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Landsbanki Luxembourg managers charged in France for equity release loans

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After a French investigation, Landsbanki Luxembourg managers and Björgólfur Guðmundsson, who together with his son Thor Björgólfsson was the bank’s largest shareholder, are being charged in relation to the bank’s equity release loans. These charges would never have been made except for the diligence of a group of borrowers. Intriguingly, authorities in Luxembourg have never acknowledged there was anything wrong with the bank’s Luxembourg operations, have actively supported the bank’s side and its administrator and shunned borrowers. The question is if the French case will have any impact on the Luxembourg authorities.

In the years up to the Icelandic banking collapse in October 2008, all the Icelandic banks had operations in Luxembourg. Via its Luxembourg subsidiary, Landsbanki entered a lucrative market, selling equity release loans to mostly elderly and retired clients, not in Luxembourg but in France and Spain (I have covered this case for a long time, see links to earlier posts here). Many other banks were doing the same, also out of Luxembourg. The same type of financial products had been offered in i.a. Britain in the 1980s but it all ended in tears and these loans have largely disappeared from the British market after UK rules were tightened.

In a nutshell, this double product, i.e. part loan part investment, was offered to people who were asset rich but cash poor as elderly people and pensioners can be. A loan was offered against a property; typically, 1/4 paid out in cash and the remainder invested with the promise that it would pay for the loan. As so often when a loan is sold with some sort of insurance it does not necessarily work out as promised (see my blog post on Austrian FX loans).

The question is if Landsbanki promised too much, promised a risk-free investment. Also, if it breached the outline of what sort of products it invested in when it invested in Landsbanki and Kaupthing bonds. This relates to what managers at Landsbanki did. In addition, the borrowers allege that the Landsbanki Luxembourg administrator ignored complaints made, mismanaged the investments made on behalf of the borrowers. Consequently, the complaints made by the borrowers refer both to events at Landsbanki, before the bank collapsed and to events after the collapse, i.e. the activities of the administrator.

The authorities in Luxembourg have shown a remarkable lack of interest in this case and certainly the borrowers have been utterly and completely shunned there. The most remarkable and incomprehensible move was when the Luxembourg state prosecutor, no less, Robert Biever Procureur Général d’Etat sided with the administrator as outlined here on Icelog. The prosecutor, without any investigation, doubted the motives of the borrowers, saying outright that they were simply trying to avoid to pay back their debt.

However, a French judge, Renaud van Ruymbeke, took on the case. Earlier, he had passed his findings on to a French prosecutor. He has now formally charged Landsbanki managers, i.a. Gunnar Thoroddsen and Björgólfur Guðmundsson. Guðmundsson is charged as he sat on the bank’s board. He was the bank’s largest shareholder, together with his son Thor Björgólfsson. The son, who runs his investments fund Novator from London, is no part in the Landsbanki Luxembourg case. In total, nine men are charged, in addition to Landsbanki Luxembourg.

According to the French charges, that I have seen, Thoroddsen and Guðmundsson are charged for having promised risk-free business and for being in breach of the following para of the French penal code:

“ARTICLE 313-1

(Ordinance no. 2000-916 of 19 September 2000 Article 3 Official Journal of 22 September 2000 in force 1 January 2002)

Fraudulent obtaining is the act of deceiving a natural or legal person by the use of a false name or a fictitious capacity, by the abuse of a genuine capacity, or by means of unlawful manoeuvres, thereby to lead such a person, to his prejudice or to the prejudice of a third party, to transfer funds, valuables or any property, to provide a service or to consent to an act incurring or discharging an obligation.

Fraudulent obtaining is punished by five years’ imprisonment and a fine of €375,000.

ARTICLE 313-3

Attempt to commit the offences set out under this section of the present code is subject to the same penalties.

The provisions of article 311-12 are applicable to the misdemeanour of fraudulent obtaining.

