Sigrún Davíðsdóttir's Icelog

The two Al Thani cases, Qatari investors and Western banks

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At the height of the banking crisis in 2008, Qatari investors stepped in to invest in two European banks – Barclays and Kaupthing. Later, these investments were and are the focus of criminal charges, not against the investors but the bankers, who orchestrated the investments. Both cases show that the Qatari investors were intent on profiting not only from the investments but also from hidden fees and sham arrangements. “A sham agreement requires two parties;” if the defendants were dishonest, so were the other party, the Qatari investors,” said Justice Jay during the Barclays trial recently. – This is not only relevant in connection to stories from 2008 but raises impertinent questions regarding Qatari investments in Deutsche Bank and other banks.

In autumn 2008, many Western banks were forced to seek emergency loans from governments. Three banks – Barclays, Deutsche Bank and Credit Suisse – were boastful of the fact that they did not need government funding. As has now become abundantly clear, all three tapped heavily into US measures to save US banks and foreign banks operating in the US. Even more to brag about was the fact that Barclays and Credit Suisse were able to raise funds in the market: Qatari investors were crucial in saving the two banks. Admittedly investment at a high price but these were singularly difficult times.

The Barclays investors were two Royal Qataris. Sheikh Hamad bin Jassim bin Jabr Al Thani, at the time Qatari’s prime minister, also known by his initials, HBJ. In 2013, The Independent dubbed him “the man who bought London” where he has invested both through his private companies and Qatar Investment Authority, QIA. His co-investor was Sheikh Mohammed Bin Khalifa Al Thani who in 2008 also invested in Kaupthing. Barclays paid them £66m for bringing along Sheikh Mansour Bin Zayed al Nahyan, well known in the UK for high octane investments such as Manchester City Football Club, another 2008 investment of his.

The Barclays Qatar story took a different turn in 2012 when the Serious Fraud Office, SFO, opened a criminal investigation into the Barclays deal with the Qataris: the price for the investment was even higher than previously disclosed as Barclays had kept quiet about two “Advisory Services Agreements.” On the basis of these agreements, Barclays paid the Qatari investors and Sheikh Mansour £322m; allegedly, no advice was given. The four Barclays bankers – Barclays CEO at-the-time John Varley and then-senior executives Roger Jenkins, Richard Boath and Tom Kalaris – who orchestrated the payments are now fighting criminal charges in court. Intriguingly, charges against Barclays PLC concerning a loan of $3bn to the Qatari investors were dismissed last year by the High Court.

In Iceland, the Special Prosecutors has exposed another Qatari investment saga, at the core of a criminal case against three Kaupthing bankers and the bank’s second largest investor. It turned out that a Qatari investment in Kaupthing in September 2008 was entirely funded by Kaupthing. Sheikh Khalifa was not charged but charges brought against three Kaupthing bankers and Ólafur Ólafsson, the second largest shareholder at the time, all of them sentenced to lengthy prison sentences.

Now, to the plights of Deutsche Bank. It survived 2008, much thanks to US funding but in 2014 Deutsche Bank was lacking capital; luckily, Sheikh Hamad bin Jassim bin Jabr Al Thani and Sheikh Mohammed Bin Khalifa Al Thani started investing in the bank, eventually becoming the bank’s largest investors. Now, as the German government hopes that a merger between two weak banks, Deutsche Bank and Commerzbank, might (contrary to evidence and experience) make a strong bank, the Qatari investors have indicated they might be ready to invest further.

Intriguingly, two criminal cases regarding Qatari investments show hidden deals the banks did with the Qataris to meet their demands for benefits beyond what investors could normally expect. The question is if these hidden favours were only relevant for these two cases – or if they are general indications of Qatari investors’ preferences in doing deals. If so, it raises questions regarding other Qatari investments in European banks.

Kaupthing and the Qatari investment in September 2008

After a tsunami of bad news in 2008, the one good news for Kaupthing came in September, miraculously a week after the collapse of Lehman Brothers: Sheikh Mohammed Bin Khalifa Al Thani, of the Qatari ruling family, had privately invested in Kaupthing. The investment amounted to 5.01%, just above the 5% threshold that triggered a notification to the Icelandic stock exchange, securing media attention. This investment made the Sheikh Kaupthing’s third largest investor and the only major foreign investor.

In a statement, the Sheikh claimed he had followed Kaupthing closely for some time and was satisfied of its performance and good management team. Chairman of Kaupthing Sigurður Einarsson said at the time that the bank’s strategy to diversify the shareholder base was paying off. To Icelandic media Kaupthing’s CEO Hreiðar Már Sigurðsson said this showed investors had faith in the bank.

But this investment was not enough to save the bank: in the second week of October 2008, Kaupthing collapsed, together with 90% of the Icelandic financial system.

The Kaupthing undisclosed loan and fees behind the Qatari investment

Only months later, rumours were circulating that the Qatari investment in Kaupthing had not been quite what it seemed to be. In April 2010, when the Icelandic Special Investigative Commission, SIC, published its report one of its many colourful stories recounted the reality behind this Qatari investment in Kaupthing: it had been entirely funded by Kaupthing and Sheikh Mohammed Bin Khalifa Al Thani had apparently only lent his name to this Kaupthing PR stunt. The go-between was Ólafur Ólafsson, Kaupthing’s second largest investor.

The mechanism was that Kaupthing lent funds to an Icelandic company owned by the Sheikh. In addition, Kaupthing issued a loan of $50m, labelled as advance profit, to another company owned by the Sheikh. The three Kaupthing bankers involved in the transaction – Hreiðar Már Sigurðsson, Sigurður Einarsson and Kaupthing Luxembourg’s director Magnús Guðmundsson – and also Ólafur Ólafsson were charged for breach of fiduciary duty and market manipulation and sentenced to between three and five and half years in prison (further on Icelog on the Icelandic al Thani case). Although the case was called “the Al Thani case,” the Sheikh was not charged with any wrongdoing.

Kaupthing had further plans of joint ventures with the Sheikh. In summer 2008 there had been an announcement, duly noted in the Icelandic media, that the Sheikh was investing in Alfesca, owned by Ólafsson. According to the SIC report, also here the plan was that Kaupthing would finance Sheikh Al Thani’s Alfesca investment.

In August and September 2008 Kaupthing, advise by Deutsche Bank, financed credit linked notes, CLN, transactions linked to Kaupthing’s credit default swaps, CDS, in order to influence, or rather manipulate, the CDS spreads. Two rounds of transactions were carried out: first via companies owned by a group of Kaupthing clients, then on behalf of Ólafur Ólafsson. A third round was planned, via a company owned by Sheikh Mohammed Bin Khalifa Al Thani, mimicking the earlier transactions, again with Deutsche Bank. Neither the Sheikh’s involvement with Alfesca nor the CDS trades happen as Kaupthing had run out of time and money (further on the CDS saga, see Icelog).

