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Iceland the winner in the ESA case at the EFTA Court – updated

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Iceland has its Faust, Sæmundur the wise – but in the Icelandic tales of Sæmundur he beats the devil. For some reason this fairy tale comes to my mind now.

The EFTA Court has today dismissed the ESA application re Icesave. Here is the Court’s press release, highlights are mine:

Judgment in Case E-16/11 EFTA Surveillance Authority v Iceland (“Icesave”)


During a worldwide financial crisis in 2008 the Icelandic banking sector collapsed. As part of the financial crisis, the depositors of Landsbanki Íslands hf. (“Landsbanki”) at its branches in the Netherlands and the United Kingdom lost access to their deposits in the autumn of 2008. This included the so-called Icesave-on-line savings accounts. Consequently, Iceland’s Depositors’ and Investors’ Guarantee Fund should have been obliged to pay the minimum guarantee per depositor according to the rules and time limits as set out in the Icelandic law implementing Directive 94/19/EC on deposit-guarantee schemes (“the Directive”). However, no such payments were made to those depositors. The UK and Netherlands authorities arranged for a pay out of retail depositors from their own deposit-guarantee schemes. On the other hand, domestic deposits in Landsbanki had been transferred to a new bank “new Landsbanki” which was established by the Icelandic Government.

Against this background the EFTA Surveillance Authority (“ESA”) lodged an application with the EFTA Court. ESA sought a determination that Iceland had failed to comply with its obligations resulting from the Directive, in particular Articles 3, 4, 7 and 10 thereof, (first plea) and/or Article 4 EEA (second and third pleas) since it did not ensure payment of the minimum amount of compensation (EUR 20 000) to Icesave depositors in the Netherlands and the United Kingdom within the given time limits. The application was supported by the European Commission as intervener.

Written observations were submitted by the Principality of Liechtenstein, the Kingdom of the Netherlands, the Kingdom of Norway and the United Kingdom. These EEA States limited their observations to the first plea only.

In today’s judgment, the Court dismissed the application.

As regards the first plea, the Court noted at the outset that the nature of the result to be achieved is determined by the substantive provisions of the particular directive. Moreover, it noted that as a result of the crises, the regulatory framework of the financial system had been subject to revision and amendment in order to enhance financial stability. However, the present judgment had to be based on the Directive as it stood at the relevant time, without these amendments and without the improved protection of depositors.

The Court held that the Directive did not envisage the alleged obligation of result to ensure payment to depositors in the Landsbanki branches in the Netherlands and the United Kingdom in a systemic crisis of the magnitude experienced in Iceland. How to proceed in a case where the guarantee scheme was unable to cope with its payment obligations remained largely unanswered by the Directive. The only operative provision that deals with non-payment is Article 7(6) according to which depositors have the possibility to bring an action against the responsible scheme. An action against or an obligation on the EEA State in question, though, was not envisaged in the Directive’s provisions. Moreover, neither case law nor a comparison with secondary law supported the first plea.

However, it was stated that this did not mean that depositors necessarily remain unprotected in such a case. Depositors may fall within the remit of other parts of the safety net. They may benefit from other provisions of EEA law regarding financial services, as well as the activities of supervisory bodies, central banks, or governments. The question in the present case, however, was whether the EEA States are legally responsible under the Directive in case of such an enormous event.

Concerning the second plea, it was held that the principle of non-discrimination requires that there is no difference in treatment of depositors by the guarantee scheme itself and the way in which it uses its funds. Insofar, discrimination under the Directive is prohibited. However, the transfer of domestic deposits from the old Landsbanki into the new Landsbanki was made before the Icelandic Financial Supervisory Authority, Fjármálaeftirlitið, rendered its declaration that triggered the application of the Directive. Thus, depositor protection under the Directive never applied to depositors in Icelandic branches of Landsbanki. Accordingly, the transfer of domestic deposits – whether it leads in general to unequal treatment or not – did not fall within the scope of the non-discrimination principle as stipulated by the Directive and could not lead to an infringement of the aforementioned provisions of the Directive read in light of Article 4 EEA. Consequently, the second plea was dismissed.

As regards the third plea, the Court noted that it is settled case law that the principle of non- discrimination, which has its basis in Article 4 EEA, requires that comparable situations must not be treated differently and that different situations must not be treated in the same way. Moreover, it was held that ESA had expressly limited the scope of its application. In ESA’s view the breach had been constituted by the failure of the Icelandic Government to ensure that Icesave depositors in the Netherlands and the United Kingdom received payment of the minimum amount of compensation provided for in the Directive within the time limits laid down in the Directive, as it did for domestic depositors. ESA added that the compensation of domestic and foreign depositors above and beyond that minimum amount is not to be discussed in the context of the present proceedings.

