Sigrún Davíðsdóttir's Icelog

People, mostly pensioners, who previously took out equity release loans with Landsbanki Luxembourg, have for a decade been demanding that Luxembourg authorities look into alleged irregularities, first with the bank’s administration of the loans, then how the liquidator dealt with their loans after Landsbanki failed. The Duchy’s regulator, CSSF, has staunchly refused to consider this case. Yet, following criminal investigations in Iceland into the Icelandic banks, where around thirty people have been found guilty and imprisoned over the years, no investigation has been opened in Luxembourg into the Duchy operations of the Icelandic banks so far. Criminal investigation in France against the Landsbanki chairman at the time and some employees ended in January this year: all were acquitted. Recently, investors in a failed Luxembourg investment fund claimed the CSSF’s only interest is defending the Duchy’s status as a financial centre.

Out of many worrying aspects of the rule of law in Luxembourg that the Landsbanki Luxembourg case has exposed, the most outrageous one is still the intervention in 2012 of the State Prosecutor of Luxembourg, Robert Biever. At the time, a group of the bank’s clients, who had taken out equity release loans with Landsbanki Luxembourg, were taking action against the bank’s liquidator Yvette Hamilius. Then, out of the blue, Biever, who neither at the time nor later, had investigated the case, issued a press release. Siding with Hamilius, Biever stated that a small group of the Landsbanki clients, trying to avoid paying back their loans, were resisting to settle with the bank.

Criminal proceedings in Iceland against managers and shareholders of the Icelandic banks, where around 30 people have been found guilty, show that many of the dirty deals were carried out in Luxembourg. Since prosecutors in Iceland have obtained documents in Luxembourg in these cases, all of this is well known to Luxembourg authorities. Yet, neither the regulator, Commission de Surveillance du Secteur Financier, CSSF, nor other authorities have apparently seen any ground for investigations, with one exception. A case related to Kaupthing has been investigated but, so far, nothing has come out of that investigation (here more on that case, an interesting saga in itself).

However, it now seems that not only the Landsbanki Luxembourg clients have their doubts about on whose side the CSSF really is. Investors in a Luxembourg-registered fund claim they were defrauded but that the CSSF has been wholly unwilling to investigate their claims. Their conclusion: the CSSF’s only mission is to promote Luxembourg as a financial centre, which undermines “its responsibility to protect investors.”

That would certainly chime with the experience of the Landsbanki clients. Further, the fact that Luxembourg is a very small country, which greatly relies on its financial sector, might also explain why the Landsbanki Luxembourg clients have found it so difficult even to find lawyers in Luxembourg, willing to take on their case.

A slow realisation – information did not add up

It took a while before borrowers of equity release loans from Landsbanki Luxembourg started to suspect something was amiss. The messages from the bank in the first months after the liquidators took over, in October 2008, were that there was nothing to worry about. However, it quickly materialised that there was indeed a lot to worry about: the investments, which had been made as part of the loans, seemed to have been wiped out; what was left was the loan, which had to be paid off.

In addition, there were conflicting information as to the status of the loans, the amounts that had been paid out and the status on the borrowers’ bank accounts. The borrowers, mostly elderly pensioners in France and Spain, many of them foreigners, took out loans with Landsbanki Luxembourg, with their properties in these two countries as collaterals. To begin with, they were to begin with dealing with this situation alone, trying to figure out on their own what was going on. It took the borrowers some years until they had found each other and had founded an action group, Landsbanki Victims Action Group.

Landsbanki clients in Spain are part of an action group in Spain against equity release loans, The Equity Release Victims Association, Erva. The Landsbanki clients have taken the Landsbanki estate to court in Spain in order to annul the administrator’s recovery actions there. Lately, the clients have been winning but given that cases can be appealed it might take a while to bring these cases to a closure. The administrator’s attempt to repatriate Spanish court cases against the bank to Luxembourg have, so far, apparently not been successful.

Criminal case in France, civil cases in France and Spain

Finding a lawyer, both for the group and the single individuals who took action on their own, proved very difficult: it has taken a lot of time and effort and been an ongoing problem.