Barclays and Qatari investors in June and October 2008

Kaupthing was a small fry in the financial ocean, Barclays a much bigger fish. Already in spring of 2008, funding worries at Barclays were rising – the share price was falling, market conditions worsening. As Marcus Agius, Barclays chairman of the Barclays’ board 2006 to 2012, recently a witness for the prosecution in the criminal case against the four Barclays bankers, explained in court 19 February 2019, Barclays wanted to be ahead of the market, i.e. adequately capitalised: in the summer of 2008 it was time to raise capital, in fierce competition with other banks.

Consequently, Barclays decided to raise capital and underwriting was arranged. As summerised in Barclays 2008 Annual Report: On 22nd July 2008, Barclays PLC raised approximately £3,969m (before issue costs) through the issue of 1,407.4 million new ordinary shares at £2.82 per share in a placing to Qatar Investment Authority, Challenger Universal Limited (a company representing the beneficial interests of His Excellency Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, the Chairman of Qatar Holding LLC, and his family), China Development Bank, Temasek Holdings (Private) Limited and certain leading institutional shareholders and other investors, which shares were available for clawback in full by means of an open offer to existing shareholders. Valid applications under the open offer were received from qualifying shareholders in respect of approximately 267 million new ordinary shares in aggregate, representing 19.0 per cent. of the shares offered pursuant to the open offer. Accordingly, the remaining 1,140.3 million shares were allocated to the various investors with whom they had been conditionally placed.

The Qatari investors were new to Barclays. At the time, Barclays’ top management saw it as highly beneficial for the bank to attract major investors from the Middle East, according to Agius. Keen to expand, the bank aimed at being a global player. The Qatari connection fitted the bank’s vision of its goal in the international world of finance.

The second round in autumn 2008 – the “tart” and the Sheikh

In autumn 2008, market conditions went from worrying to worse than anyone had thought possible, according to Agius’ witness statement in court. There were only two options: accept state funding or try another capital raising. Barclays hoped to again raise capital from the Qataris.

This time, the Qataris brought another Middle Eastern investor to the table, Sheikh Mansour Bin Zayed al Nahyan. Interestingly, there was some confusion if an Abu Dhabi public body was investing or if Sheikh Mansour was investing privately as Barclays publicly stated to begin with. In the end, the investor turned out to be International Petroleum Company where Sheikh Mansour was a chairman.

The Abu Dhabi investment saga is an even more colourful financial thriller than the Qatari saga. An independent financier Amanda Staveley advised Sheikh Mansour and got at least 30m of the £110m Sheikh Mansour allegedly got in fees from Barclays. In addition, Staveley’s company has sued Barclays for fees of £720m plus interests and cost, potentially well over £1bn,in relations to Sheikh Mansour’s investment. Her case is on hold until the criminal case against the Barclays four is brought to an end.

Somewhat ungracefully, the Barclays bankers referred to Staveley as a “tart” in a telephone recording played at the Southwark County Court recently during the Barclays trial. Intriguingly, this name-calling came from one of the charged bankers, Roger Jenkins, who argued for £25m bonus for 2008 as he had been instrumental in bringing in the Sheikhs, rather belittling Staveley’s part in it.

Barclays’ cash call of £6.1bn in times of panic

There was panic in the autumn air of 2008. Barclays fought to raise capital in order to avoid making use of the 8 October 2008 banking package, in total a staggering £500bn on offer from the government; for comparison, the total government annual spending was 618bn. One condition: participating banks would have to sign up to an agreement with the FSA on executive pay and dividend, making it rather unappealing for the well-paid Barclays bankers.

After some hesitation from the Gulf investors – they allegedly left the negotiations but returned – the bank could finally put out an innocuous statement on 31 October 2008 that Barclays had “held discussions in recent days with Qatar Holding LLC and entities representing the beneficial interests of HH Sheikh Mansour Bin Zayed Al Nahyan (“the Investors”) who agreed … to invest substantial funds into Barclays.” 

As summerised in Barclays 2008 Annual Report, Barclays would issue “£4,050m of 9.75% Mandatorily Convertible Notes (MCNs) maturing on 30th September 2009 to Qatar Holding LLC, Challenger Universal Limited and entities representing the beneficial interests of HH Sheikh Mansour Bin Zayed Al Nahyan … and existing institutional shareholders and other institutional investors. If not converted at the holders’ option beforehand, these instruments mandatorily convert to ordinary shares of Barclays PLC on 30th June 2009. The conversion price is £1.53276 and, after taking into account MCNs that were converted on or before 31st December 2008, will result in the issue of 2,642 million new ordinary shares.

Further, Barclays issued warrants on 31 October 2008 “in conjunction with a simultaneous issue of Reserve Capital Instruments [RCI] issued by Barclays Bank PLC … to subscribe for up to 1,516.9 million new ordinary shares at a price of £1.97775 to Qatar Holding LLC and HH Sheikh Mansour Bin Zayed Al Nahyan. The warrants may be exercised at any time up to close of business on 31st October 2013.” – Qatar Holding now held 6.4% of Barclays shares.

Expensive and unpopular funding

Fund raising in these tumultuous times, as banks were scurrying for government money, might have looked like quite a feat. But the reception to Barclays fundraising was disappointing: the news came as a surprise to the market and existing shareholders were dismayed; also because the fund raising had not been a normal process, Agius said in court.

Reaching the agreement with the Sheikhs had been tough. In an email to Roger Jenkins John Varley said the Qataris and Sheikh Mansour had had “too good a deal.” It did in fact prove difficult to get shareholders to agree; many of the smaller shareholders were very upset.

At least one large shareholder in Barclays voiced concern publicly: though at the time not knowing how high the cost was indeed for Barclays, the pension fund Scottish Widows claimed the capital raising had been driven through at a high cost, just to avoid state ownership and its effect on bonuses. However, by the end of November Barclays shareholders had agreed to the capital raising.

In his foreword to the Barclays 2008 Annual Report, Agius acknowledged the anger the capital raising had caused among shareholders: “…we also recognised that some of our shareholders were unhappy about some aspects of the November capital raising. This unhappiness is a matter of great regret to us.” Further, Agius set out to explain the process and the great care taken by the board to make these difficult decisions “…as we sought to react to the circumstances prevailing at the time. The Board regrets, however, that the capital raising denied Barclays existing shareholders their full rights of pre-emption and that our private shareholders were not able to participate in the raising.”

It was indeed an expensive undertaking: the official terms seemed quite generous, 2% on the RCIs, 4% on the MCNs, as Agius pointed out in court. The RCIs carried interests of 14% until June this year, 2019, (see 2008 Annual Report p.228) when the rate would be 13.4% on top of three months LIBOR. The initial coupon was deemed to carry a cost of 10% after tax for Barclays. In addition, there was a disclosed fee of £66m to the Qatari investors, for having introduced Sheikh Mansour.