Thus, considering ESA’s self-limitation, the Court was bound to assess whether Iceland was under a specific obligation to ensure that payments were made to Icesave depositors in the Netherlands and the United Kingdom. However, since the Court had already held that the Directive, even read in light of Article 4 EEA, imposes no obligation on the defendant to ensure that payments are made in accordance with the requirements of the Directive to Icesave depositors in the Netherlands and the United Kingdom, it was found that such an obligation of result could only be deemed to exist if it followed directly from Article 4 EEA itself. The Court held that this is not required under the principle of non-discrimination. A specific obligation upon the defendant that would not even establish equal treatment between domestic depositors and those depositors in Landsbanki’s branches in other EEA States could not be derived from that principle. Consequently, the third plea, and the application as a whole was dismissed.

This is how I understand the judgement:

Re the first part, breach of the Directive, it is interesting that the Court sides with Iceland that circumstances were extraordinary and could not pose the obligation on Iceland since the Directive only referred to failure of single banks, not the major part of the financial system.

Re discrimination, the course of events in Iceland was such that the Court decides there was no discrimination involved.

Further, re discrimination in a wider context, there can be no discrimination since there was no breach of the directive.

The judgement in full is here.


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Written by Sigrún Davídsdóttir

January 28th, 2013 at 11:25 am

Posted in Iceland

Waiting for the EFTA Court judgement on Icesave – the essentials

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On Monday January 28, at 11.30am, the EFTA Court will deliver its judgement in the Icesave case brought by the EFTA Surveillance Authority, ESA, against Iceland.

The ESA summary of its case against Iceland is:

The EFTA Surveillance Authority submits that by failing to ensure payment of the minimum amount of compensation to Icesave depositors in the Netherlands and in the United Kingdom within the time limits laid down in Directive 94/19/EC, Iceland has failed to comply with its obligations arising under Articles 3(1), 4(1), 7(1) and 10(1) of Directive 94/19/EC. Additionally or in the alternative, the EFTA Surveillance Authority submits that Iceland has breached the prohibition on discrimination on grounds of nationality under Article 4 EEA. 

Here are some of the key issues to bear in mind once the judgement has been read: 

1 EFTA Court judgements are only yes/no rulings – a yes / no as to X having failed/not failed to comply with certain EU directives / European Economic Area Agreement.

2 The Court does not meet out sanctions, only answers “yes” or “no” as mentioned above. Consequently, the fact that no sanctions will be mentioned in the judgement can’t be seen as a partial victory for those the Court finds against.

3 A judgement from the EFTA Court is a proper judgement, not only “advisory” – and there is no instance of appeal. This is the final instance in deciding a failure or not when it comes to an EU/EEA directive/agreement. (According to a Sky report the president of Iceland Olafur Ragnar Grimsson has stated that the judgement is only “advisory.” That is not correct.*)

4 In cases where ESA is the applicant ESA is also a guardian of the judgement in the sense that ESA will keep an eye on if the judgement is fulfilled or not. – However, it is not necessarily crystal clear right away, from the judgement, what action needs to be taken.

5 In one case ESA has brought a country twice to the EFTA Court for the same reason. This happened in a case against Norway, related to public service pension payment, which ESA deemed to fail to comply with a EU directive on gender equality.

Three years after the original judgment ESA concluded that Norway, having had ample time, had fail to make the necessary changes to comply with the directive. Although Norway had started taking action ESA waited no longer and brought another case:

,,More than three years after the EFTA Court required Norway to recalculate the survivor pension of approximately 4000 pensioners, less than half of them has received the payment they are entitled to. The EFTA Surveillance Authority has therefore brought Norway to the EFTA Court for not complying with the judgment.

This is the first time that the Authority has had to take an EFTA State to the EFTA Court for failure to comply with a Court judgment.” – Full text here.

The interesting parallel here is that Norway was supposed to fulfil the judgement by a financial compensation, ie paying 4000 pensioners an extra sum – but yes, three years later they hadn’t yet done so. This case is still in the consultative process, not yet at the Court.

6 The only authority with constitutional rights to speak on behalf of Iceland is the Icelandic Government. Anyone else, ia the president of Iceland, can of course have his or her opinion but these opinions carry no authority as to what action Iceland will take on the issue, but are, in this context, purely personal opinions.