By January 2012, a French judge, Renaud van Ruymbeke, had opened an investigation into the loans in France. The French prosecutor lost the case in the Criminal Court of First Instance in Paris in August 2017; on 31 January 2020, the Paris Appeal Court upheld the earlier ruling, acquitting Landsbanki Luxembourg S.A., in liquidation and some of its managers and employees at the time. The case regarded the operations before the bank’s collapse, the administrator was not prosecuted. The Public Prosecutor as well as the borrowers, in a parallel civil case, have now challenged the Paris Appeal Court decision with a submission to the Cour de cassation.

While this case is still ongoing, the administrator’s recovery actions in France were understood to be on hold. According to Icelog sources, that has not entirely been the case.

Landsbanki Luxembourg: opacity before its demise in October 2008

The main issues with the bank’s marketing and administration of the loans has earlier been dealt with in detail on Icelog but here is a short overview:

As Hamilius mentioned in an interview in May 2012 with the Luxembourg newspaper Paperjam, the loans were sold through agents in Spain and France. After all, the whole operation of the equity release loans depended on agents; Landsbanki Luxembourg was operating in Luxembourg, not in France and Spain.

The use of agents has an interesting parallel in how foreign currency loans, FX loans, have been sold in Europe (see Icelog on FX loans and agents). In the case of FX loans, the Austrian Central Bank deemed that one reason for the unhealthy spread of these risky loans was exactly because they were sold through agents. Agents had great incentives to sell the loans and that the loans were as high as possible but no incentive to warn the clients against the risk. Interestingly, the sale of financial products through agents has been found illegal in some European cases regarding FX loans.*

Other questions relate to how the equity release loans were marketed, i.e. the information given, that the bank classified the borrowers as professional investors, which greatly diminished the bank’s responsibility in informing the clients and also what sort of investments they would choose for the investment part of the loan. Life insurance was a frequent part of the package, another familiar feature in FX loans.

Again, given rulings by the European Court of Justice on FX loans, it seems incomprehensible that the same conditions should not apply to equity release loans as FX loans. After all, there are exactly the same issues at stake, i.e. how the loans were sold, how borrowers were informed and classified (as professional investors though they clearly were not).

How appropriate the investments were for these types of loans and clients is an other pertinent question in this saga. After the collapse of Landsbanki Luxembourg, the borrowers discovered to their great surprise that in some cases the investments were in Landsbanki bonds, even in its shares, as well as in shares and bonds of the two other Icelandic banks, Glitnir and Kaupthing.

That the bank would invest its own loans in the bank’s bonds is simply outrageous. Already in analysis of the Icelandic banks made by foreign banks as early as 2005 and 2006, the high interconnection of the Icelandic banks, was seen as a risk. Thus, if the CSSF had at all had its eyes on these investments, made by a bank operating in Luxembourg, the regulator should have intervened.

It was also equally wholly unfitting to buy bonds in the other Icelandic banks: their credit default swap, CDS, spread made their bonds far from suitable for low-risk investments. – Interestingly, the administrator confirmed in the Paperjam interview 2012 that the loans were indeed invested in short-term bonds of Landsbanki and the two other banks: thus, there is no doubt that this was the case. – Only this fact per se, should have made the liquidator take a closer look at the time.

The value of the properties used as collaterals also raises questions. The sense is that the bank wanted to lend as much as possible to each and every borrower, thus putting a maximum value of the properties put up as collateral.

One of many intriguing facts regarding the Landsbanki Luxembourg equity release loans exposed in the French criminal case was when French borrowers told of getting loan documents in English and English borrowers of getting documents in French. As pointed out earlier on Icelog this seems to indicate a concerted effort by the bank to diminish clarity (at least in some cases, clients were promised they would get the documents in their language of choice, i.e. English borrowers getting documents in English, but the documents never materialised).

Again, this raises serious questions for the CSSF: did the bank adhere to MiFID rules at the time? And did the liquidator really see nothing worth reporting to the CSSF?