The undisclosed fees of £322m for the Sheikhs – and a Barclays loan to the investors

What Agius and others at the bank say they did not know was that the cost of extracting investment from the Qatari and Abu Dhabi Sheikhs were even higher than disclosed. The four Barclays bankers agreed to fees totalling £322m, to be paid over 60 months, hidden in two so-called “Advisory Services Agreements,” ASAs, now the focus of the SFO case against the Barclays four.

What transpires from the Barclays court case is that the three Sheikhs wanted fees for investing; the original figure floated was £600m. It was not trivial to dress up the agreed fee as anything remotely acceptable: after all, these three investors were getting fees no other investors were offered. When the “Advisory Services Agreements” surfaced in communication between the Barclays bankers and the Qataris negotiating on behalf of the Middle Eastern investors as a way for Barclays to pay the companies investing, it turned out that Sheikh Hamad bin Jassim bin Jabr Al Thani also wanted fees for his personal investment.

The bankers saw the absurdity in an ASA with a prime minister: he could not be an adviser to Barclays any more than a US president could be an adviser to JP Morgan! The solution was to increase the total payment for the ASAs to QIA: there would probably be some means to get the extra funds from QIA to its chairman, Sheikh Hamad bin Jassim bin Jabr Al Thani.

The thrust of the criminal case against the four Barclays bankers is if the fees were paid for real service, if any services were given in return for the exorbitant fees. So far, witnesses have not been aware of any services given; indeed, Agius and other witnesses were not aware of the ASAs until some years later, when the they surfaced in relation to the SFO investigation.

It is also known that the Qatari investors got a loan of $3bn from Barclays at the time, which is interesting given the Kaupthing story. This information surfaced in SFO charges against Barclays bank itself; this case was however dismissed in May 2018 by the Crown Court; in October 2018 the High Court ruled against SFO’s application to reinstate the case.

Deutsche Bank – another big bank at the mercy of Qatari investors

Deutsche Bank survived the 2008 crisis through the open funding route in the US. As Adam Tooze points out: In Europe, the bullish CEOs of Deutsche Bank and Barclays claimed exceptional status because they avoided taking aid from their national governments. What the Fed data reveal is the hollowness of those boasts.”  Fed records show “the liquidity support provided to a bank like Barclays on a daily basis, revealing a first hump of Fed Borrowing during the Bear Stearns crisis and a second in the aftermath of Lehman (p.218).

As time passed, the German bank behemoth, weighed down by falling share prices inter alia caused by scandals and fines for financial misdemeanour and sheer criminal acts in various countries, struggled to stay above required capital ratio. Already in 2014, there were news of Qatari investments in Deutsche Bank according to Der Spiegel: the deal in 2014 had been arranged by the then CEO of Deutsche, Anshu Jain. Of course, Jain knew Sheikh Hamas bin Jassim Bin Jabr Al Thani, one of the wealthiest and most influential men in the Gulf. The Sheikh had long been a valued Deutsche customer, even before the 2014 investment of €1.75bn in Deutsche made him one of the larger shareholders in Deutsche.

In autumn 2016, more was needed. Again, the Sheikh was ready to invest, this time with Sheikh Hamad Bin Khalifa Al Thani, the Kaupthing investor. The two surpassed BlackRock as Deutsche’s largest shareholders, via two investment vehicles, the BVI-registered Paramount Services Holdings Ltd and Supreme Universal Holdings Ltd., registered in the Cayman Islands, respectively owned by Sheikh Jassim and Sheikh Khalifa.

With the Kaupthing saga in mind, I sent some questions to Deutsche Bank in August 2016, asking if Deutsche knew how the Qatari shareholders had financed their investment in the bank, if Deutsche could guarantee that the bank was not lending the Qatari shareholders, or anyone related to them, the invested funds, entirely or partly, and if the Qataris were getting in dividend in advance or other benefits that might later arise from their investments.

On 25 August 2016, Deutsche’s spokesman Ronald Weichert gave the following answer:

Special agreements with individual shareholders would be a breach of the stock corporation act. We want to point out, that allegations or the mere assumption that the Supervisory Board or the Management Board could enter into such an agreement or could have entered into such agreement, are absolutely unfounded and is highly defamatory. There is absolutely no indication to justify such a reporting or any allegation of this kind.

In addition to the Icelandic Al Thani case, I pointed out that Deutsche had quite some track record in being fined or scrutinized for various illegal activities, which made the tone in the answer somewhat surprising and a tad misplaced.

In addition, I mentioned that the Qatari shares purchase in Deutsche Bank, at a crucial time for the bank, had intriguingly, been just high enough to be flagged (as with the Al Thani Kaupthing investment); exactly this fact had caused attention in the media in various countries, an interest reflected in my question. I was merely trying to understand the situation, based on what had transpired in Kaupthing and Barclays with Qatari investors.

Qatari networks in European banks, with a Chinese hint 

As Der Spiegel pointed out, there have long been rumours about the origin of the fortune of Sheikh Hamas bin Jassim Bin Jabr Al Thani “some of which don’t cast a particularly flattering light on the sheikh…” He himself has mentioned that his wealth, “like that of all Qataris, may be questionable from a Western point of view. But according to Qatari standards, it was legitimate and had been obtained through legitimate business.” – And, as Der Spiegel noted, the Sheikh had a predilection for investing in the financial sector.

When the long-troubled Dexia sold Banque International a Luxembourg, BIL, in 2011, the Sheikh bought 90% of the shares via a Luxembourg company, Precision Capital, for €750m, with the remaining 10% going to the Luxembourg government, indirectly giving the bank a touch of state guarantee. BIL has offices in Switzerland, the Middle East and in Denmark, since 2000, and Sweden since 2016. In 2017, Precision Capital sold its holdings in BIL for €1.6bn, more than double the purchase price less than six years earlier.

The buyer was Legend Holdings, a Chinese investment fund with roots in the technology industry, best known as the owner of Lenovo Group. The Chinese fund enthusiastically touted its BIL acquisition as a new Chinese European co-operation and the fund’s gateway into Europe.

BIL is well connected in tiny Luxembourg: the chairman of the board is Luc Frieden, former minister for various ministries in Jean-Claude Juncker’s governments, last minister of finance 2009 to December 2013 when both Juncker, now president of the European Commission since 2014 and Frieden left Luxembourg politics. After politics, Frieden joined Deutsche Bank as vice chairman in 2014. Based in London, he advised the bank on international and European matters, as well as being chairman of Deutsche’s supervisory board in Luxembourg, until he joined BIL’s Board in early 2016, a post he kept after Legend Holdings became the bank’s largest shareholder.

In 2012, Precision Capital also bought a Luxembourg banking group, KBL European Private Bankers, which owns seven small banks and asset managing firms spread over Europe. One of them is Merck Finck, with sixteen offices in Germany.

