Sigrún Davíðsdóttir's Icelog

ESA’s reasoned opinion re Icesave

with 11 comments

“Iceland is obliged to ensure payment of the minimum compensation to Icesave depositors in the United Kingdom and the Netherlands, according to the Deposit Guarantee Directive.” This is the conclusion in a reasoned opinion on 24 pages the EFTA Surveillance Authority, sent to Iceland Friday June 10. Further, ESA concludes:

In its emergency response to the banking crisis in October 2008, the Icelandic Government made a distinction between domestic depositors and depositors in foreign branches. Domestic deposits continued to be available after they were taken over by New Landsbanki, whereas the foreign depositors lost access to their deposits and did not enjoy the minimum guarantee. It is not possible to differentiate between depositors to the extent they are protected under the Directive. By acting as it did Iceland failed to ensure that the depositors received the compensation to which they are entitled under the  Directive.

The Icelandic Government is now requested to take the measures necessary to comply with this reasoned opinion within three months. Should Iceland not comply, the Authority will need to consider taking the case to the EFTA Court.

An overview of the opinion is found in the ESA press release that also has links to earlier documents regarding Icesave.

As stated above, Iceland now has three months to fulfil the Directive. All this had been negotiated and settled in the Icesave III agreement. Now there is the order to pay, in addition to the interests on the loans to the UK and the Netherlands as they paid out their Icesave depositors.

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Written by Sigrún Davídsdóttir

June 13th, 2011 at 9:26 pm

Posted in Iceland

11 Responses to 'ESA’s reasoned opinion re Icesave'

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  1. so, if applicable and enforced, the ESA finding may incur interest at a higher level that was agreed in the aborted Icesave negotiations.

    Thus the Landsbanki estate may not now suffice. Is this the same as proverbially shooting yourself in the foot?


    14 Jun 11 at 9:35 am

  2. So there IS a sovereign guarantee on the DIFs in EU! Ouch! Wonder if Greece, Ireland, Spain, Germany amongst others will happy with that in the end?

    Olafur Margeirsson

    14 Jun 11 at 9:29 pm

  3. Olafur, state responsibility is dealt with in the ESA reasoned opinion on p. 15-17 (chapter 5.3). Ia:

    “The Court has thus clarified that if the compensation of deposits prescribed by Directive 94ll9lEc is ensured, the state cannot be held further liable in damages for faulty banking supervision. It can be inferred from the judgment that if the compensation of depositors prescribed by the Directive is not ensured in the event that deposits become unavailable (which is the case in Iceland), the state should be held liable.

    This does not mean that the Directive imposes on states an obligation to have in place a tate guarantee absolving credit institutions from all responsibility for funding.”

    A deposit guarantee is very much seen as a necessary consumer guarantee, re above but doesn’t absolve the banks of responsibility for funding. As far as I am aware, there is no move in the countries you mention away from this understanding. It’s never been clear to me why the no-Icesave wing in Iceland tried to portray this as a ‘state guarantee’ to the banks. ESA answers this argument in the above mentioned chapter.

  4. Andy, re interest rates. It’s not been made clear but the interest rates are in fact claims that rise after claims could be made to the Landsbanki assets so no matter what it’s always been clear (but not made clear in the debate) that the Icelandic state will have to bear the cost of the interest rates.

    The ESA case regards Iceland’s obligation to pay. No matter what, the UK and the Netherlands still claim that Iceland owes them, they want interest on the sums these two countries paid to their depositors – and since Icesave III was rejected it’s not clear what the rates will be but these two countries will want interest on their expenses.

  5. Sigrún,

    I will have to read the documents to determine what they say exactly, but at first glance it appears the rule is that the Icelandic State is not obligated to pay, but only to assure payment, and of the 20k€ per depositor only. This means Iceland, the State, could require Landsbanki to pay those amounts, co-sign for it, loan to it, guarantee for it, etc.

    Except UK and NL snatched the funds and assets of Landsbanki, and Kaupthing, not in Iceland, which kept them from being able to compensate per regulation or otherwise. With the taking UK and NL took, at minimum, the State of Iceland’s legal responsibility to assure Landsbanki and Kaupthing depositors were reimbursed, wherever they were, in ALL the countries where they operated. UK and NL took also, also at minimum, responsibility and liability for infringing Iceland’s sovereign right and authority to conduct its own affairs, and those of its own native institutions, and responsibility and liability for the economic effects their stepping in and cutting Iceland out caused Iceland and Icelanders to incur.

    The ESA determination is very good for Iceland as it establishes definitely and categorically that per EU and EEA rules it was Iceland, not UK or NL, who unequivocally had sovereign authority to deal with the crisis.