7 In case the judgement goes against Iceland (on one or both issues), the Dutch and the British Governments will most likely wait until after the Icelandic election to take Icesave again up with the Icelandic Government.

8 The Icesave case – if and how the British and Dutch demands for Iceland reimbursing the European minimum guarantee for Icesave depositors in respective countries – was a bone of contention in Iceland for several years following the collapse of the Icelandic banks in October 2008. From those opposing an agreement, it seemed as if the financial future of Iceland could only be assured by not paying.

It is interesting to note that although Iceland did not save its three largest banks, financial bailouts of smaller institutions have indeed not come cheap, probably costing Iceland 20-25% of its GDP and still counting. (Comparable cost in Ireland is 40%, in the UK 5%). This cost has hardly been mentioned at all in Iceland and has only recently become clear.

An ESA overview of all relevant actions re its case is here.

*When a national court seeks the opinion of the EFTA Court, a so called Note for Guidance, this opinion is for guidance only. An EFTA Court judgement is, like a High Court ruling, not only advisory. As is stated in the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice  (ESA/Court Agreement) (main part), article 33: “The EFTA States concerned shall take the necessary measures to comply with the judgments of the EFTA Court.” In other words, an EFTA State has to comply with the judgements of the EFTA Court.

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Written by Sigrún Davídsdóttir

January 26th, 2013 at 10:34 pm

Posted in Iceland

Icesave: the EFTA Court Icesave judgement decision January 28

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The long-awaited judgement in the Icesave case, the action brought by the EFTA Surveillance Authority against Iceland, is due at 11.30 on January 28 in Luxembourg where the EFTA Court resides.

The thrust of the case is:

The EFTA Surveillance Authority submits that by failing to ensure payment of the minimum amount of compensation to Icesave depositors in the Netherlands and in the United Kingdom within the time limits laid down in Directive 94/19/EC, Iceland has failed to comply with its obligations arising under Articles 3(1), 4(1), 7(1) and 10(1) of Directive 94/19/EC. Additionally or in the alternative, the EFTA Surveillance Authority submits that Iceland has breached the prohibition on discrimination on grounds of nationality under Article 4 EEA. 

Much has been said and written and about this dispute and it is excellent that ESA took action so as to clarify the issues at stake. In addition, a clarification of a state’s obligation regarding the deposit guarantee scheme is of European and general interest.

Here is a link to earlier Icelogs on Icesave.

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Written by Sigrún Davídsdóttir

January 4th, 2013 at 2:58 pm

Posted in Iceland

Tim Ward QC in the Icesave case at the EFTA Court

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Tim Ward QC in London has been selected to act on behalf of Iceland in the pending Icesave case at the EFTA Court. He will work with an Icelandic team, under the auspice of the Ministry of Foreign Affairs.

Ward has a tough case ahead of him, also in explaining to his Icelandic colleagues, and later to the nation, the course and nature of this case. Objectively seen, ESA has a strong case and Iceland’s possibilities of winning the case seem limited. Remains to be seen.

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Written by Sigrún Davídsdóttir

January 11th, 2012 at 10:06 am

Posted in Iceland

ESA takes Iceland to the EFTA court

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Some things happen slowly and this is one of them: after a long process the EFTA Surveillance Authority is taking Iceland to the EFTA Court for breaching European rules regarding the depositor guarantee scheme. This is what the press release says (and further information under this link):

“The EFTA Surveillance Authority has today decided to take Iceland to the EFTA Court over its breach of the Deposit Guarantee Directive[1].

According to the Directive, Iceland was obliged to ensure payment of a minimum compensation of  EUR 20.000 per depositor after Landsbanki and its Dutch and British branches, called Icesave, collapsed in October 2008. More than three years after the bankruptcy of the bank, Iceland has still not complied with its obligation.

The Deposit Guarantee Directive seeks to enhance consumer/depositor confidence in the banking system in the event of banks going bankrupt. The banking system depends on trust and consumer confidence and the Directive is a key instrument in that respect.

In May 2010, the Authority issued a letter of formal notice to Iceland, giving the Government the possibility to justify its position. After carefully examining Iceland’s reply in May 2011, the Authority issued a reasoned opinion on 10 June 2011. The purpose of this reasoned opinion was to give Iceland a final possibility to comply with the Directive.

Iceland has now replied to that reasoned opinion, but remains in breach.