Legend Holdings purchase of BIL coincided with other Chinese companies buying into European banks. Fosun is now the largest shareholder in Portugal’s largest listed bank, Millennium BCP, holding 24% of its shares.

Most noticeable was however HNA Group interest in Deutsche Bank.The HNA Group, formerly Hanan Airlines, holds €83bn in global assets, mainly in hotels and airlines. HNA Group is not state-owned but its chairman, Chen Feng, is a member of the National Congress of the Chinese Communist Party. In 2017 HNA Group had suddenly become Deutsche’s largest shareholder, peaking with a shareholding of just under 10%. HNA Group announced in September 2018 it would sell its stake of 7.6% over the coming 18 months; it is no longer among the largest shareholders in Deutsche.

The Chinese interest in European banks has been a cause for concern and controversy, both in terms of political ties to Chinese authorities and in terms of management issues.

Deutsche Bank – more is needed, again the Qataris stand ready to invest

The 2014 purchase of Deutsche Bank shares was at the time seen as Sheikh Hamas bin Jassim Bin Jabr Al Thani’s most important strategic investment so far in European banks. In 2016, there had been rumours that the Qataris aimed at owning anything up to 25% of shares in Deutsche and were interested in exerting greater influence on the bank, which was not run to their taste. However, no such drastic steps were taken though the Sheikh showed support for Deutsche’s chairman, Paul Achleitner who faced criticism after the bank’s shares lost 50% of their value in early 2016.

The position of the largest shareholder in Deutsche has been wandering between a few firms. BlackRock had long been the largest shareholder until the investment by two Qatari-owned companies. In May 2017, the order changed as Deutsche raised capital. Although the two Qatari companies had been rumoured to be willing to increase their shareholding, they did not. Not then.

This was when the Chinese HNA Group replaced the two Qatar companies as the largest shareholder, holding just under 10%, a stake worth approximately €3,4bn. Shortly after the investment in Deutsche Bank, Hanan Group’s chairman Chen Feng visited Doha and met with Qatar dignitaries.

Now, BlackRock is again Deutsche’s largest single shareholder with 4.88%. However, the two Qatari companies, Paramount Services Holdings and Supreme Universal Holdings, each hold respectively exactly 3.05% and should for all practical purposes be seen as operating together, again making them the largest shareholder with 6.10%.

For years, Deutsche insiders have been searching for a turn-around plan for the bank without a clear success. Deutsche is now at a critical point: the echelons of power in Deutsche and the German government have come to the conclusion that the problem of two weak large banks – Deutsche and Commerzbank – will best be solved by merging them.

Again, Deutsche is in need of capital. It now seems that the public Qatar entity, QIA, stands ready to invest in Deutsche. A strategic investment as Qatar’s deputy prime minister and minister of foreign affairs Sheikh Mohammed bin Abdulrahman Al Thani, also chairman of QIA, has stated that Qatar is interested in further investments in Germany.

Recently, Deutsche reluctantly disclosed a hidden loss of $1.6bn, stemming from municipal bond-investment from a run-up to the 2008 crisis, which does little to strengthen the bank’s position prior to the merger with Commerzbank. – And then there is the latest scandal: Deutsche’s involvement in Danske Bank’s laundering of €230bn through its Estonian branch. In the end, Deutsche might be not only need capital but also moral vision, which might not necessarily come with Qatari funds.

Credit Suisse and the Qataris

The Qatari investment in Credit Suisse in 2008 was definitely a turning point for the bank and saved it from needing a state bailout. Though Qatar Holding has lowered its shareholding in the bank, it is still the largest shareholder with 5.21%, followed by Harris Associates, Norges Bank, the Olayan Group, owned by a Saudi family investing in the West since the 1950s and BlackRock.

The investment in Credit Suisse 2008 did not come cheaply for the bank: as in Barclays, the investment was more complicated than just buying shares. It was designed as convertible bonds in Credit Suisse, with a coupon of between 9 and 9.5%. This means that while regular shareholders have seen meagre dividends, Qatar Holding collects CHF380m each year from Credit Suisse.

Until February 2017, an Al Thani of the younger generation, Sheikh Jassim bin Hamad Al Thani, son of Sheikh Mohammed Bin Khalifa Al Thani, was on the board. When the young Sheikh stepped down, apparently without explanation, he was not replaced by another Qatari. His departure did not make much difference on the board except there would be fewer cigarette breaks without him.

At the time, there were speculations that Qatar Holding would be selling its stake in the bank, that Credit Suisse might be cutting the ties to the Qataris and would possibly use the opportunity to replace the convertible bonds with less expensive options as they came callable in 2018.

The bank did indeed do that at first opportunity, October 23 2018. In order to cut funding cost, it bought back around CHF5.9bn of debt issued after the financial crisis to QIA and the Olayan family; Qatar held just over CHF4bn, Olayan Group the rest, both being entitled to 9.5% on the securities.

The Qatar shareholding in Credit Suisse briefly dipped below 5% last year but then rose again to the present 5.21%. Some changes were made to the board in February 2019 but it is as if the Qataris have lost interest in the bank: in spite of being the largest shareholder they have not had a representative on the board since 2917.

Who learns what from whom?

“A sham agreement is one that does not mean what it says,” said Justice Jay to the jury recently at the trial against the four Barclays bankers. “It requires two parties. The counterparty to the [advisory services agreements] was a Qatari entity. The logic of the prosecution case that these defendants were dishonest must be that one or more individuals comprising or connected with the Qatari entity was equally dishonest in the criminal sense. There’s no getting around that.”

There was a sham agreement with Qatari investors at the core of the Icelandic criminal case against the three Kaupthing bankers and the bank’s second largest shareholder parallel to the sham agreement with Qatari investors at the core of the Barclays case.

It is not surprising to hear of corrupt business practices in the Middle East – it is known as a thoroughly corrupt part of the world with fabulously wealthy rulers where neither democracy nor transparency is a priority. As can be seen from the billions of pounds, dollars and euros, paid in fines by systemically important Western banks in less than a decade, partly for criminal activity, these banks do not have the highest of moral standards either.

The belief, perhaps a naïve one, was that when businessmen from corrupt parts of the world would do business with Western banks they would have to adhere to Western standards. Apart from the moral standards in Western banks clearly being shockingly low in too many cases, it seems that bankers at Barclays – and Kaupthing – were ready to meet the Middle Eastern investors at the level set by the investors. The question is how other banks have met the requests for the special treatment Middle Eastern investors seem prone to demand.