Landsbanki Luxembourg: opacity after its demise in October 2008

After Landsbanki Luxembourg failed in October 2008, Yvette Hamilius and Franz Prost were appointed liquidators for Landsbanki. Following Prost’s resignation in May 2009, Hamilius has been alone in charge. As the Court had originally appointed two liquidators the Court could have been expected to appoint another one after Prost resigned. That however was not the case. Not in Luxembourg. There have been some rumours as to why Prost resigned but nothing has been confirmed.

Be that as it may, the relationship between Hamilius and the borrowers has been a total misery for the borrowers. One of the things that early on led to frustration and later distrust were conflicting and/or unexplained figures in statements. Clarification, both on figures on accounts, and more importantly regarding the investments, was not forthcoming according to borrowers Icelog has heard from.

Hamilius’ opinion of the borrowers could be seen from the Paperjam interview in 2012 and from the remarkable statement from State Prosecutor Biever: the liquidator’s unflinching view was that the borrowers were simply trying to make use of the fact the bank had failed in order to save themselves from repaying the loans.

The interview and the statement from Biever came as a response to when a group of borrowers tried to take legal action against the Landsbanki Luxembourg and its liquidator. In the interview, Hamilius was asked if she was solely trying to serve the interest of Luxembourg as a financial centre, something she staunchly denied.

The action against Landsbanki Luxembourg has so far been unsuccessful, partly because Luxembourg lawyers are noticeably unwilling to take action against a bank, even a failed bank. In that sense, anyone trying to take action against a Luxembourg financial firm finds himself in a double whammy: the CSSF has proved to be wholly unsympathetic to any such claims and finding a lawyer may prove next to impossible.

Why was the investment part of the Landsbanki Luxembourg equity release loans killed off?

The key characteristic of equity release loans is that this product consists of a loan and investment, two inseparable parts. However, that proved not to be the case in the Landsbanki Luxembourg loans. Suddenly, after the demise of the bank, the borrowers found themselves to be debtors only, with the investment wiped out. This did fundamentally alter the situation for the borrowers.

The liquidator seems allegedly to have taken the stance that to a great extent, there was nothing to do about the investments in these cases where the bank had invested in Icelandic bank shares and bonds. That is an intriguing point: as pointed out earlier, the bank should never have been allowed to make these investments on behalf of these clients.

In Britain, as in many European countries, the law in general stipulates that if a lender fails, loans are not to be payable right away. As far as I can see, this counts for equity release loans as well: both parts of the loan should be kept going, the loan as well as the investment. Frequently, a liquidator sells off the package at a discount, for another company to administer, in order to be able to close the books of the failed bank.

This has not been the case in Landsbanki Luxembourg equity release loans, the investments were wiped out – and yet, Luxembourg authorities have paid no attention at all to the borrowers’ claims of unfair treatment by the liquidator.

As mentioned above, Hamilius’ version of the sorry saga is that the borrowers are simply unwilling to repay the loan.

The dirty deals of the Icelandic banks in Luxembourg

The recurrent theme in so many of the criminal cases in Iceland after the banking collapse 2008 against bankers and others related to the banks is the role of the banks’ subsidiaries in Luxembourg. The dirtiest parts of the deals were done through the Luxembourg subsidiaries (particularly noticeable in the Kaupthing cases). Since Hamilius has assisted investigations into Landsbanki in Iceland, she will be perfectly well aware of the Icelandic cases related to Landsbanki.

The administrators of the Icelandic banks in Iceland were crucial in providing material for the criminal proceedings in Iceland. Yet, as far as can be seen, the administrator has allegedly not deemed it necessary to take a critical look at the Landsbanki operations in Luxembourg. Which is why no questions regarding the equity release loans have been raised by the administrator with Luxembourg authorities.

The incredibly long winding-up saga at Landsbanki Luxembourg

One interesting angle of the winding-up of Landsbanki Luxembourg saga is the time it is taking. The administrators (winding-up boards) of the three large Icelandic banks, several magnitudes larger than Landsbanki Luxembourg, more or less finished their job in 2015, after which creditors took over the administration of the assets, mostly to sell them off for the creditors to recover their funds. The winding-up proceedings of LBI ehf., the estate of Landsbanki Iceland, came to an end in December 2015, when a composition agreement between LBI ehf. and its creditor became effective.