    That Britain, acting politically, precipitated the crisis is a second question, but certainly related: Iceland may raise that issue in its defense in event the EFTA brings suit (which it may not want to do), since by sequestering from Iceland Iceland’s means to respond in accord with the law, or regulations, Britain thwarted Iceland from being able to do so.

    On the surface (as far as I have read) the ESA finding looks to be an excellent finding for Iceland and opens the field advantageously for Iceland to continue in pursuit of a judicial solution. If the EU’s judicial authorities are not as corrupt as I cynically believe them, not only Landsbanki and Kaupthing savers in UK and NL, but everywhere (except in Iceland, of course), but also Landsbanki and Kautpthing investors and shareholders should, and Iceland and Icelanders damaged by the UK actions, should receive full compensations.

    Note that the interest on their payments to depositors, demanded by NL and UK are their demands only, to which they will have a hard time showing themselves to have any entitlement.

    Unless someone drops a ball or goes goofy, the Iceland et al v. UK and NL case should become fun and interesting.



    16 Jun 11 at 2:53 am

  6. Again, aside from the first paragraph, none of that is grounded in reality Dogh.

    The reason for the non-payment from the estate of Landsbanki was plainly not because the UK/NL had “snatched” it. Just yesterday Steingrimur said (a) no payments can be made before the Icelandic Supreme Court has ruled (presumably on the Emergency Law priority) and (b) even then, only ~40% will be paid this year, with the rest taking a number of years. About 6:50 onwards:

    Would you like to flesh out how the UK’s actions prevented Iceland from ensuing the minimum guarantee was paid on time? Forget Kaupthing, unless you’re willing to go into the judicial review that showed that the UK regulator had acted properly regarding KSFUK. If you are:

    >That Britain, acting politically, precipitated the crisis is a second question

    No it is not. “Precipitated” means “caused”. The UK only acted against Landsbanki after it closed its doors to UK depositors. As I said at the beginning, even if Landsbanki had had unrestricted access to the funds they would not have been sufficient to cover the guarantee within the required period.


    16 Jun 11 at 8:21 am

  7. Bromley86 and whoever may be interested,

    Here, with Sigrún’s kind indulgence, is a short explanation of the ESA’s Reasoned Opinion, in context.

    For background,legal proceedings are progressive. They progress through stages. The stage in proceedings in which the ESA’s “Reasoned Opinion” fits is an information stage. In this stage allegation and defense forms are used, but are rhetorical. For this allegations may be anything. They may even be ludicrous, or seem to be. They may be legally irrelevant, extraneous, tangential, moot or contradictory. The purpose is to elicit clarifying responses and to define exactly what is at issue, and how, and if seeming issues are real issues.

    Iceland raised a variety of issues in response to the ESA’s accusation, throwing them out to see how the ESA might respond. This forced the ESA to define its concerns specifically and state the law that will be controlling in the discussion.

    In its fourth and fifth paragraphs under “1 Introduction”, the ESA sorts Iceland’s allegations into what it will ignore and what it will address, and there through defines the law that will control. The two paragraphs, in relevant part, read:

    “The Government of Iceland has made a number of allegations in its reply…concerning what it claims to be a number of breaches of cross-border banking legislation by the United Kingdom and the Netherlands, alleged incorrect implementation of the Directive by other EEA States and the alleged role of EEA States in the circumstances leading up to deposits. becoming unavailable on 6 October 2008 or the recovery rate of the estate of Landsbanki Islands hf. The Authority wishes to make clear that it considers that such allegations of breaches by other EEA States have no legal bearing on the present case. The Authority considers that such allegations, even if well founded, cannot release Iceland from its obligations under Directive 94lI9lEC and under Article 4 of the EEA Agreement. Consequently, the Authority will not examine the substance of those allegations further.

    “The present proceedings only relate to the compliance, by Iceland, with the
    obligations it has subscribed to under the EEA Agreement, according to which all
    depositors whose deposits in branches of Icelandic banks became unavailable must be compensated according to the terms of the protection laid down by Directive 94/l9lEC and without discrimination.”

    The ESA states in these two paragraphs that Contract Law is the controlling law in the discussion, and that only Iceland’s performance, or non-performance, in regard to Directive 94/19/EC and Article 4 of the EEA Agreement, which Iceland had contracted to perform, will be subject.

    This means that while the ESA may include all sorts in its Opinion, all except the contract issue will be only opinion, ESA views, perceptions, perspectives, reasonings, etc., offered, but having no legal weight. The question will be, did Iceland ensure Landsbanki depositors in Holland and Britain were compensated as required by and stipulated in the Directive and Article and EEA Agreement?