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Written by Sigrún Davídsdóttir

March 1st, 2019 at 8:19 pm

Posted in Uncategorised

Deutsche Bank, Kaupthing and alleged market manipulation

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“It’s not unlikely that an international bank wants to avoid being accused of market manipulation,” said Prosecutor Björn Þorvaldsson in Reykjavík District Court on October 11, 2017. The “international bank” was Deutsche Bank and the court case was the so-called CLN case. Deutsche was not charged with anything – the criminal case was against Kaupthing managers, charged with fraudulent lending of €510m into a scheme concocted with Deutsche. However, both Kaupthing administrators and liquidators of two BVI companies saw a way of using alleged market manipulation in these transactions to recover from Deutsche the €510m, Kaupthing had paid to Deutsche. In December 2016, Deutsche eventually concluded that paying €425m was preferable to having to recount the ignominious saga in court. All parties to the agreement are unwilling to divulge further facts but a UK court document throws light on Deutsche’s part in the alleged market manipulation, affecting not only Kaupthing’s CDS spreads but also the bond market. – The question is if this really was the only scheme of alleged market manipulation that Deutsche instigated. Further, the case throws light on how tension between Deutsche’s staff working on the scheme and those responsible for legal and reputational risk was dealt with, potentially explaining the same in other Deutsche schemes.

In January 2009, Kaupthing’s ex-chairman Sigurður Einarsson felt compelled to send a letter to family and friends to counter claims in the Icelandic media regarding Kaupthing’s activities in the months before the bank failed in October 2008. One was that in 2008 the bank had traded on its own credit default swaps, CDS, linked to credit-linked notes, CLN, to bring down the bank’s CDS spreads and thus lower the bank’s cost of financing.

Einarsson wrote that Kaupthing had indeed funded such transactions, via what he called “trusted clients” in cooperation with Deutsche Bank; the underlying assumption was that a reputable international bank would not have done anything questionable – those were the days before international banks like Deutsche were being questioned and fined for criminal actions.

The Icelandic 2010 Special Investigations Committee, SIC, report told the CDS saga in greater detail, documenting Deutsche’s full knowledge from the beginning. A 2012 London court decision added to the story: in order to recover documents related to the transactions, Stephen Akers and Mark McDonald from Grant Thornton London – appointed liquidators of two BVI companies, Chesterfield and Partridge, used in the CDS transactions in the names of the “trusted clients” – had brought Deutsche Bank to court.

The CDS saga was summed up in 2014 charges in a criminal case in Iceland: Einarsson, Kaupthing’s CEO Hreiðar Már Sigurðsson and head of the bank’s Luxembourg operations Magnús Guðmundsson were charged with breach of fiduciary duty, causing a loss of €510m to Kaupthing, some of which Kaupthing paid to Deutsche literally as Kaupthing was failing. – All of this has earlier been reported in detail on Icelog(most notably here, December 2015 and here, November 2017).

The latest addition to the CDS saga is in another court document, consolidated particulars* from 2014, as the liquidators of the two BVI companies sought to recover funds from Deutsche in a civil case by suing Sigurðsson, Einarsson, Venkatesh (or Venky) Vishwanathan the Deutsche senior banker who liaised with Kaupthing on the CLN trades and, most importantly, the liquidators sued Deutsche Bank. The fifth defendant was Jaeger Investors Corp., BVI, a director nominee for Chesterfield and Partridge.

The 2014 document shows, in extensive quotes from emails etc., that contrary to Deutsche’s version in its Annual Reports etc., the bank was fully aware of the fact that Kaupthing set up these trades and funded them in order to influence its CDS spreads, i.e. allegedly the scheme was effectively a market manipulation. In addition, the Icelandic criminal case related to the CLN transactions documented that Deutsche was on the other side of the bet, thereby effectively creating a hedge for itself.

Thus the Icelandic SIC, the Icelandic Special Prosecutor, the Kaupthing administrators and of course the liquidators of the two BVI companies have all come to the same conclusion: Kaupthing and Deutsche colluded in market manipulation.

This goes a long way to explain why Deutsche, by the end of 2016, chose to settle with Kaupthing – Deutsche Bank was not going to be dragged into court to explain the discrepancy between its public statements and internal Deutsche documents, in addition to profiting from being a counterparty in the transactions. The liquidators alleged Deutsche took part in criminal activity. This has however not been tested in court; the SFO had as early as 2010 looked at these transactions but later apparently dropped its investigation as so many others.

One intriguing aspect of the CLN transactions is that Deutsche staff took measures to hide facts from staff working on legal and reputational risk. This has immense ramification for so many other questionable transactions in the bank, which have come to light over the last few years, inter alia Deutsche’s involvement in the largest known case of money laundering of all times: Danske Bank money laundering in Estonia 2007 to 2015, a saga still in the making.

The Deutsche version of the CDS saga (is very short)

Deutsche first mentioned the CLN claims in its 2015 Annual Report (p. 340). As an introduction to the bank’s 2016 Annual Report, Deutsche CEO John Cryan sent out a message to the bank’s employees on February 2 2017 where the settlement with Kaupthing was one of four legal issues the bank had resolved and chose to emphasise.

Deutsche has consistently presented the CDS transactions as if it had only learned of the realities well after the CLN transactions, as here in 2017 (the text is the same in Deutsche’s 2015 and 2016 (p. 369) Annual Reports):

Kaupthing CLN Claims

In June 2012, Kaupthing hf, an Icelandic stock corporation, acting through its winding-up committee, issued Icelandic law claw back claims for approximately € 509 million (plus costs, as well as interest calculated on a damages rate basis and a late payment rate basis) against Deutsche Bank in both Iceland and England. The claims were in relation to leveraged credit linked notes (“CLNs”), referencing Kaupthing, issued by Deutsche Bank to two British Virgin Island special purpose vehicles (“SPVs”) in 2008. The SPVs were ultimately owned by high net worth individuals. Kaupthing claimed to have funded the SPVs and alleged that Deutsche Bank was or should have been aware that Kaupthing itself was economically exposed in the transactions.Kaupthing claimed that the transactions were voidable by Kaupthing on a number of alternative grounds, including the ground that the transactions were improper because one of the alleged purposes of the transactions was to allow Kaupthing to influence the market in its own CDS (credit default swap) spreads and thereby its listed bonds. Additionally, in November 2012, an English law claim (with allegations similar to those featured in the Icelandic law claims) was commenced by Kaupthing against Deutsche Bank in London (together with the Icelandic proceedings, the “Kaupthing Proceedings”). Deutsche Bank filed a defense in the Icelandic proceedings in late February 2013. In February 2014, proceedings in England were stayed pending final determination of the Icelandic proceedings. Additionally, in December 2014, the SPVs and their joint liquidators served Deutsche Bank with substantively similar claims arising out of the CLN transactions against Deutsche Bank and other defendants in England (the “SPV Proceedings”). The SPVs claimed approximately € 509 million (plus costs, as well as interest), although the amount of that interest claim was less than in Iceland. Deutsche Bank has now reached a settlement of the Kaupthing and SPV Proceedings which has been paid in the first quarter of 2017. The settlement amount is already fully reflected in existing litigation reserves and no additional provisions have been taken for this settlement.