For some years now, the LBI ehf has been the only creditor of Landsbanki Luxembourg, i.e. all funds recovered by the liquidator go to LBI ehf. Formally, LBI ehf has no authority over the Landsbanki Luxembourg estate. Yet, it is more than an awkward situation since LBI ehf is kept in the waiting position, while the liquidator continues her actions against the equity release borrowers, whose funds are the only funds yet to be recovered.

That said, Luxembourg is not unused to long winding-up sagas. The fall of the Luxembourg-registered Bank of Credit and Commerce International, BCCI, in 1991, was one of the most spectacular bankruptcies in the financial sector at the time, stretching over many countries and exposing massive money laundering and financial fraud. Famously, the winding-up took well over two decades, depending on countries. Interestingly, Yvette Hamilius was one of several administrators, in charge of the process from 2003 to 2011; the winding-up was brought to an end in 2013.

The CSSF on a mission to protect its financial sector, not investors

Recently, another case has come up in Luxembourg that throws doubt on whose interest the CSSF mostly cares for: the financial sector it should be regulating or investors and deposit holders. A pertinent question, as pointed out in an article in the Financial Times recently (23 Feb., 2020), since Luxembourg is the largest fund centre in Europe, with €4.7tn of assets under management and gaining by the day as UK fund managers shift business from Brexiting Britain to the Duchy.

The recent case seems to rotate around three investment funds – Columna Commodities, Aventor and Blackstar Commodities – domiciled in Luxembourg, sub funds of Equity Power Fund. As early as 2016, the CSSF had expressed concern about the quality of the investments: astoundingly, 4/5 of the investments were concentrated in companies related to a single group. Lo and behold, this all came crashing down in 2017.

The investors smelled rat and contacted David Mapley at Intel Suisse, a financial investigator who specialises in asset recovery. Mapley has a success to show: in 2010 he won millions of dollars from Goldman Sachs on behalf of hedge funds, which felt cheated by the bank.

In order to gain insight into the Luxembourg operations, Mapley was appointed a director of LFP I, one of the investment funds in the Equity Power Fund galaxy. (Further on this story, see Intel Suisse press release August 2018 and coverage by Expert Investor in January and October 2019.)

According to the FT, the directors of LFP I claim the CSSF has not lived up to its obligation under EU law. They have now submitted a complaint against the CSSF to European Securities and Markets Authority, Esma, which sets standards and supervises financial regulators in the EU.

In a letter to Esma, Mapley states that the CSSF’s “marketing mission to promote Luxembourg as a financial centre” has undermined its focus on protecting investors. Mapley also alleges the CSSF has attempted to quash the directors’ investigations into mismanagement and fraud by the funds’ previous managers and service providers in order to undermine the funds’ efforts “and prevent any reputational risk”. – That is, the reputational risk of Luxembourg as a financial centre.

As FT points out, investors in a Luxembourg-listed fund that invested in Bernard Madoff’s $50bn Ponzi scheme have also accused the CSSF of leniency, i.e. sheltering the fraudster and not the investors.

Luxembourg, the stain on the EU that EU is unwilling to rub off

Worryingly, the CSSF’s lenient attitude might be more prominent now than ever as Luxembourg competes with other small European jurisdictions of equally doubtful reputation such as Cyprus and Malta (where corrupt politicians set about to murder a journalist, Daphne Caruana Galizia, investigating financial fraud; brilliant Tortoise podcast on the murder inquiry) in attracting funds leaving the Brexiting UK. Esma has been given tougher intervention powers, though sadly watered down from the original intension, in order to hinder a race to the bottom. It is very worrying that the EU does not seem to be keeping an eye on this development.

As long as this is the case, corrupt money enters Europe easily, with the damaging effect on competition, businesses, politics – and ultimately on democracy.

*Foreign currency loans, FX loans, have been covered extensively on Icelog, see here. For a European Court of Justice decision in the first FX loans case, see Árpád Kásler and Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt, Case C‑26/13.