ARTICLE 313-7

(Act no. 2001-504 of 12 June 2001 Article 21 Official Journal of 13 June 2001)

(Act no. 2003-239 of 18 March 2003 Art. 57 2° Official Journal of 19 March 2003)

Natural persons convicted of any of the offences provided for under articles 313-1, 313-2, 313-6 and 313-6-1 also incur the following additional penalties:

1° forfeiture of civic, civil and family rights, pursuant to the conditions set out under article 131-26;

2° prohibition, pursuant to the conditions set out under article 131-27, to hold public office or to undertake the social or professional activity in the course of which or on the occasion of the performance of which the offence was committed, for a maximum period of five years;

3° closure, for a maximum period of five years, of the business premises or of one or more of the premises of the enterprise used to carry out the criminal behaviour;

4° confiscation of the thing which was used or was intended for use in the commission of the offence or of the thing which is the product of it, with the exception of articles subject to restitution;

5° area banishment pursuant to the conditions set out under article 131-31;

6° prohibition to draw cheques, except those allowing the withdrawal of funds by the drawer from the drawee or certified cheques, for a maximum period of five years;

7° public display or dissemination of the decision in accordance with the conditions set out under article 131-35.

ARTICLE 313-8

(Act no. 2003-239 of 18 March 2003 Art. 57 3° Official Journal of 19 March 2003)

Natural persons convicted of any of the misdemeanours referred to under articles 313-1, 313-2, 313-6 and 313-6-1 also incur disqualification from public tenders for a maximum period of five years.”

As far as I know the scale of this case makes it one of the largest fraud cases in France. As with the FX lending the fact that the alleged fraud was carried out in more than one country by non-domestic banks helps shelter the severity and the large amounts at stake.

Again, I can not stress strongly enough that I find it difficult to understand the stance taken by the Luxembourg authorities. After all, Landsbanki has been under investigation in Iceland, where managers have been charged i.a. for market manipulation. – Without the diligent attention by a group of Landsbanki Luxembourg borrowers this case would never have been brought to court. Sadly, it also shows that consumer protection does not work well at the European level.

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Written by Sigrún Davídsdóttir

September 28th, 2015 at 7:47 pm

Posted in Uncategorised

French charges against Landsbanki Luxembourg managers re equity release schemes

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Icelog has followed the sad case of Landsbanki Luxembourg equity release loans for some years now. Those who took these loans in the years up to the collapse of the bank in October 2008 have for years been fighting for an investigation into these loans – in terms of the soundness of the original scheme, Landsbanki’s handling of the investments that were supposed to finance the loans, Landsbanki’s alleged breach of investing terms by investing in Landsbanki and Kaupthing bonds and then the whole handling of the bank’s administrator Yvette Hamilius.

After investigating these claims the French investigative judge van Ruymbeke opened an investigation. Following his investigation chairman of Landsbanki board Björgólfur Guðmundsson, Landsbanki Luxembourg manager Gunnar Thoroddssen, seven employees of the Luxembourg bank and the estate of Landsbanki Luxembourg, represented by Hamilius have now been charged with fraud and various other offenses.

Many other banks have settled equity release loans out of Luxembourg but not Landsbanki. This case is yet another example of the lax client protection there is in Europe when it comes to banking – another is FX loans, which I wrote about in my last blog (also on Fistful of Euros).

It takes long time to handle complaints; to begin with the authorities tend to shrug off any allegation of a bank’s mishandling, even now after so many cases of banks’  rather inglorious and harmful behaviour. What is so galling about the Landsbanki Luxembourg case is that most of the clients were elderly and/or retired people. For those who have been struggling to find clear answers regarding those loans the last step in France is a step in the right direction.

*See here for some earlier Icelogs on the investigation and the Landsbanki Luxembourg saga.

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Written by Sigrún Davídsdóttir

January 26th, 2015 at 4:47 pm

Posted in Iceland

Why isn’t there a joint Luxembourg, French and Spanish investigation into the alleged mis-selling of equity release schemes?

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The equity release scheme sold in France and Spain are sold by banks operating in Luxembourg. The banks in question are Danske Bank, Nordea, Rotschild Bank and, until 2008, Landsbanki. Clients of these banks have raised some serious questions regarding the legality of these loans – i.a. if these banks were at all allowed to sell these products in countries where they did not properly operate, how these banks informed their clients, if the banks did possibly promise far beyond what the schemes could sustain. And there are questions regarding the agents who sold the loans.

There now seems to be a good reason for Luxembourg, together with authorities in Spain and France to take action, to investigate all these schemes and to give these clients clear answers.

These clients have had no help from any authority. They have had to hire lawyers themselves to fight their corner. It is grotesque that in spite of all the talk EU directives on consumer protection turn out to give… errr, no protection at all to these clients.