As can be seen from the text, the wording is carefully calculated. Inter alia, Deutsche has never in its public statements mentioned when and how it learned of the realities of the scheme, i.e. it was funded by Kaupthing in order to manipulate its CDS spreads.

Deutsche sent Venky Vishwanathan on leave in the spring of 2015 because of his involvement in the Kaupthing scheme. In 2016, Reuters reported that Vishwanathan was suing Deutsche for unfair dismissal. The status of his case is unclear; he has not responded to my queries on LinkedIn.

An overview of the Kaupthing CLN transactions

In February 2008, at the time of the first meeting regarding the CDS spreads with Deutsche bankers, the Kaupthing management was smarting from steadily increasing financing cost; Kaupthing managers insisted the bank was unfairly targeted by hedge funds and were trying to figure out how Kaupthing could erase the image of weakness implied by the CDS spreads. Already at the first meeting with Venky Vishwanathan it was abundantly clear that Kaupthing was seeking to use own funds to influence the CDS spreads; that was the plan from the beginning – the question was just how to structure it in order to influence the CDS spreads most effectively.

The CDS scheme was developed further in the coming months as the pressure on Kaupthing increased: in spring 2008, the CDS spreads stood alarmingly at 900bp. Deutsche advised against Kaupthing’s original idea of its own direct involvement in the transactions. The solution was to find trusted clients of Kaupthing – Kevin Stanford and his wife Karen Millen, Tony Yerolemou and Skúli Þorvaldsson, all large clients of Kaupthing – who would in name own Chesterfield, the BVI company, entirely funded by Kaupthing; the transactions would be done via Chesterfield.

The Chesterfield transactions were done in August 2008. According to the SIC Report (p.26-28; in Icelandic), the CDS spreads changed on 10 August 2008, following the transaction, from 1000bp to 700bp. Though the spread diminished only for some days, it was deemed success, which should be repeated. For the second round, in September, the CLN transactions were done via another BVI company, Partridge, owned by Ólafur Ólafsson, domiciled in Switzerland, still a wealthy businessman, then Kaupthing’s second largest shareholder and a major borrower in Kaupthing. Again, the Partridge transactions were wholly funded by Kaupthing, organised by Deutsche on behalf of Kaupthing.

In total, Kaupthing paid €510m to Deutsche for the Chesterfield and Partridge trades, the last millions transferred to Deutsche from Kaupthing just as the bank teetered; it formally failed 9 October 2008. Emergency funding from the Icelandic Central Bank to Kaupthing of €500m was partly used to pay Deutsche as part of the Partridge transactions although the funding had been issued to safeguard Kaupthing’s UK operations (See the longer version on Icelog.)

Kaupthing accordingly lost the €510m because the two BVI companies had no assets to speak of, which made it clear from the beginning that should the trades go awry, the loans would be non-recoverable; a fact the liquidators noted, as did the Special Prosecutor in Iceland.

Al-Thani and the CLN trades that never happened

A very intriguing part of this story surfaced in the SIC Report (p.26-28): there had been plans for a third round of Kaupthing-funded CLN transactions through Brooks Trading Ltd, owned by a Qatari investor, Sheikh Mohamed Khalifa al Thani. Kaupthing agreed to a loan of €130m to Mink Trading, an al Thani company, in addition to a loan of $50m to Brooks Trading Ltd, another al Thani company, as up-front profit from the trades.

Again, the purpose of the loan to Mink Trading was to invest in CLN linked to Kaupthing’s CDS, again via Deutsche Bank in transactions structured as the Chesterfield and Partridge transactions. But Kaupthing ran out of time; the loan to Brooks Trading was paid out according to the SIC Report, not the loan to Mink Trading; the al Thani CLN transactions never happened.

Sheikh al Thani is a well-known name in Iceland from his role in another Kaupthing criminal case, the so-called al Thani case; although the case is commonly named after the Sheikh he was not charged (the $50m loan to Brooks Trading might have been connected to the real al Thani case, not the CLN transactions, according the the SIC Report). In the al Thani case the three Kaupthing managers, charged in the CLN case, and Ólafur Ólafsson were sentenced to three to 5 ½ years in prison. As in the CLN case, the bankers were charged for fraudulent lending, breach of fiduciary duty and market manipulation; Ólafsson was sentenced for market manipulation.

According to the SIC Report Kaupthing also agreed to lend Ólafsson €50m against profits from the Partridge trade but SIC documents do not show that the loan was issued.

The doggedly diligent liquidators

The liquidators of the two BVI companies, Stephen Akers and Mark McDonald, quickly seem to have sensed a potentially intriguing story behind the CDS transactions and had some impertinent questions for Deutsche Bank. When Deutsche was remarkably unwilling to answer their questions the liquidators took legal action against the bank in order to obtain documents, as seen in this UK court decision in February 2012.

In his affidavit in the 2012 Decision, Akers said: It is very difficult to see how the transactions made commercial sense for the Companies.” ­– As the liquidators were to uncover the short answer here is that the transactions did not make sense for the companies, which were only a tool for Kaupthing managers, as Deutsche full well knew.

This can be gauged in detail from the 2014 consolidated particulars. Well documented, it recounts the whole saga behind the CLN transactions, inter alia the following:

Already at the initial meeting in February 2008 it was clear that Kaupthing’s only reason for setting up the schemes was to bring down its CDS spreads and Kaupthing would fund the transactions; Kaupthing was willing to pay Deutsche for reaching this goal and Deutsche agreed to assisting Kaupthing in reaching it, i.e. bringing down its CDS spreads; from Kaupthing, its most senior managers were involved; at Deutsche, senior staff in London worked on the plan (para 56). A larger group were kept informed by emails, amongst them Jan Olsson managing director of Deutsche and CEO of Deutsche in the Nordics.

After a slow start, the urgency increased in summer 2008: on 18 June 2008, Vishwanathan sent an email to the Kaupthing managers proposing a concrete strategy: “Kaupthing should fund the purchase of a CLN referenced to itself. DB, as the vendor of the CLN, would then hedge its exposure under the CLN, by selling Kaupthing CDS in the market, and this would have the desired effect of lowering Kaupthing’s CDS spread.” (para 62.)

A flurry of emails followed, also because Deutsche’s legal department was hard to please (para 68-69). The bank’s Global Reputational Risk Committee was involved. Kaupthing managers understood that Deutsche staff was “bit stressed about this from a ‘reputation’ point of view.” In July, Deutsche invited Hreiðar Már Sigurðsson and his family on a trip to Barcelona, i.e. paid for flights and hotel, where Sigurðsson attended DB’s Global Markets Conference and discussed the CDS scheme (para 75).