“The Authority’s position is unchanged. Iceland must comply with its obligations under the EEA Agreement. It must ensure compensation of all depositors under the conditions prescribed by the Deposit Guarantee Directive and without discrimination,” reiterates Mrs Oda Helen Sletnes, president of the EFTA Surveillance Authority.

The Authority notes that the bankruptcy estate of Landsbanki has started to pay out the claims of depositors. However, according to the information provided by Iceland, those claims will not be paid in full before the end of 2013.

“One of the main purposes of the Directive is to avoid depositors having to have recourse to bankruptcy procedures. More than three years after the deposits became unavailable, the claims have still not fully been reimbursed. This only serves to underline the importance of compliance with the Deposit Guarantee Directive,” says Mrs Sletnes.

The case will now be brought before the EFTA Court. Iceland will have the opportunity to present its position.  If the EFTA Court finds that there is a breach, Iceland will be required to take immediate actions to comply with that judgment.”

For those interested, Icelog has written on ESA and Icesave a number of times. Here is a collection of earlier logs on this subject.

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Written by Sigrún Davídsdóttir

December 14th, 2011 at 10:18 am

Posted in Iceland

Icesave, en route to the EFTA Court?

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On September 30, the Icelandic Government answered the EFTA Surveillance Authority, ESA, reasoned opinion concerning alleged failure of Iceland to comply with Directive on deposit guarantee schemes and/or an article in the EEA agreement on non-discrimination.

Yet again, the Icelandic answer seems to consist of matters irrelevant to the ESA opinion, such as the state of the Landsbanki estate and its pay-out schedule. Regarding the deposit guarantee the answer reiterates earlier points, going against the ESA understanding of  ‘obligation of results’ and denying that foreigners were left worse off than Icelanders.

The Icelandic government denies that a declaration of will, issued by the Icelandic and the Dutch Government October 8 2008, indicates an acceptance on behalf of Iceland of the EU deposit guarantee. Iceland also points out new aspects of the deposit guarantee put forward in a draft of a new EU deposit guarantee.

It is now up to ESA to ponder its next step. It could either accept the Icelandic arguments – which is, to say the very least, extraordinarily unlikely – or it will send the case to the EFTA Court, which is nigh certain.

The only thing that could possibly hinder a court case is if the Brits and the Dutch – satisfied that the Icelandic Deposit Guarantee Fund, with its priority claim in the Landsbanki estate, will soon start paying back its debt to the two countries – would drop their claims. That’s however not entirely plausible since the two countries aren’t only seeking a refund of the deposits but some interests on their pay-out.

Landsbanki is still hampered by ongoing law-suits and its pay-out schedule is consequently unclear. Ergo, it’s unclear when exactly the two countries can expect to recover the money they paid to their Icesave depositors. Landsbanki recovery will, according to the latest estimates, cover priority claims and possibly interests of the UK and Dutch payout. Bondholders will more or less be left with nothing, which might lead to further court cases as bondholders seek to cover their damages.

In an interview with Ruv, Lee Buchheit who led the third and last Icesave negotiations recently pointed out that in its answer to ESA Iceland should have underlined that all depositors had indeed been paid out and that it didn’t really matter who had paid them. The main thing was that no depositor was left unpaid. Further, Iceland should have made the case to ESA that the Icesave dispute was now solely a matter for the three countries to resolve and had nothing to do with ESA any longer.

In its first answer to ESA the Icelandic Government failed to make this point except in a footnote.

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Written by Sigrún Davídsdóttir

October 11th, 2011 at 10:44 pm

Posted in Iceland

Offshore króna owners allowed to seek independent estimates – inflows have stopped

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An application with the Reykjavík District Court for independent assessment of the Icelandic economy, launched by  two of the funds holding the majority of the Icelandic offshore króna, has been met by the Court. Originally, the funds had eleven requests; the Court granted three of them according the Icelandic daily DV.

The two funds claim the measures taken against the offshore króna holders this summer – effectively forcing them out at a great discount or freezing the funds at below-inflation interest rates – are harmful measures, utterly unnecessary in the booming Icelandic economy. They now want an independent assessment of the economy, in order to show that the Icelandic government could well afford more generous terms.

According to a recent decision by the EFTA Surveillance Authority the offhore króna measures were within the remit of the Icelandic government and did not break any EEA rules.

The measures no doubt had a sobering effect on foreign visitors but it the use of a new tool to temper inflows, announced in June this year that has had an effect: according to new figures released by the Central Bank, inflows into Icelandic sovereign bonds have completely stopped since June when the measures were put in place.