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After investigations by judge Renaud van Ruymbeke on Landsbanki Luxembourg equity release loans the case against its main shareholder and chairman of the board Björgólfur Guðmundsson and eight ex Landsbanki employees was concluded in a Paris court yesterday 28 August: the judge acquitted all of them. The group of borrowers who have been seeking answers and clarification to their situation is hoping the prosecutor will appeal.

The main issue addressed by Justice Olivier Geron in the magnificent Saint-Chapelle yesterday was alleged fraud by the nine accused bankers. After clarifying some procedural issues, the judge read for an hour his verdict with gusto, making only a short break when he realised that one page was missing from his exposé.

The Justice established that the financial collapse in Iceland had not affected the bank in Luxembourg and there had been no connection between events in Iceland and Luxembourg. – That is one view but we should of course keep in mind that the Landsbanki Luxembourg operations were closely connected to the financial health and safety of the mother bank in Iceland as funds flowed between these banks and the Landsbanki Luxembourg did indeed fail when the mother bank failed.

The Justice also considered if the behaviour of the individuals involved could be characterised as fraudulent behaviour and concluded that no, it could not. Thirdly, he considered the quality of the lending, if the clients had been promised or guaranteed the loans could not go wrong. He concluded there had been no guarantees and consequently, no fraud had been committed.

Things to consider

I have dealt with the Landsbanki Luxembourg at length on Icelog (see here) and would argue that the reasoning of the French Justice did not address the grounds on which suspicions were raised that then led to the French investigation.

France is not exactly under-banked: it raises questions why the loans against property in France (and Spain, another case) were all issued from a foreign bank in Luxembourg. Keep in mind that equity release loans, very common for example in the UK some twenty years ago, were all but outlawed there (can’t be issued against a home, i.e. a primary dwelling). This is not to say these loans should be banned but, like FX loans (another frequent topic on Icelog) they are not an everyman product but only of use under very special circumstances.

It is also interesting to keep in mind that other Nordic banks were selling equity release loans out of Luxembourg. Also there, problems arose and in many cases the banks have indeed settled with the clients, thus acknowledging that the loans were not appropriate. Consequently, the cost should be shared by the bank and its clients, not only shouldered by the clients.

The judge seemed taken up with the distinction between promises and guarantees, that the clients had perhaps been promised but not guaranteed that they could not lose, not lose their houses set as collaterals. – The witnesses were however very clear as to what exactly had been spelled out to them. Yes, borrowers bear responsibility to what they sign but banks also bear responsibility for what is offered.

One thing that came up during the hearing in May was the intriguing fact that English-speaking Landsbanki borrowers got loan documentation in English whereas a French borrower like the singer Enrico Macias got documents in English to sign. One English borrower told me he had asked for an English version, was told he would get one but it never arrived. So at least in this respect there was a concerted action on behalf of the bank to, let’s say, diminished clarity.

Landsbanki managers have been sentenced in Iceland for market manipulation. This is interesting since many of the borrowers realised later that contrary to their wish for low-risk investments their funds had been used to buy Landsbanki bonds, without their knowledge and consent.

And now to Luxembourg

As I have repeatedly pointed out, Luxembourg has done nothing so far to investigate banks operating in the Duchy. The concerted actions by the prosecutors in Iceland show that in spite of the complexity of modern banking banks can be investigated and prosecuted. All the dirty and dirtiest dealings of the Icelandic banks went through Luxembourg, also one of the key organising centres of offshorisation in the world.

In spite of the investigations and sentencing in Iceland, nothing has surfaced in Luxembourg in terms of investigating and prosecuting. One case regarding Kaupthing Luxembourg is under investigation there but so far, no charges have been brought.

A tale of two judges and their conflicting views

Judge Renaud van Ruymbeke is famous in France for taking on tough cases of white-collar and financial crimes. Justice Olivier Geron is equally famous for acquitting the accused in such cases. One of Geron’s latest is the Wildenstein case last January where a large tax scandal ended in acquittal, thanks to Geron.