The conclusion was that Kaupthing could not be seen to go directly into the market in transactions linked to its own CDS. The solution was to set up a Luxembourg company for the CDS trades, as Sigurðsson explained in an email to Vishwanathan during the conference: Kaupthing’s lawyer would be “setting up the lux company for our trade” (sic), also offering to discuss further “the right structure that you (i.e. Deutsche) would be comfortable with.” (para 79). That same day, Vishwanathan sent an email to a colleague informing him he was working on “putting together a bespoke ETF for some of (Kaupthing’s) close high net worth clients to take a view on (Kaupthing) CDS…” (para 80).

Late July, Kaupthing’s lawyer in Luxembourg presented an overview in an email to Deutsche’s Shaheen Yusuf, including the ownership structure with the names of the four Kaupthing clients who owned Chesterfield. The presentation clearly stated that the funding, €125m, would come from Kaupthing and that the CLN used was part of a wider scheme where Deutsche would offer CDS for sale with a total nominal value of €250m (para 89). – This document included everything regarding the planned transactions, also the funding.

As all of this is documented in email exchanges between Kaupthing managers and Deutsche staff it is clear that when Deutsche claims, inter alia in its 2015 and 2016 Annual Reports it did not know a) that the funding came from Kaupthing – and – b) that the aim of the transactions was to lower Kaupthing’s CDS spread, it goes against documents, which Deutsche had on its system at the time and should still have.

Avoiding a paper trail

Given that Deutsche’s legal department and its Global Reputational Risk Committee had been worried, the overview and its detailed information on funding etc. was unavoidably a strong dosis for Deutsche to stomach. Yusuf called Kaupthing – it’s not clear if she spoke to Hreiðar Már Sigurðsson or Magnús Guðmundsson – but her mission was to ask Kaupthing to withdraw the presentation and replace it with a new one where the fact that Kaupthing was funding the transactions would be omitted. The Kaupthing Luxembourg lawyer quickly followed her instructions, sending another presentation, with the requested changes: Kaupthing was no longer referenced as the lender.

The BVI liquidators point out that there was a phone call and not an email, concluding this was done in order to avoid a paper trail at Deutsche (para 92-93).

When the Chesterfield trades were executed in August 2008, the effect was immediate, just as Deutsche bankers had promised (para 114). In an email to Vishwanathan Hreiðar Már Sigurðsson said it seemed “our Barcelona trip paid of” (sic) – the trip where the plans were finalised (para 115-116).

Indeed, so pleased were the Kaupthing managers that they decided to do another trade of the same kind (in spite of a very short-lasting effect) (para 117). This time, it would be through a company owned by Ólafur Ólafsson, very much a part of the Kaupthing’s inner circle and a close friend of the Kaupthing managers.

“Are u not paid to work for us?”

Due to force majeur, the second CDS transactions hardly registered: Lehman Brothers collapsed on the 15 September 2008, shaking the world’s financial system to its core. Two days later, Kaupthing’s CDS spread had deteriorated further and stood at record 1150bp. As if nothing had happened in the world of finance, Magnús Guðmundsson, clearly less than pleased, wrote in an email to Vishwanathan: “How can the CDS spread be were they are compare to our trade(.) Are u not paid to work for us? (sic)” (para 128).

This exchange clearly shows how Kaupthing saw Deutsche’s role – Deutsche was acting on behalf of Kaupthing, not for the owners of the two BVI companies. Both Kevin Stanford and Tony Yerolemou have stated they had no idea how the BVI companies in their name were used – they had no idea of the funds that flowed through their companies as Kaupthing strove to meet margin calls. – Interestingly, these are not the only examples of Kaupthing using clients’ companies without the owners’ knowledge.

The liquidators conclude that the nature of the transactions of Chesterfield and Partridge were unlawful as “they were intended to, and did, secretly manipulate Kaupthing’s CDS spreads and thereby the market for CDS referenced to Kaupthing, and the market for Kaupthing bonds.” (para 142-148, further 149-176.)

According to the liquidators, Deutsche Bank broke laws on market manipulation and market abuse not only in the UK but also in other countries where financial products, influenced by Deutsche’s unlawful activities, were traded. (para 143-145).  This abuse and manipulation did not only affect Kaupthing’s CDS but also Kaupthing’s bonds as the manipulated CDS affected the pricing of Kaupthing bonds.

Further questions regarding the CDS transactions

In addition to market manipulation and being counterpart to trades Deutsche itself set up, the Kaupthing CLN transactions have other interesting aspects to ponder on.

Emails between Deutsche staff show how employees involved in the Kaupthing transactions were allegedly prepared to withhold information on the owners of the BVI companies from Deutsche’s own know-your-customer team. Also, the staff was aware of the reputational risk from being involved in transaction where a bank tried to influence its own CDS spreads.

There is nothing to indicate that this was done because the Deutsche bankers engaging with Kaupthing were less ethical than other colleagues or more prepared to stray away from the straight and narrow road of regulation – rather, that this was a way of working at the bank. It can only be assumed that in a case like this there was no guidance from the echelons of power at Deutsche, relevant to keep in mind given the enormous sums Deutsche has paid out over the years in fines, also in cases with criminal ramifications.

The CLN saga shows the inner workings of Deutsche, relevant to understand how the bank’s internal safeguarding against illegal activities were side-lined when up against the possibility of profit. Relevant for so many other cases of questionable conduct that have surfaced in the last few years. Intriguing to keep in mind regarding the latest Deutsche scandal: it’s role in Danske Bank’s money laundering in Estonia where $230bn were laundered in 2007 to 2015, where Deutsche seems to have handled around $180bn.

Another aspect is how keenly the Kaupthing managers honoured the agreement with Deutsche. Money was tight in August 2008 when the Chesterfield transaction was done. In September, money was quite literally running out and no doubt the three managers had a lot on their mind. Yet, they never lost focus on these transactions with Deutsche, diligently though with great effort meeting margin calls, even making use of the emergency lending from the Icelandic Central Bank. The managers have explained that Kaupthing’s relationship mattered greatly. Yet, given what was going on at the bank, the question still lingering in my mind why these transactions were apparently so profoundly important to the Kaupthing managers.

Deutsche Bank – the bank that paid €14.5bn(!) in fines March 2012-July 2018

Over the last few years, Deutsche Bank has been fighting regulators on all continents. In total, Deutsche paid fines of €14.5bn from March 2012 to July 2018 for criminal activity ranging from Libor fixing to money laundering, according to ZDF. And there might well be more to come as Deutsche is now involved in the largest money laundering saga of all times, Danske Bank’s laundering of $230bn from 2007 to 2015 where Deutsche allegedly handled close to $180bn of the $230bn.

Intriguingly, in June 2010 the SFO was looking at Deutsche’s role in the CDS trades, according to the Guardian. But as with so much of suspicious activities in UK banks around 2008 (and forever!) nothing more was heard of SFO’s investigation.

Deutsche has refuted having known about the realities of the CDS transactions – that Kaupthing was indeed funding the trades and doing it in order to lower its CDS spreads. However, the paper trail within the bank tells a very clear story, according to the liquidators: Deutsche full well knew the realities and thus took part in market manipulation that in the end affected not only the CDS spreads but, much more seriously, the price of Kaupthing’s bonds. The same was clear already from the SIC Reportand from the CLN criminal case in Iceland.