There had been some concern that the large inflows might jeopardise Icelandic financial stability as indeed it did in 2008 when capital controls were put in place exactly because of these inflows. Governor of Central Bank Már Guðmundsson said earlier this year that the renewed inflows, which the Bank would monitor, were a sign of trust in the Icelandic economy. Well, no worries – the measures in June stopped the inflows.

For earlier Icelog on the offshore króna issues please search the website.

Update: this piece has been updated as the earlier report re the effect on inflows was incorrect.

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Written by Sigrún Davídsdóttir

December 7th, 2016 at 1:03 pm

Posted in Uncategorised

ESA finds Iceland in compliance re offshore króna measures

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The EFTA Surveillance Authority, ESA, has now closed two complaints re treatment of offshore króna assets by Icelandic authority: ESA finds the Icelandic laws in compliance with the EEA Agreement (see ESA press release here, the full decision here). The disputed laws were part of measures taken in order to remove capital controls in Iceland.

I have earlier written extensively about the offshore króna issue, also the rather bizarre action taken by the so-called Iceland Watch against the Central Bank of Iceland, which rubbed Icelanders, even those sympathetic to the point of view taken by the offshore króna holders, completely the wrong way. The sound points, which can be made by the offshore króna holders, were missed or ignored and instead the Iceland Watch action was shrill and shallow, based on spurious facts.

In general EEA states are permitted, under the EEA Agreement, to take protective measures when a states is experiencing difficulties as regards its balance of payments. As spelled out in the press release the states, in such situations, “are allowed to implement a national economic and monetary policy aimed at overcoming economic difficulties, as long as the criteria for these protective measures are met.”

As Frank J. Büchel, the ESA College member responsible for financial markets sums it up: “Iceland’s treatment of offshore króna assets is a protective measure within the meaning of the EEA Agreement. The overall objective of the Icelandic law is to create a foundation for unrestricted cross-border trade with Icelandic krónur, which will eventually allow Iceland to again participate fully in the free movement of capital.”

The funds in question, Eaton Vance and Autonomy, are testing their case in an Icelandic court.

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Written by Sigrún Davídsdóttir

November 23rd, 2016 at 11:47 am

Posted in Uncategorised

Further to the Iceland Watch campaign

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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 VanceAutonomy 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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Written by Sigrún Davídsdóttir

October 28th, 2016 at 5:19 pm

Posted in Uncategorised

A weird ad in bad Icelandic against the Central Bank of Iceland

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The libertarian Iceland Watch has posted quite a remarkable ad in Icelandic media insinuating serious corruption by a named individual at the Central Bank of Iceland with a large photo of the governor of the Central Bank Már Guðmundsson. If the four largest offshore króna holders, on whose behalf Iceland Watch seems to be campaigning, think they are winning friends in Iceland with these serious and unfounded insinuations, they should think again: the few who seem to notice it ridicule it or find it hugely upsetting.

Iceland Watch, earlier fighting Obama care and now fighting for the cause of the offshore króna holders that feel they have been wronged by the Icelandic government and the Central Bank of Iceland, CBI, has topped its earlier ads. It is now directly addressing Icelandic voters, claiming they are losing out due to the bad policies and corruption at the CBI. Whereas earlier ad was placed in media in Iceland, Denmark and the US, the latest one has, as far as I can see, only been posted in Iceland.

The four funds holding offshore króna are Eaton VanceAutonomy Capital,  Loomis Sayles and Discovery Capital Management.

So what is the Iceland Watch message, accompanied by a photo of CBI governor Már Guðmundsson, to Icelandic voters?


“Who is paying for public corruption and discriminating rules in Iceland? You do!

The decision taken by the Central Bank of Iceland to discriminate between investors so that only those of domestic origin can invest there has been criticised internationally.

According to a new study done by a research team in Britain the discriminatory policy of the Icelandic capital control hinders the creation of  30.000 new jobs and costs the nation between and US dollars in GDP annually.

This costs each Icelandic citizen between 15.000 and 27.000 US dollars annually.

We have now discovered that Sturla Pálsson, a highly placed individual at the Central Bank of Iceland, is being investigated in-house for alleged insider information.

The investigation of Sturla Pálsson should focus on answering some key questions: Did Sturla Pálsson use his knowledge of the recently announced legislation on capital control that discriminate foreign investors in carrying out insider trading?

