For the second day, the Iceland Watch, watching over the interest of the four largest offshore króna holders, has published an ad in Iceland warning Icelanders of corruption and claiming that an official at the Central Bank of Iceland is under investigation at the CBI for insider trading. The whole page ad is under a big portrait of the governor of the CBI Már Guðmundsson, see my yesterday blog.
This morning, the governor met with prime minister Sigurður Ingi Jóhannsson, Lilja Alfreðsdóttir minister of foreign affair and minister of finance Bjarni Benediktsson. After the meeting Guðmundsson said that no Icelandic action is being planned. He said the CBI was certain the measures taken regarding the offshore króna in order to protect the Icelandic economy were sound. “Of course there might be a reason to worry that people get the idea to put out statements like these but there is no reason to worry that any of the statements (in the ad) is based on fact because it isn’t,” Guðmundsson said to Rúv.
Negative response from the EFTA Surveillance Authority
The four funds holding offshore króna and contesting the measures taken earlier this year are Eaton Vance, Autonomy Capital,
Loomis Sayles and Discovery Capital Management. This summer, two of the funds, Eaton Vance, brought the Icelandic offshore króna measures to the attention of the EFTA Surveillance Authority, ESA. Already in August ESA answered the complaint pointing out that it had already dealt with a number of complaints regarding the Icelandic capital controls.
The ESA conclusion was:
“It follows from the assessment set out above that an EEA State enjoys a wide margin of discretion as regards the adoption of protective measures as long as the (sic) comply with the substantive and procedural requirements of Articles 43(4) and 45 EEA. Once compliance with these requirements has been established, the exercise of the powers conferred on an EEA State pursuant to Article 43 EEA precludes the application of primary provisions in the sector concerned (such as Article 40 EEA).
Having taken account of the information on the facts of this case and the applicable EEA law, the Directorate cannot conclude that the Icelandic Government has erred in its application of Article 43 EEA.”
Eaton Vance was invited to submit its observations, which it did in September. ESA is now considering this last submission but given the earlier answer and previous ESA cases regarding the capital controls it now seems unlikely that Eaton Vance’s argument will win ESA over. That decision will then be final; there is no other instance to appeal to. So far, the EFTA Court has dismissed ruling on ESA decisions.
Who is behind the ads and the offshore króna holders?
Over the years, Icelanders have furiously speculated that there are large Icelandic stakeholders among the offshore króna holders. Nothing that I have seen or heard so far indicates that this is the case.
I’ve said earlier that there may well be Icelanders owning or having owned offshore króna but I find it highly unlikely that any of them hold large interests in the four main funds who own the largest part of the remaining funds, now ca. 10% of Icelandic GDP (see here for a recent overview of the capital controls and offshore króna from the CBI).
Funds as these four organise their investments normally in separate offshore funds as the maturity of underlying assets vary etc. Some of these funds may well have Icelandic names but I would imagine the names relate to the place of investment rather than the owners being Icelandic.
As I’ve pointed out earlier the funds have allied with Institute for Liberty, mostly dormant since it fought the Obama care some years ago and now revived with the offshore króna cause. The PR company DCI Group, based in Washington, is advising the funds. As far as I can see these are the entities driving the campaign against Iceland.
Baseless claims of Iceland in breach
The bombastic claims by Iceland Watch that Iceland is somehow breaching international rules and regulations have so far been shown to be baseless. As pointed out earlier, the International Monetary Fund has not criticised the measures taken in Iceland and these measures, as others, have been taken with the full knowledge of the IMF.
That said, the funds may well have success in litigating Icelandic authorities somewhere sometime but so far it seems the ESA challenge will not have a successful outcome for the four funds.
As to the ad campaign in Iceland it’s as ill advised and as unintelligent as can be.
Updated: I’ve been made aware that Loomis Sayles is not at all involved in the Iceland Watch campaign against Iceland. I’m sorry that my earlier information here was not correct.
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