    This means that if Iceland did ensure, by any means, that the Landsbanki depositors were compensated in at least the minimum amounts required, within the time allotted, or within a provided extension of the time, Iceland did comply with the Directive and Article, and Agreement and is in compliance. If this is the case, the ESA has no legitimate complaint to carry to a court.

    On page four at paragraph two in the ESA’s Opinion we find stated, “on 11 October 2008, a Memorandum of Understanding was concluded between Iceland and the Netherlands, formalising a shared understanding that the Icelandic deposit guarantee fund was under an obligation to compensate each Dutch depositor in Landsbanki Amsterdam, [and] that the Netherlands would prefinance the amount required”.

    At paragraph three on page four we find the statement, “on 15, November, 2008, the Icelandic Government confirmed…that it was “committed to recognize the obligations to all insured depositors”.” and that “This commitment was done “under the understanding that prefinancing for these claims (was) available by respective foreign governments and that (Iceland) as well as these governments (were) committed to discussions within the coming days with a view to reaching agreements on the precise terms for this prefinancing.””.

    According to the evidences of these paragraphs, provided by the ESA in its Reasoned Opinion, Iceland, between 6 October, 2008 and 15 November, 2008, arranged with Holland and Britain to have those two nations “prefinance” its Directive 94/19/EC obligations to compensate “all insured depositors”.

    All that remains to be discovered is if the “insured depositors” were, in fact, compensated to the standards of the agreement through the said efforts by Iceland. That is, if the “result” was achieved, as the ESA asserts to be what the Directive, Article and Agreement demand [Search for “obligation of result” and “result” in the Reasoned Opinion to read the ESA’s affirmation that its sole concern is result]

    On page four, at paragraph five, the ESA’s Opinion states: “Following the unavailability of Icesave deposits, both the UK and Dutch authorities organised for depositors at the Landsbanki branches in the UK and the Netherlands to file claims to the deposit guarantee scheme in each country. The UK Government decided to arrange for the pay-out of all retail depositors in full…of which GBP 2,1 billion fell within the responsibility of the Iceland deposit guarantee scheme, based on the minimum laid down in Article 10 of Act No. 98/1999. The Dutch Government decided to organise the pay-out of all depositors up to a maximum… Between 11 and 31 December 2008, the Dutch Central Bank paid reimbursements totalling EUR 1,53 billion… Of this amount EUR 1.34 billion was within the responsibility of the Icelandic deposit guarantee scheme.”

    The paragraph states unequivocally that Iceland’s Directive 94/19/EC responsibilities were fully discharged within the time required through the combination of Iceland arranging with Britain and Holland for “prefinance” and the those nations subsequently disbursing funds on Iceland’s behalf, in conjuction with their disbursings for themselves.

    With the stated depositor compensation payment actions by Britain and Holland fulfilling Iceland’s Directive and Agreement obligations, Iceland’s obligations under the Directive, Article and EEA Agreement were fulfilled. Iceland there and then ceased to have further compliance liability or obligation. The EFTA and ESA were there and then put out of the picture. Wherefore, the ESA has no legitimate grounds for complaint, or action, including the action leading to the Reasoned Opinion. The ESA’s action in accusing Iceland was entirely to give itself opportunity to weigh in and publish its opinions, on a variety of subjects, as reading the ESA’s Opinion shows.

    In its next paragraph, the sixth on the fourth page of its Opinion, the ESA noted, “The Icelandic Government then entered into negotiations with the Governments of the United Kingdom and of the Netherlands for the reimbursements of the pay-outs made by those states to the depositors of Landsbanki for the parts that were within the responsibility of the Icelandic deposit guarantee scheme.”

    This paragraph affirms that the reimbursement payments were made as stated, and that the ESA, when it wrote its Opinion, was aware they were and had been made, and was aware that Iceland had traded EEA Agreement obligation debts to Landsbanki depositors for private debts to Britain and Holland. Iceland’s private debts to Britain and Holland, and negotiations and arrangements in regard to those, are separate and apart from Iceland’s EEA Agreement and obligations. The EEA, the EFTA and the ESA are not parties in those contracts, or authorities in their negotiations.

    As you read through the ESA’s Opinion you read, at several places, the ESA declaring, despite having rehearsed the evidences, that Iceland did not compensate the Landsbanki depositors and so did not discharge its EEA obligations. Those assertions are rhetorical fictions. They are promulgated by the ESA to allow it to “weigh in” on a variety of questions and offer its “reasoned opinions”. In the information stage this is permissible; as permissible as Iceland’s asserting everything and anything in its response, ‘throwing all at the wall to see what might stick’.