The Landsbanki clients then have the additional problem of the bank’s bankruptcy and the lack of information from the administrator. Since the Landsbanki Luxembourg estate in reality only has two creditors – the Central Bank of Luxembourg and the estate of the Landsbanki Iceland – it raises the question why these two creditors do not seem to pay any attention to the complaints made loud and clear by the Landsbanki equity release clients.

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Written by Sigrún Davídsdóttir

December 2nd, 2012 at 10:46 pm

Posted in Iceland

More on equity release schemes

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Equity release schemes have been causing trouble and tragedies for decades. The UK had its share of this ca two decades ago but stronger regulation put an end to the abuse of these products by its sellers. Scandinavian banks in Luxembourg have been selling the same products in Spain, causing similar harm to clients as Landsbanki caused (except the Landsbanki harm was compounded because of the how the administrator of Landsbanki Luxembourg has chosen to operate.)

Equity Release Scheme Association, Erva, is an association that aims at bringing the nature of these loans to the attention of pensioners who might be tempted by “free” cash offers, where an investment then pays off the loan. Working with the Spanish lawyer Antonio Flores they have successfully stood up for their rights against banks selling these loans. Erva members have filed claims against both Nordea and Rotschild Bank ia for mis-selling equity release loans. It will be interesting to see if actions agains these two banks and Landsbanki will put an end to these type of loan offers.

Luxembourg, as other EU countries, is obliged to follow EU directives on customer protection. The question is how diligently it’s been implemented and adhered to.

“How stupid we were!” said one Landsbanki client at the press meeting in Luxembourg. The sad thing is that banks talk people into it, by promises that don’t add up. Elderly people, often facing bad health and worries about pension have proven to be an easy pray.

The press in Belgium and Luxembourg reported on the Landsbanki action and no doubt the case will be followed with interest by the media, the authorities – and the banking sector.

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Written by Sigrún Davídsdóttir

December 1st, 2012 at 12:49 pm

Posted in Iceland

Complaints against Landsbanki Luxembourg – and the Duchy’s sordid secrets

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Twelve clients of Landsbanki Luxembourg have placed a complaint in a French court against the bank, now in administration, and its administrator Yvette Hamilius.

This is the culmination of a struggle over many years where a group of Landsbanki Luxembourg’s clients, who took out equity release loans with the banks, have been claiming that in spite of overwhelming evidence, i.a. criminal charges in Iceland, about the bank’s operations Hamilius has done nothing to investigate these matters. In addition, the clients claim she has harassed and intimidated them.

Further, not only has she taken no notice of charges brought in France last September by Justice Renaud van Ruymbeke against the bank, its directors and employees but has indeed chosen to discredit them publicly in Luxembourg media. As reported in the Luxembourg paper PaperJam, the complaints against Hamilius also concern money laundering since the charges in the van Ruymbeke case refer to fraud.

The saga of Landsbanki Luxembourg, its equity release loans, its other operations, the behaviour of the bank’s administrator and the unwillingness of the Luxembourg financial regulator, Commission de Surveillance du Secteur Financier, CSSF, to investigate both the bank’s operations and then the administrators  is a long and sad saga, which has often been brought up on Icelog (see earlier blogs here).

It can’t be said often enough – and I say it yet again – that it is impossible to understand the operations of the Icelandic banks without scrutinising their Luxembourg operations. Given the fact that managers and employees of all the three largest Icelandic banks have been investigated in Iceland and in some cases sentenced to prison and given that almost without exemption Luxembourg figures in these cases it is incomprehensible that the CSSF has not taken up a single case related to these banks.

The CSSF has recently set up a new office to protect the interests of depositors and investors. This may sound like good news, given the tortuous path of the Landsbanki Luxembourg clients to having their case heard in Luxembourg; CSSF has so far been utterly unwilling to consider their case. Interestingly, it’s the magistrate ruling on the Landsbanki administration Karin Guillaume who has been chosen to fill this post. As pointed out in PaperJam Guillaume has been under a barrage of criticism from the Landsbanki clients due to her handling of their case, which somewhat undermines the no doubt good intentions of the CSSF.

