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:
(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.
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.
(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.
(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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A recent ruling in a French court spells out that while a case against Landsbanki Luxembourg for wrongful selling of its products is ongoing in France, Landsbanki Luxembourg cannot pursue its recovery of these loans. Over 80 clients in France of Landsbanki Luxembourg brought a civil case in France against Landsbanki, represented by Yvette Hamilius, for wrongful presentation of its loans. In a ruling July 13, Judge Renaud van Ruymbeke ruled that the recovery could not continue as long as this case is ongoing.
As Icelog has pointed out earlier, so many of the Landsbanki Luxembourg clients with equity release loans and often some investments found that incomprehensibly their assets fell just below the value, which demanded they added assets so as to cover 110% of the value. This put many of them in arrears, meaning that the Landsbanki Luxembourg administrator started threatening to sell their houses and has indeed sent the bailiffs out.
This French ruling gives them some hope that the selling of the loans, events at Landsbanki before its demise and the consequent actions of the administrator will be clarified.
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Landsbanki promised “the most comprehensive protection possible” according to the bank’s documentation. That has proved to be very far from the truth. – As reported earlier on Icelog, a group of Landsbanki Luxembourg clients claim they are wrongfully being targeted by the bank’s administrator Mme Yvette Hamilius to pay back dubious “equity release” loans – and in some cases investments, which the bank made without the clients’ knowledge and/or acceptance.
The Icelandic resolution committees for the three Icelandic banks have used time and resources to investigate alleged fraud in the Icelandic banks. The same doesn’t seem to be done in Luxembourg. Icelog has heard evidence from Landsbanki Luxembourg clients, which give good ground to suspect that Landsbanki:
1 Bought the bank’s own bonds, on behalf of clients, without clients’ acceptance, shortly before the bank failed (and at a time when it was most likely already insolvent)
2 Money was taken from clients’ accounts without proper consent for trading
3 MiFID rules were neither applied correctly nor were the clients made aware of these rules and their implications for the clients.
As far as is known, the Landsbanki Luxembourg administrator hasn’t done anything to investigate – or have the proper Luxembourg authorities investigate – if this was the case or not. If it is indeed the case that Landsbanki Luxembourg accessed and used clients funds in an inappropriate way it would be most interesting to know who ordered it. Was this a concerted action? And who ordered this allegedly inappropriate use.
In spite of these alleged irregularities, Mme Hamilius seems to treat the clients as if nothing was wrong with the loans and is trying to recover them, going after people’s homes when everything else fails. Most of the clients are elderly and the administrator’s actions and her insufficient communication have put these clients under severe stress and duress by the administrator. An administrator’s business if of course recovery – but an administrator also has the duty to report eventual irregularities and to maintain a reasonable level of communications with those hit by the administrator’s actions.
There are already some legal cases related to Landsbanki clients in France and Spain traversing through court systems there. One couple in Spain have already won their case: their home is now debt free and Landsbanki has to pay them €23.000 in compensation. In spite of this, the Luxembourg administrator carries on as if nothing was happening.
Lately, the Landsbanki Luxembourg clients have organised themselves as “Landsbanki Victims Action Group” to put some pressure on Mme Hamilius. They now seem to be making some headway. After issuing a press release on May 7, where they questioned the buisness morale in Luxembourg the local media reported on the Action Group, its plights and a case in France, involving Mme Hamilius. She was interviewed in Paper Jam, a Luxembourg newspaper. Some of her answers there don’t quite fit the reality, seen from the perspective of the clients. The interview was no doubt a reaction to a media action by the clients’ pressure group, reported on in Luxembourg.
But the absolutely most remarkable part of this saga is that on May 8, Robert Biever Procureur Général d’Etat – nothing less than the Luxembourg State Prosecutor – issued a press release, as an answer to the Action Group. It is jaw-droppingly remarkable that a State Prosecutor sees it as a part of his remit to answer a press release that’s pointed against the administrator of a private company. One might think that a State Prosecutor would be unable to comment on a case, which he has neither investigated nor indeed been involved with in any way.
In this surprising move, the Prosecutor puts forth the following claim (in my rough translation; my underlining):
“Following a criminal proceeding in France against Landsbanki Luxembourg November 24 2011 for fraud by the Parisian Justice Van Ruymbeke and without the liquidator accepting the merits of the claims, she offered the borrowers an extremely favourable settlement whereby the borrowers will only reimburse that part of the loans which they received for their personal use, excluding funds used for investments. A considerable number of debtors have now accepted the settlement and the repayment is now being finalised. However, a small number of borrowers are trying with all means to escape their obligations. These are the same people who sent out a press releases on May 7 2012.”*
Apparently, Biever takes such an extreme interest in the case that this civil servant can, the day after the Action Group’s press release (and on the same day it appeared in the Luxembourg media) answer with authority and full certainty. The Prosecutor’s statements raise some questions. How can the State Prosecutor say this is an “extremely favourable settlement”? What makes it favourable? According to my information, it’s indeed not the case that most have paid. How does the Prosecutor know how many have accepted the administrator’s offer? Where did the Prosecutor get that information? If that information came from the administrator, did the Prosecutor verify the numbers?
Since the high office of the Luxembourg State Prosecutor takes such an interest in this case there is perhaps hope that Biever’s curiosity is now sufficiently aroused for him to take a further look at what really happened in Landsbanki Luxembourg in terms of unsound business practice and improper use of funds. I can’t think of any European country where a State Prosecutor would wade into a case of this kind to make a comment. If his comment is made to come to the rescue of the administrator, the functioning of the Luxembourg justice system is light years from the justice system in its neighbouring countries.
Luxembourg makes a good living by being a financial centre. No doubt, its authorities want to emphasis, just like Mme Hamilius does in her interview, that in the little country investment is safe. International creditors should rest assured that no matter what, they will get their money back. This credo seems so important that the State Prosecutor sees it as his role to back up a bank administrator under pressure.
There is indeed a lot to defend in Luxembourg. Monday night (May 14) the BBC programme, Panorama, will “reveal how major UK-based firms cut secret tax deals with authorities in Luxembourg to avoid paying corporation tax in Britain.” – Possibly another worthy case for the Luxembourg State Prosecutor.
*“Suite à l’introduction d’une procédure pénale en France contre Landsbanki Luxembourg et à sa mise en examen le 24 novembre 2011 pour escroquerie par le juge d’instruction parisien Van Ruymbeke, le liquidateur sans pour autant reconnaître le bien fondé des poursuites, a proposé aux emprunteurs des transactions extrêmement favorables aux termes desquelles ceux-ci ne remboursent plus que le capital à eux remis pour leur usage personnel, à l’exclusion des fonds destinés aux investissements. Bon nombre de débiteurs ont d’ailleurs déjà accepté cette proposition et les transactions sont en cours de formalisation. Toutefois un nombre infime d’emprunteurs s’oppose à tout remboursement des fonds reçus et essaye de se soustraire à ses obligations par tous moyens. Ce sont ces mêmes personnes qui sont à l’origine du communiqué de presse du 7 mai 2012.”
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