After the Enron trial and the US there has been a diminished appetite there for bringing bankers and others from the top level of the business community to court, a story brilliantly told by Jess Eisinger in The Chickenshit Club – and nothing good coming since the Trump administration clearly is not interested in investigating and prosecuting this type of crimes.

In so many European countries it is clear that prosecuting banks is a no-go or no-success zone. As shown by Ruymbeke’s investigations there is the French will there but with a judge like Geron these investigations tend to fail in court.

Update: the Public Prosecutor in charge of the Landsbanki case has decided to appeal the 28 August decision, meaning the case will come up again in a Paris court.

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The long-winding saga of the Landsbanki Luxembourg equity release loans is now in a French court in Paris, i.e. the alleged mis-selling. However, as the oral hearings brought out so clearly, other angles of this case have been ignored, i.e. the bank’s potential mismanagement of clients’ funds and the very questionable handling of the Landsbanki Luxembourg administrator. These last two issues have left so many clients frustrated and at their wit’s end.

A court case at the Palais de Justice, part of the spectacular Palais de la Cité on the Îsle de la Cité in the heart of Paris, is a grand spectacle to behold. Or at least that was my impression last week as I sat through two afternoons of oral hearing in the penal case against Landsbanki Luxembourg bankers and Landsbanki’s chairman Björgólfur Guðmundsson, the only one of the accused who was not present.

Apart from the three judges and the prosecutor there were the thirty or so lawyers fluttering around in their black cloaks with white bands around the neck. The lawyers were defence lawyers for those charged, lawyers for some of the witnesses and then there were lawyers related to civil cases connected to this case.

The case, brought by a prosecutor after an investigation led by Justice Renaud van Ruymbeke, centres on alleged mis-selling of equity release loans, as explained in an earlier Icelog. Oral hearings are scheduled until May 24, but the hearings were taking longer than expected and extra days to be added. The judgement can be expected in autumn.

French borrowers got contract in English, foreigners in French

The involvement of the very famous French singer Enrico Macias in the Landsbanki Luxembourg case has secured the attention of the French media; Macias took out an equity release loan of around €35m and his losses amount to €9m.* On the first day of the oral hearings, 2 May, Macias sat in court surrounded by his black-cloaked lawyers. On the second day of the hearings when Macias was questioned I counted nine lawyers apparently part of his entourage.

Macias was questioned back and forth for ca. three hours, no mercy there for this elderly gentleman, by the very astute and sharp judge. Only at one point, when one of the defence lawyers had probed Macias’ story did the singer lose his patience, crying out he had lost his wife and his house because of this bank. The judge reminded him that the charges were serious and the nine men accused had the right to defend themselves.

When Macias’ contract was brought up during the questioning an interpreter was called to assist. It turned out that Macias’ contract was in English. Some of the foreign borrowers were in court – German, English, American etc. It turns out that the foreign equity release borrowers all seem to have a contract in French. One told me he had asked for a contract in English and been told he would get it later; he didn’t.

Intriguingly, there seems to be a pattern here as I heard when I spoke to other borrowers: Landsbanki Luxembourg gave the foreign borrowers, i.e. non-French, a contract in French but the French borrowers, like Macias, got a contract in English.

“Produit autofinancé”

Much of the questioning centred on the fact that Landsbanki Luxembourg promised the borrowers the loans were “auto-financed.” To take an example: if the loan in total was for example €1m, the borrower got 20-30% paid out in cash and the bank invested the rest, stating the investment would pay for the loan. Ergo, Landsbanki promised the borrowers they would get a certain amount of cash for free, so to speak.

The judge asked the various witnesses time and again if that had not sounded to too good to be true to get a loan for free. As Macias and others pointed out the explanations given by the bankers and the brokers selling the loans seemed convincing. After all, these borrowers were not professionals in finance.

This line of questioning rests on the charges of alleged mis-selling. Other questions related to information given, who was present when the contracts were signed, validity of signatures etc.

The dirty deals in Luxembourg

The operations of the Icelandic banks have been carefully scrutinised in Iceland, first in the SIC report, published in April 2010 and later in the various criminal cases where Icelandic bankers and some of their closest collaborators have been prosecuted in Iceland.

