Kaupthing managers’ defence team. Sources familiar with the case indicate that the managers will turn to the legal team that managed to have the charges against Jon Asgeir Johannesson and others connected to his investment company Baugur whittled down to a few charges that in the end brought Johannesson a suspended sentence of three months since the most serious charges were thrown out. It is thought that both the two in custody and others from the Kaupthing top management who might be called soon to the OSP have already been briefed by their lawyers.

The Baugur investigation that ran for several years is taken as an example of how the legal heavyweights who ran the Baugur case managed to smash the prosecutor’s case. However, the Office of the Special Prosecutor is a different institution and the staff there has been on a crash course for the last year on how to conduct an investigation of serious financial crimes. The OSP has been guided through this task by the Norwegian French ex-magistrate Eva Joly who shook the French establishment by getting close to 30 people convicted in the Elf investigation in the 1990s. Madame Joly is now a member of the European Parliament, very much focusing on means to fight financial crimes.

Without an outsider specialist it’s difficult to see how this investigation, and others to come, could have been undertaken in a convincing way, both because there isn’t enough expertise in Iceland to take on investigations on this level – and also because in a society with a dense political penetration everywhere where there is power and money it’s difficult to see how the investigation could be beyond any doubt of political interference.

The OSP overcame the first legal hurdle when the County Court ruled in favour of the OSP on the custody. The second hurdle is tomorrow at the High Court. These first official steps of the OSP will be seen as an indication of how firm its grip is on this case and what can then be expected as this investigation, and others that will do doubt follow, proceeds.

It’s a convincing first step to start with Kaupthing but the OSP won’t convince Icelanders until it’s clear that the management of the two other banks, Glitnir and Landsbanki together with their major shareholders, are also placed under investigation.

The truly staggering thing is that the three main banks, the investment bank Straumur together with most of the smaller financial institutions followed the same pattern of suspicious dealings. How the financial system of a whole Western European country could be infected by alleged fraudulent behaviour is something that will take time to explain. The feeling is that it’s not enough to look at the banks in isolation. Most likely, there are political fingerprints here and there.

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Written by Sigrún Davídsdóttir

May 9th, 2010 at 1:52 pm

Posted in Iceland

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