In addition, there is of course now the insight via the Panama leak into the operations of other banks in Luxembourg. When will the authorities in Luxembourg acknowledge that the many stories of financial malfeasance in the Duchy are a huge and ugly stain on this pretty little state at the heart of Europe? And when will other European countries bring enough pressure on the Duchy to confront the facts of the financial sector in Luxembourg: part of it is placed exactly there full well knowing that nothing seems sordid enough to wake the CSSF up to this disgraceful reality.

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Written by Sigrún Davídsdóttir

April 14th, 2016 at 5:46 pm

Posted in Uncategorised

Landsbanki Luxembourg liquidator ignores French investigation

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As reported earlier on Icelog, the French investigative judge Renaud van Ruymbeke is conducting an investigation of Landsbanki Luxembourg activities in France regarding the bank’s equity release loans. With the investigation ongoing it was assumed that the bank’s liquidator Yvette Hamilius would suspend recovering assets by sending bailiffs to the bank’s customers in France.

This however has not been the case as the Luxembourg Paperjam reports (yet again by Véronique Pujoul who has followed this case diligently) and Icelog has heard. Lawyers for the clients are now asking if this could be seen as both harassment from the administrator and also constitute a contempt of the French Courts with an ongoing investigation where charges have been brought.

Icelog has earlier reported extensively on this saddest part of the Icelandic banking collapse saga. What is truly shocking is the utter and complete disregard Luxembourg authorities have shown the clients who have at length described their dealings with the bank and administrator, i.a. conflicting messages from the administrator on outstanding debt. Part of the scheme were investments, which the clients have questioned as they got more understanding of them as well as being kept in the dark about the administrator’s handling of the investments.

Instead, the Luxembourg state prosecutor has, without any investigation, placed himself firmly on the side of the administrator by claiming that the clients were only trying to evade paying back their loans. This behavior by a public prosecutor in a European country is utterly inconceivable.

Although investigations into the banks are ongoing in Iceland, with serious charges and severe prison sentences, Luxembourg has done nothing to investigate the Icelandic operations in Luxembourg, i.a. that of Landsbanki. Yet, the Icelandic investigations show that in many of the worst cases, such as in the so-called the al Thani case, the schemes were partly planned and carried out in the Icelandic banks in Luxembourg. In many cases, the alleged and proven criminal wrongdoings by the Icelandic banks could not have been done without their Luxembourg operations. Yet, Luxembourg ignores the banking problems in its own front yard.

 

 

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Written by Sigrún Davídsdóttir

March 20th, 2015 at 12:52 pm

Posted in Uncategorised

Investigation regarding Landsbanki in sight in Luxembourg

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By overturning an earlier court decision an appeal court in Luxembourg now seeks to establish an investigation into “money laundering, fraud and criminal conspiracy.” Benjamin Bodig, lawyer for the Landsbanki victim group, says it “opens the door to discover the truth and could lead to its victims being recognised as aggrieved customers” according to an article in Wort.

In October it will be six years since Landsbanki collapsed. The Luxembourg clients, mostly elderly foreign pensioners owning property in Spain and France, who had taken out equity release loans from Landsbanki have now for years sought to have investigated how Landsbanki handled these loans and the investment that were part of the loans and also the actions of the liquidator, Mme Hamilius.

Special prosecutor in Iceland has already charged Landsbanki managers for market manipulation and breach of fiduciary duty. These charges are still being dealt with by Icelandic courts. In France there is now an investigation into the Landsbanki practices as well. From what I have seen regarding Landsbanki operations in Luxembourg there is good reason to investigate the bank’s operation, both before and after the collapse.

The actions against Landsbanki in France and Luxembourg would not have happened if it were not for the heroic attempts by the Landsbanki victim group to have these operations investigated. Their attempts in Luxembourg were met by remarkable lack of interest on behalf of the authorities, the height of which was when Robert Biever Procureur Général d’Etat, state prosecutor, sided openly with the liquidator, echoing her view that the Landsbanki Luxembourg clients raising concerns just did not want to repay their loans, as mentioned in an earlier Icelog.

As I have written earlier this “case has shown that when it comes to unified European financial  sector it only works for banks, facilitating cross-border operations. For clients and consumer protection this sector has as many holes as a Swiss cheese. A food for thought: if cross-border operations only work for banks and not for clients they should not be allowed.

Here are some earlier Icelogs on the remarkable story of this case that authorities in Luxembourg have ignored for so long.