There is one common denominator in all the worst cases of criminal conduct and/questionable dealings: they were conducted in and through Luxembourg.

All of this and all of these cases are well known to authorities in Luxembourg: Luxembourg authorities have assisted the investigations of the Icelandic Special Prosecutor, i.e. enabled the Prosecutor to gather information and documents in house searches in Luxembourg.

These cases exposing the role of Luxembourg in criminal conduct are all Icelandic but the conduct is not uniquely Icelandic. I would imagine that many financial crooks of this world have equally made use of Luxembourg enablers, i.e. bankers, lawyers and accountants, in financial shenanigans and crimes.

The Landsbanki questions Luxembourg has ignored

As I have pointed out earlier, alleged mis-selling is not the only impertinent question regarding the Landsbanki Luxembourg operations. There are also unanswered questions related to management of clients’ fund by Landsbanki Luxembourg, i.e. the investment part of the equity release loans (and possibly other investments) and, how after the bank’s collapse in October 2008, the bank’s court appointed Luxembourg administrator Yvette Hamilius has fulfilled her role.

As to the management of funds, some borrowers have told me that after the collapse of Landsbanki Luxembourg they discovered that contrary to what they were told the bank had invested their funds in Landsbanki bonds and bonds of other Icelandic banks. This was even done when the clients had explicitly asked for non-risky investments. As far as is known, Luxembourg authorities have neither investigated this nor any of the Icelandic operations with one exception: one case regarding Kaupthing is being investigated in Luxembourg and might lead to charges.

The latter question refers to serious complaints by equity release borrowers as to how Hamilius has carried out her job. Figures and financial statements sent to the clients do not add up. Hamilius has given them mixed information as to what they owe the bank and kept them in the dark regarding the investment part of their loans. Icelog has seen various examples of this. Hamilius has allegedly refused to acknowledge them as creditors to the bank.

On the whole, her communication with the clients has been exceedingly poor, letters and calls ignored and she has been unwilling to meet with clients. One client, who did manage to get a meeting with her, was seriously told off for bringing his lawyer along even though he had earlier informed her the name of the person he would bring with him.

Hamilius, on the other hand, claims the clients are only trying to avoid paying their debt. She has tried to recover properties in Spain and France, even after the bankers were charged in France. One of many remarkable turns in this case (see here) was a press release issued Robert Biever Procureur Général d’Etat – nothing less than the Luxembourg State Prosecutor – in support of Hamilius in her warfare against the equity release clients.

The court case at the imposing Palais de Justice in Paris gives an interesting insight into the operations of Landsbanki Luxembourg. As to management of funds prior to the bank’s collapse and the administrator’s handling of her duties Luxembourg has, so far, only shown complete apathy.

*I picked these numbers during the hearings but French media has reported different figures so I can’t certify these are the correct figures.

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Equity release loans are a dangerous product to offer to all and sundry and that’s exactly what happened to those who took out such loans with Landsbanki Luxembourg – mostly elderly property owners in France and Spain. In addition, there are suspicions as to how the bank managed the investment part of the loans. In 2015 this  led to charges against Björgólfur Guðmundsson, Landsbanki’s chairman of the board and (together with his son Björgólfur Thor Björgólfsson) the bank’s main shareholder, as well as Gunnar Thoroddsen manager of Landsbanki Luxembourg and other employees. The case is coming up in a Paris Court now on Tuesday, scheduled to run through May.

Icelog has earlier reported on the sorry saga of the Landsbanki Luxembourg equity release loans. The borrowers, elderly non-Icelandic owners of properties in Spain and France, have been fighting the administrator of Landsbanki Luxembourg, Yvette Hamelius as well as trying to attract the attention of Luxembourg authorities to what the borrowers allege to be criminal offences committed by the bank prior to the collapse and lack of attention by the administrator.

As reported earlier on Icelog: 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, French authorities have taken the case seriously. After investigation, a French judge, Renaud van Ruymbeke, took on the case and then passed his findings on to a French prosecutor. In August 2015 Landsbanki managers, i.a. Gunnar Thoroddsen and Björgólfur Guðmundsson, as well as some foreign Landsbanki staff (see here) were charged with breeching the French penal code, risking both fines and up to five years in prison.