    Ultimately, in a pettish statement in the seventh paragraph on the nineteenth page, the ESA evidences its awareness that the Landsbanki depositors have been compensated, stating: “Finally, the Authority notes that today, three years after the deposits became unavailable, Iceland has still not paid the depositors in the United Kingdom and the Netherlands or their successors in title in accordance with the requirements of Directive 94/I9/EC ”.

    The phrase, “or their successors in title” references Holland and Britain, who, by assuming responsibility for compensating the depositors, in “prefinancing” agreements with Iceland, succeeded the depositors as creditors to Iceland.

    The difficulties Britain, Holland and Iceland are experiencing in attempting to affirm the debts assumed for Iceland by its negotiators in the “prefinance” agreements the pre-ratification performances to which got Iceland off the EEA agreement hook it was on, are no one’s business but the negotiating parties’: Britain, Holland and Iceland.

    The difficulties involved are not unusual and should not have been unexpected: Negotiations with representative democracies are always fraught with perils, the negotiations are always provisional, the negotiators have to run back to their nation’s representatives, at least, for approvals and finally ratification. The review the representative process introduces is generally regarded a safeguard. This safeguarding process was seen with the first agreement, whose negotiators’ negotiated terms were modified by Iceland’s government representatives.

    As noted before, the law of contract governs making of contracts and a rejection of a contract accepted by one party with modifications means there is no contract, even if negotiators had provisionally accepted the contract without the modifications. It is for this that Iceland has no obligations under the first agreement, which Britain and Holland rejected in the form Iceland’s Althingi modified it to and accepted.

    Another interesting feature in the “prefiancings” obligations negotiations is brought about by the Icelandic referendum process and its effect on law of contract: A party, once made a party, cannot be removed as a party except with the party’s specific agreement and acquiescence. This means that a result of the Icelandic People, as a whole, being brought in as a party with the first referendum is the Icelandic People as a whole being made a party to the contract. The President of Iceland did not have to “allow” the second referendum, he could not have prevented it: The Icelandic people could not be excluded after having been included. When the Landsbanki depositor repayment obligation retiring contract is negotiated again in future, if the final agreement is approved by Althingi and signed by the President, with no referendum approval by the people, unless the Icelandic People, in a specific vote or referendum have previous to then assigned their rights as a contracting party to their elected representatives, any single Icelander will be able to file a suit and void the contract for it not being approved by a principal party.

    Negotiating agreements with representative democracies is always fraught with perils and additional difficulties brought in by uncertainties. Negotiations with ones more democratic than representative, like Iceland, are even more perilous and difficult, especially when the people get their oar in. There is a reason those who negotiate with nations prefer ones ruled by dictators.


    23 Jun 11 at 1:59 am

  8. Short version:
    “All retail depositors in Landsbanki branches have received payment in accordance with the minimum amount stipulated in the Directive. This minimum amount was paid out by the deposit-guarantee schemes in the United Kingdom and Netherlands. The remaining dispute is of a commercial and political nature and concerns, i.a. the pace of payments and ultimate liability for a possible shortfall in the settlement between the Icelandic deposit-guarantee scheme, on the one hand, and the schemes in the United Kingdom and the Netherlands, on the other hand. The Directive does not apply to this dispute.”

    You’ll note that it was a minor note in the Icelandic reply rather than a main point. Does that make it less important? IANAL, so maybe it’s all part of some legal gameplan, but my assumption would be “yes”.

    >“prefinancing” agreements with Iceland

    I think you meant “prefinancing ‘agreements'”. Clearly no agreement could be reached. So this isn’t a case of UK/NL assuming responsibility, it’s a case of them purchasing the claims. Your reference to “committed to recognize the obligations” makes it quite clear that prefinancing is “available” but not yet “arranged”.

    I don’t buy your attempt to insert the Icelandic voters as a party to any agreement. The rules for their involvement are covered by the Icelandic constitution and they’ve not been added to the agreements. Just because you consult a friend about a loan doesn’t mean they’ve a right to veto future loans, and just because Article 26 allows for a plebiscite doesn’t mean they automatically get to vote on every Icelandic law.


    23 Jun 11 at 10:10 pm

  9. R.L. Dough

    As with many apologists for the Icelandic authorities I admire your efforts. Your unilateral decision to make such an effort to rewrite the ESA’s reponse – even though they apparently didn’t ask you do so – is admirable, but probably misguided. I think their own version is far stronger.