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Written by Sigrún Davídsdóttir

July 17th, 2014 at 9:51 am

Posted in Iceland

The long and winding road to justice for Landsbanki Luxembourg clients may go through France

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Justice Renaud van Ruymbeke has today ruled in favour of former clients of Landsbanki Luxembourg, as already reported in Le Quotidien Luxembourg and the French La Tribune. Justice van Ruymbeke had previously charged three non-Icelandic former Landsbanki employees of fraud. Now he has ruled that Landsbanki Luxembourg cannot enforce collaterals placed against the equity release loans. If this turns out to be the end of the Landsbanki Luxembourg cases against those who placed French assets as collaterals this will surely be of huge interest to those with assets in Spain, where some former LL clients have managed to halt the enforcement by going to court.

The crux of the matter is that as some other foreign banks in Luxembourg Landsbanki used its Luxembourg operation to issue equity release loans, sold to clients in France and Spain on questionable grounds, where the client is effectively both a borrower and an investor: part of the loan is paid out in a lump sum, typically 20-25%, the rest was invested by the bank.

As Icelog has already written about several times there are grave questions unanswered regarding these loans: Icelog has seen documents that show there are good reasons to doubt the soundness of the issuance of the loans and of the investments done by Landsbanki Luxembourg before it collapsed. After the collapse the administrator has, contrary to i.a. Landsbanki administrators in Iceland, apparently been unwilling to scrutinise the Landsbanki Luxembourg operations although clients have come forward with well reasoned and well motivated arguments about the loans. In addition, information has been unclear, communication poor and clients have not been acknowledged as having been both debtors and investors.

An incredible part of this long saga is the fact that the Luxembourg state prosecutor issued a press release in favour of the administrator, without having at all investigated the matter. The fact that a state prosecutor can issue such statements is a scary indication of the state of justice in this tiny country that because of its monumentally, relative to population, big financial sector has become holden to the interests of this same sector.

The Landsbanki Luxembourg clients have been fighting a heroic battle. These loans were mostly sold to elderly people and sadly some of the clients have died during these years of battling an unyielding justice system in Luxembourg where even getting a lawyer in a case, non-favourable to the state and/or the financial sector, seems to be a hindrance to seeking justice. It therefore comes as no surprise that a step towards victory for the clients has been taken not in Luxembourg but abroad, in France.

PS Here is an article on the events today, from AFP but it concentrates on just one case, that of the singer Enrico Macias.

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Written by Sigrún Davídsdóttir

March 27th, 2014 at 10:35 pm

Posted in Iceland

Landsbanki Luxembourg and its victims: two events of potential interest

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“… when it comes to unified European financial  sector it only works for banks, facilitating cross-border operations. For clients and consumer protection this sector has as many holes as a Swiss cheese. A food for thought: if cross-border operations only work for banks and not for clients they should not be allowed.”

As often mentioned earlier on Icelog a group of Landsbanki Luxembourg clients have been trying to attract the attention of Luxembourg authorities as to the nature of the bank’s operations and to the handling of the bank’s administrator of their cases. Contrary to Icelandic authorities and the Landsbanki winding-up board, busy investigating the bank in Iceland and charging/suing its managers, Luxembourg – the tiny country dwarfed by its towering financial sector – has shown no appetite for any such undertaking.

Now there are two new and very different developments which might be of interest for the Landsbanki clients, all of whom are foreigners, mostly elderly people, with properties in France and Spain. Labour MP Huw Irranca-Davies has drawn attention to the Rotschild bank, which also sold equity release products, causing default and loss of property, to a similar group of clients. And creditors in the long failed Luxembourg bank, Bank of Credit and Commerce International, BCCI also, like the Landsbanki Luxembourg clients, think that Luxembourg authorities are difficult to deal with.

MP Irranca-Davies raised the equity release issue in a House of Commons debate and had some harsh words for the Rotschilds: “… you have badly deviated from your core values, badly served your brand and reputation, badly served people who regarded themselves as your clients – not the clients of some intermediaries as they claim – and who are now facing penury after investing in products which your name, Rothschilds, your integrity, your values were used as a key selling point.”

Interestingly, conservative Treasure minister offered to raise the matter with counterparts in Spain and Guernsey. Should he do that someone should tell him not to leave out the Landsbanki Luxembourg cases since they also concern equity release loans.