Sturla Pálsson answers directly to governor Már Guðmundsson and is believed to have had access to all this information.

Media in Iceland should be asking these questions.

Capital controls and booming economy

Corruption is not an unknown theme in Icelandic politics but it will come as a surprise to most Icelanders that Icelandic officials are acting in a corrupt way to punish the four foreign funds holding offshore króna. We should keep in mind that the International Monetary Fund has followed and scrutinised policies in Iceland since October 2008.

The policy that’s such a thorn in the side of the four funds that they are willing to go to these lengths in advertising their pain internationally has also been passed with full acceptance of the IMF. Yes, the IMF isn’t infallible and perhaps the EFTA Surveillance Agency will indeed find Iceland at fault. But to think that the measures in summer came about because of corruption in Iceland seems pretty far-fetched. Shouting it from the roof tops won’t add to the arguments the funds have presented with the ESA and possibly in courts.

Saying that only domestic investors can invest in Iceland isn’t correct. This does no doubt refer to measures re offshore króna holders but it’s not a correct presentation.

Why doesn’t the Iceland Watch quote the UK research? As far as I know it comes from the Legatum Institute, connected to the Dubai-based Legatum Group established in 2006 by Christopher Chandler. The Legatum Institute recently had a discussion on Iceland and capital controls and has also published research of capital controls and anti-competitive policies. What is wholly missing is how the easing of capital controls has been done; it only focuses on the perceived harm caused by the most recent measures that has so upset the four funds.

Eh, creating 30.000 jobs in an economy with close to full employment in a country of 332.000 that needs to import people to fill jobs? And let’s put the figures in context: $5bn to $9bn amounts to 25-40% of Icelandic GDP. Is it credible that these latest measures hurting the four funds are really costing the Icelandic economy these sums annually? Intelligent readers can figure out the answers on their own.

If Iceland Watch intended to clarify to Icelanders the enormous losses they are suffering it would have helped to publish these losses in Icelandic króna, not in US dollars.

Serious allegation against a CBI official

It will be news to Icelanders that the CBI is investigating Sturla Pálsson for using his knowledge of the recent measures for his own gain via insider trading. Again, this is a statement with no verification. Given that the Icelandic media mostly ignores the ad and the reaction in Iceland is not to take this seriously at all it’s not certain that the CBI will see any reason to answer.

Pálsson has however recently been named in the Icelandic media related to breach of trust over the weekend October 4 to 5 2008: he told his wife, who was at the time the legal council at the Icelandic Banking Association (and is in addition closely related to Bjarni Benediktsson leader of the Independence Party and minister of finance) of the imminent Emergency Act. – The Iceland Watch allegation could possibly be a misunderstood echo of this recent reporting in the Icelandic media or indeed a new and much more serious allegation, unknown in Iceland.

Regardless of the basis for the allegation against Pálsson the question as it is put is ambivalent: Did Sturla Pálsson use his knowledge of the recently announced legislation on capital control that discriminate foreign investors in carrying out insider trading? – I guess this is insinuating Pálsson used his information to carry out insider trading but the sentence is so muddled that this isn’t clear at all. (The Iceland Watch text is: “Did Palsson use his position of knowledge about the recently announced capital controls legislation which discriminates against foreign investors to make insider trades?”)

Losing friends and influence… in Iceland

I’ve earlier expressed surprise that the funds think they are gaining friends and influence in Iceland through their alliance with Iceland Watch. This latest ad, apparently only directed at Icelanders, indicates a profound lack of understanding of the country they are trying to influence (tough I can’t imagine this approach will indeed work anywhere).

The photo of the ad above is my screenshot of a post on Facebook by minister of foreign affairs Lilja D. Alfreðsdóttir. Her comment to the ad is: “This attack on Icelandic interests is intolerable and what’s the aim of those behind it?” There are only few comments to the ad but some mention that this will hardly help the cause of those sponsoring it.

The ad is now also on the Iceland Watch website in English. The translation above is my translation as it gives some sense of what it looks like in Icelandic. The story is that this remarkable ad addressed to Icelandic voters is written in a version of Icelandic that resembles a Google translate text. Given that Icelanders are often quite pedantic about their language this will hardly induce Icelanders to take the ad seriously. Or as it says in one comment on Alfreðsdóttir’s Facebook page the ad is “a crime against the Icelandic language” – and that’s a serious offence in Iceland.

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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Written by Sigrún Davídsdóttir

October 28th, 2016 at 12:09 am

Posted in Uncategorised