The case starts on Tueday. The oral hearings are, as far as I know, scheduled for 2, 3, 9, 10, 15, 16, 17, 22, 23 and 24 May at Tribunal de grande instance de Paris. I plan to report on the on-going proceedings.

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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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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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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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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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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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Icelog has earlier told stories of Landsbanki Luxembourg and equity release loans sold by the bank in France and Spain.

The remarkable thing is that although those who bought the product have good reasons to feel that that Landsbanki Luxembourg missold the loans, mismanaged the accompanying investments and miscalculated the loan cover ratio (in early Sept. 2008, a month before the bank collapse), the administrator has not been willing to discuss these matters with the clients. Since no reports regarding the administrator’s work can be found on-line (contrary to ia the operations of winding-up boards of the collapsed banks in Iceland), it’s not clear how and in what way the administrator has fulfilled normal duties to investigate if the bank took any actions before the collapse that might be either illegal or should be repealed.

In addition, the equity release clients have been frustrated by the wholly opaque and, what has at time, seemed arbitrary operations of the administrator. The clients have ia had varying and inconsistent information as to the status of their loans. Yet, no authority in Luxembourg – such as the Luxembourg financial services, CSSF or the Luxembourg Central Bank – seems to have paid any attention of a) what went on in Landsbanki Luxembourg before its demise b) the operations of the administrator. In this tiny country that lives of banking, the authorities don’t show any interest in knowing what really is going on in Luxembourg banks.

As to the assets, the Landsbanki Winding-up Board has now taken them over. The WuB has not been willing to answer questions regarding what they know about the Landsbanki Luxembourg operations before or after the collapse. The unusual position of the Landsbanki Luxembourg estate is that there are essentially only two creditors: the Landsbanki Iceland estate, now run by the Winding-up board and the Luxembourg Central Bank.

As mentioned earlier on Icelog there are two important events concerning Landsbanki Luxembourg: a court case in Spain and actions taken in France by a French judge.

A court in Spain has ruled in one case that the Landsbanki Luxembourg was illegal, awarded the borrow compensation – but because the case is being appealed these borrowers are still kept in agony.

In France, Judge Van Ruymbeke* is investigating the Landsbanki Luxembourg operations and has seized some properties belonging to Landsbanki Luxembourg clients – in order to prevent the Landsbanki Luxembourg administrator from confiscating the properties against loans she claims are in default.

In spring, the Luxembourg State prosecutor took the extraordinary step to issue a press release in support of the said administrator – although a) the prosecutor had not, judging from the press release, investigated the matter b) had not been asked to investigate it and c) had, as far as could be judged from the press release, nothing to rely on but information from the said administrator. Quite extraordinarily, the prosecutor makes the claim that a small number clients, complaining about the operations of the administrator, are only people who are trying to evade repaying their loans.

The fact that a State prosecutor steps forward to defend in this way an administrator of a private company, is I believe unheard of in any country claiming to be run by the rule of law.

What makes this case particularly poignant is that many of these clients, who now have lived with the threats of being evicted from their homes, are elderly people who thought they were securing their later years in a sensible way by taking out these loans. There are many and various European and domestic schemes to protect consumers and bank clients. So far, none of these seem to have worked for the clients of Landsbanki Luxembourg in Spain and France.

*Judge Renaud van Ruymbeke has a formidable track record in investigating huge and high-profile corruption cases. He worked with Eva Joly – who advised the Icelandic Special Prosecutor when the office was set up – on the Elf case where ministers and politicians were convicted to prison sentences and has run big investigations such as the Clearstream 2 case and French investigations into the Madoff fraud. 

Update to clarify the legal standing of an administrator in Luxembourg: a judge appoints an administrator and all actions have to be accepted by this judge. In the case of the Landsbanki Luxembourg administration the presiding judge is Karin Guillaume. As far as I understand, the judge is therefor also responsible for the actions taken by an administrator appointed by the judge.

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