One aspect of the equity release loans is that they have been sold by banks not operating in the country where the products have been sold. Rothschild, Landsbanki and several Scandinavian banks, all active in this business, sold the products to people in Spain and France, not from their operations there but from their Luxembourg operations. An interesting aspect, which has created a sort of vacuum around these operations: when the clients felt they had things to complain about Luxembourg authorities have not really listened as the products were not sold there; and authorities in France and Spain have so far not really taken the issue seriously since the banks were operating abroad.

This case has shown that when it comes to unified European financial  sector it only works for banks, facilitating cross-border operations. For clients and consumer protection this sector has as many holes as a Swiss cheese. A food for thought: if cross-border operations only work for banks and not for clients they should not be allowed.

For anyone following the world of finance for some decades BCCI is a familar name. The bank was operating – yes, in Luxembourg for two decades from the 1970s. Founded in Luxembourg in 1972 by a Pakistani financier, Agha Hasan Abedi, it eventually failed in 1991 after financial regulators in several countries feared it was badly regulated.

It took years to get the Luxembourgians to act but when they did it turned out that its operations were not only mundane lending and borrowing but money laundering and other criminal activities. One interesting aspect, in light of development in the three failed Icelandic banks is that the BCCI administrator, Deloitte, sued the bank’s auditor, Ernst & Young. The case never came to court but was settled for $175m in 1998.

All of this has turned into a long saga, which quite remarkably is still ongoing. The latest is that some of its creditors are now fighting authorities in Luxembourg, claiming it is blocking money from creditors. Though the BCCI creditors certainly with deeper pockets than the Landsbanki clients, they are no less upset and do not intend to drop their case any time soon. One of them is dr. Adil Elias, whose story has earlier been told by the WSJ.

Quite intriguingly the two gropus – the Landsbanki Luxembourg victims and the BCCI creditors – have one  thing in common: both had cases ruled on right up to Christmas in Luxembourg and in both cases those complaining lost. Maybe a coincidence – or this is the time Luxembourg courts feel is the best time to rule on “unruly” bank clients ready to take on Luxembourg authorities.

*See an earlier Icelog on this issue, with links to older coverage on Icelog.

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Written by Sigrún Davídsdóttir

January 23rd, 2014 at 4:48 pm

Posted in Iceland

Now what about Luxembourg and financial supervision?

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Three Kaupthing bankers and the bank’s second largest shareholder were recently sentenced in Iceland to 3 to 5 1/2 years in prison for market manipulation and breach of fiduciary duty. The story behind the case is a share purchase in Kaupthing in September 2008. At the time, all four now convicted – then chairman of the board Sigurður Einarsson, CEO Hreiðar Már Sigurðsson, Kaupthing Luxembourg manager Magnús Guðmundsson and investor Ólafur Ólafsson – were interviewed in the Icelandic media where they underlined the strength of Kaupthing by pointing out that a Qatari investor, al Thani, had bought 5.1% in the bank.

What they failed to mention was that al Thani was not so much risking his own money as Kaupthing money: via an intricate scheme based on a few offshore companies the funds for the share acquisition came from Kaupthing itself. And where was the master plan carried out? In Luxembourg.

Kaupthing subsidiary in Luxembourg was at the centre of the al Thani saga. That was were the idea was brought into action, money into one vehicle and out into another. It is a well known fact in Iceland that most of the banks’ most questionable deals were indeed carried out in Luxembourg. It is an intriguing thought that Luxembourg was time and again chosen at the preferred place for these deals.

In early 2011 I was in Luxembourg and had a meeting at the Luxembourg financial services authorities, Commission de Surveillance du Secteur Financier, CSSF.* I met with a few people in a meeting room. I was on one side of a huge table, four or five people on the other side. Already then it was clear that the Icelandic banks had been doing some rather “inventive” banking in Luxembourg. I presented some of the cases I knew of. On the other side of the table there were only expressionless faces and then I was told that rules and regulations were strict in Luxembourg. Nothing contrary to laws could take place in Luxembourg banks.

In the CSSF 2012 Annual Report its Director General Jean Guill writes:

During the year under review, the CSSF focused heavily on the importance of the professionalism, integrity and transparency of the financial players. It urged banks and investment firms to sign the ICMA Charter of Quality on the private portfolio management, so that clients of these institutions as well as their managers and employees realise that a Luxembourg financial professional cannot participate in doubtful matters, on behalf of its clients.  