    In your version of events, if a thief steals money from someone, but then the victim is compensated by a third party (say an insurance company), then apparently no breach of the law took place because the victim lost nothing. Hence the police have no role to play and it is merely a matter of the insurance company claiming the money back off the thief (or non-thief if your version is correct).

    Nice try, but I don’t think the legal system works like that.

    Mike (UK Nordic analyst)

    24 Jun 11 at 6:58 pm

  10. Bromley86,

    What Iceland wrote in its Response to the ESA’s initiating Accusation is argument. Argument without legal authority. For this it is not quotable. The ESA is an authority, as it designates itself in its Opinion by referring to itself as “the Authority”. From its position as an authority the ESA responded to Iceland’s Response arguments. You will also note that the ESA cited law and case law to shore its authority where it made statements outside its specific authority (which extends only to interpreting EFTA and EEA treaty contract), for example, where it provides supports for its assertion that compliance is demonstrated by result wherefore what the treaty agreement obliges is result. Iceland will do the same, providing arguments and citations to authorities, when/if a time comes for it to state its arguments with authorities to back them.

    I quoted the ESA’s statements as authoritative statements and definitions because my explanation was a clarification of the ESA’s statements. I clarified by shearing the ESA’s arguments of the fluff (called dicta) it included, which it appears it made its accusation primarily to obtain opportunity to present, probably as a way to lean on Iceland, probably with intent to make the general population nervous, since almost everyone with any professional awareness of the issues knows what I explained. Through the kreppa and beyond Iceland let itself go to hysteria. It turned fish-wife toward those who could have explained what Britain and Holland had done and were doing (and that the assets grabbed were not what the hysterical were “sure” they had to be, and the Icelanders involved were not the criminals the carpers were “sure” they were, or doing the things those were sure they must have been doing. Icelanders are today waking up from that dive into mindless panic, but the ESA filed in a last effort to push it on, it appears.

    It is unlikely that the ESA will file an action against Iceland in any court, since in such event Iceland would file something like I wrote, saying the ESA, itself, delineates Iceland’s compliance with the stated requirements. Even a British court would have trouble avoiding having to recognize the obviousness in the case. It is so obvious the twisting to avoid would show the judge an ass or bent (British courts today are badly [or baldly] corrupt).

    The word “agreement” has a specific meaning in regard to contract. For this the “prefinancing” events were not agreements. They were “arrangements”, financings arranged ahead of agreements for immediate implementation to accomplish the necessity, which was to reimburse the Landsbanki depositors. As the history of events shows, there were not even provisional agreements prior to the disbursements. The negotiations of provisional agreements were undertaken after the pay-outs were made, when the expenditures and obligations the arrangements imposed, on both parties, respectively, were already incurred. The negotiations proved difficult: Britain and Holland sought to take advantage of Iceland being already obliged, trying to force it to take whatever terms they chose to offer, which were harsh terms for Iceland being a very resource-rich little country (you might have noticed all the international interest to get around ‘Icelandic resources for Icelanders’, through Nordic ally shells, offers to trade investment for citizenship, and, of course, attempt to impoverish and then impose a terrifying debt-load). The object was to force Iceland to give over control of its resources, or have to join the EU, so control could be forced from it (in authority interpretations of treaty obligations, as seen in the ESA’s action).

    Note that the “prefinance” (I enquote this word for it being parochial, with a specific in-context meaning) arrangements are an important element in th flow of events. They demonstrate that Iceland actively acted to accomplish its compliance with its EEA Agreement obligation. It is the “prefinance” negotiation that makes Iceland the complier. Had Britain and Holland stepped in ahead, unasked, leaping with apparent nobility of purpose to aid their subjects/citizens, “knowing” Iceland would not, Iceland would have a harder job today to demonstrate that it, itself, took responsibility and saw the Landsbanki depositors compensated per its obligation under the treaty. Britain and Holland may look on their making issue of Iceland being responsible then, as a tactical mistake.

    It doesn’t matter if you “buy” my assertion that the Icelandic public once made a party remains a party. The assertion was an observation, not offered to sell. I suspect that wherever the negotiations go next the Icelandic public will be included, because my observation was of a fact of contract. Should they not be included I suspect a test will result, since any Icelander with a right to vote, or any Dutch or British taxpayer perceiving him or herself to have an interest, and not happy with the result, will be able to assert the challenge. Note that the effect does not extend to every contract Iceland’s government may negotiate, only the two negotiated in the instance, in regard to the Landsbanki depositors compensation arrangements the voters were brought by the use of the plebiscite to be involved as a party in.


    25 Jun 11 at 12:52 am

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