“… cannot participate in doubtful matters…” – If only matters were that simple. Now four people have been sentenced to prison in Iceland for participating in doubtful matters that violate Icelandic laws, according to the Reykjavík District Court, but were carried out in Luxembourg, by using Luxembourg expertise and the so very favourable circumstances created in Luxembourg over decades.

A group of Landsbanki Luxembourg clients have for several years been trying to catch the attention of the Luxembourg authorities, a saga that Icelog has reported on time and again. This group had taken out equity release loans at Landsbanki. These clients have asked 1) serious questions about the dealings of Landsbanki Luxembourg before it went bankrupt – such as evaluation of property, calculations on loans breaching the collateral limit, investments related to the loans and how products were sold; 2) serious questions as to how the estate has been run, its misleading information or lack thereof, numbers that did not add up.

None of this has been addressed by the CSSF or other Luxembourg authorities so far. However, the Luxembourg paper Wort has reported that two cases related to Landsbanki Luxembourg are now being investigated, quoting minister of justice Octavie Modert.

So far, and to great cost and immeasurable emotional distress the bank’s clients – mostly elderly citizens living in France and Spain – have been left to battle on their own. In Luxembourg the State Prosecutor issued a press release in support of the Landsbanki Luxembourg administrator – unthinkable in most other European countries – thereby making it look as if the Landsbanki Luxembourg clients were trying to evade paying their debt. – Through court cases in Spain and France the group has made some advances but none of this is taken into any consideration at all in Luxembourg.

One client has shown me a set of calculations regarding one specific loan portfolio. Landsbanki Luxembourg, prior to its collapse, had claimed that this portfolio no longer covered the loan so the borrower was obliged to pay a certain amount in cash as a cover. As far as I could see, the number from the bank was wrong: the client was not in breach and should not have been obliged to pay. I could of course well be wrong. I sent this calculation to someone from Landsbanki Luxembourg with whom I had been in touch and whom I had told of this. I know for certain that this person got the calculation but I never heard back.

Only Luxembourg authorities can access documents regarding the operations of Landsbanki Luxembourg. Although the bank’s managers have been charged with criminal offenses in Iceland (case pending but due in the new year) by the Icelandic Office of the Special Prosecutor as well as being sued in a civil case by the Landsbanki Winding-up Board for misleading reporting Luxembourg authorities have not been willing to listen to well-founded claims by the Landsbanki Luxembourg clients: unanswered questions about the Landsbanki Luxembourg operations before the bank’s demise in October 2008 – as well as the administrator’s operations.

Noticeably, an administrator has the duty to investigate operations, as indeed the Landsbanki Winding-up Board has done. The administrator, Yvette Hamilius and lawyers working for her, have stated in Luxembourg media that everything the administrator has done is according to the law.

In one case that the Landsbanki Luxembourg administrator took to court, the administrator caused delays of, in total, 200(!) days. And on it goes.

The fact that the numerous authorities in Luxembourg, such as the CSSF and the State Prosecutor have either ignored pleas from clients or outrightly sided with the administrator, without any chance of the claims actually being heard or looked at, shows a horrendous lack of care for clients and a sound protection for the financial industry. And everyone can pretend that it is, as Director General Guill points out: that professionalism and transparency is such in the financial sector in Luxembourg that financial players “cannot participate in doubtful matters.”

One way to supervise financial institutions is by box-ticking: to look at each item in its narrow and isolated meaning, never look at connections or behaviour, never try to understand meaning and context. The institutions know this and prepare their material accordingly. Then there is little to fear. One reason why so little was seen and caught before 2008 was this attitude by regulators. Judging from the lack of interest in claims by Landsbanki Luxembourg clients this still seems to be the attitude among Luxembourg authorities. Authorities in Cyprus have announced that banks in Cyprus will be investigated, a little bit is being done in Ireland and the UK. When will Luxembourg follow suit? From anecdotal evidence there have been things going on in Luxembourg that merit investigations.

* See an earlier Icelog report on Luxembourg and the Icelandic banks. – Here is an earlier Icelog on Landsbanki Luxembourg.

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Written by Sigrún Davídsdóttir

December 18th, 2013 at 3:57 pm

Posted in Iceland