As mentioned earlier on Icelogthe CLN charges (in Icelandic) support and expand the evidence of Deutsche’s role in the CDS trades. The charges show that Deutsche made for example no attempt to be in contact with the Kaupthing clients who at least on paper were the owners of the two companies; Deutsche was solely in touch with Kaupthing. Inter alia, the owners were not averted regarding margin calls; Deutsche sent all claims directly to Kaupthing, apparently knowing full well where the funding was coming from and who was making the necessary decisions.

Another interesting question is who was on the other side of the CDS bets, i.e. who gained in the end when the Kaupthing-funded companies lost so miserably?

According to the Icelandic Prosecutor, the three Kaupthing bankers “claim they took it for granted that the CDS would be sold in the CDS market to independent investors and this is what they thought Deutsche Bank employees had promised. They were however not given any such guarantee. Indeed, Deutsche Bank itself bought a considerable part of the CDS and thus hedged its Kaupthing-related risk. Those charged also emphasised that Deutsche Bank should go into the market when the CDS spread was at its widest. That meant more profit for the CLN buyer Chesterfield (and also Partridge) but those charged did not in any way secure that this profit would benefit Kaupthing hf, which in the end financed the transactions in their entirety.”

Deutsche’s fees for the two CLN transactions amounted to €30m for the total CDS transactions of €510m. In addition, Deutsche will have profited from going into the market buying “a considerable part of the CDS” thus hedging its risk related to Kaupthing.

Effectively, Deutsche was not interested in having the realities of the case tested in court – it did not want to spell out in court its part in the Kaupthing market manipulation and it did not want to spell out it had itself been a counterpart in the trades. After years of legal wrangling, it chose to settle with Kaupthing and agreed to pay back €425m of the €510m Kaupthing paid to Deutsche for these transactions. – Another case of alleged banking fraud buried in the UK.

*Published by Kjarninn Iceland as an attachment to an open letter (in English but the attachments are linked to the Icelandic version) to Hreiðar Már Sigurðsson and Magnús Guðmundsson from the well-known UK retailer, Kevin Stanford. He and his ex-wife Karen Millen were clients of Icelandic banks, also of Kaupthing. – All emphasis above is mine.

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Written by Sigrún Davídsdóttir

February 5th, 2019 at 12:22 pm

Posted in Uncategorised

Rowland’s Banque Havilland fined €4 million by CSSF

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The year of 2018 did not end on a happy note at Banque Havilland: on 21 December 2018 the Luxembourg financial authority, CSSF, fined the bank €4m for non-compliance regarding law on money laundering and terrorist financing, “severe findings” according to the CSSF statement, discovered because of an on site inspection:

Banque Havilland S.A. did not comply with professional obligations with regard to the implementation of a robust central administration and sound and prudent business management and to internal governance arrangements as well as the fight against money laundering requirements.

It is worth remembering that Havilland is the bank David Rowland and his son Jonathan, via the Rowland’s investment fund Blackfish Capital, set up after buying the Kaupthing Luxembourg operations, following the default of the Icelandic Kaupthing.

It was intriguing to see that the Rowlands kept the Kaupthing management in place, this was a smooth transition at the time, nourishing speculation in Iceland that the Kaupthing top management was not far away from it all. However, the Blackfish Capital employee Martyn Konig, who became the  CEO of Havilland when the bank opened in 2009, only stayed in the job for a few days before resigning. After his resignation, Jonathan Rowland has been in charge of the bank.

It’s also been duly noted in Iceland that in the many criminal cases in Iceland regarding Kaupthing (all concerning action before the bank defaulted in October 2008), where the Kaupthing top management has been found guilty in several cases as well as large shareholders such as Ólafur Ólafsson, all the questionable deals, without exception, were carried out in Luxembourg. Indeed, the Icelandic Prosecutor, investigating these cases, has conducted several house searches at Banque Havilland, searching for material concerning its previous incarnation as Kaupthing Luxembourg.

As I’ve pointed out time and again, the Luxembourg authorities are fully informed on all investigations going on in Iceland. One case re Kaupthing has been investigated in Luxembourg, the so-called Lindsor case. Lindsor was a BVI company, owned by some Kaupthing employees.

Amongst other things, Lindsor seems to have bought bonds from Skúli Þorvaldsson, a Luxembourg-based businessman and a large client of Kaupthing, and from key employees on the “bank collapse day” 6 October 2008. On that day, the Icelandic Central Bank issued an emergency loan to Kaupthing of €500m, then ISK80bn – of these funds, ISK28bn were used in the Lindsor transaction, effectively moving this sum to Kaupthing insiders and Þorvaldsson (see my blogs concerning the Lindsor case).

So far, no news of the Lindsor investigation have come forth in Luxembourg, while some of those involved have been sentenced to long prison-sentences in Iceland. Incidentally, tomorrow 16 January, a Kaupthing-related case, the so-called Marple case, is coming to appeal court in Iceland, the Country Court (see my blogs concerning the Marple case).

Considering the history of Banque Havilland and the reputation of the Rowlands, it is very interesting to notice the severe fine from the CSSF. If this indicates any turn of events remains to be seen. We are still waiting for the Lindsor investigation (not to mention the Landsbanki Luxembourg equity release loans, another Luxembourg saga extensively covered on Icelog).


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Written by Sigrún Davídsdóttir

January 15th, 2019 at 10:04 am

Posted in Uncategorised

Wow Air – uncertainty and unanswered questions

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Wow Air, the bold newish privately owned air company on the Icelandic aviation market had planned to be done by now with a bond offering, organised by Pareto Securities, Norway. Closing the offering has been postponed, indicating the bond market is sitting on its hands. The news over the last two weeks has been of a flurry of meetings with no outcome. A presentation on Pareto’s website indicated a weak financial position, which makes the attempt to sell bonds rather unconvincing – and the planned IPO in 18 months more a wishful than a realistic aim.

Tourism is now the largest contributor to balance of payment in Iceland. At the same time, tourism is a major risk factor in the Icelandic economy. Part of that risk is related to aviation – two air companies dominate the aviation market, Icelandair and Wow Air. The news of Wow’s shaky bond offering has rattled the Icelandic króna and the stock market.

Wow Air is privately owned but is now clearly in major financial difficulties. The Icelandic media seems tongue-tied, plenty of rumours but little clarity. One thing seems certain: the bond offering that Pareto Securities launched in August did not seem to be going as hoped.

After silence and then upbeat statements from Wow many questions remain unanswered. Wow has now promised a statement today, Tuesday 18 September.

The much announced bond offer

Over the years, news as to what Wow would do has been a bit here and there. Last year, Skúli Mogensen said to Bloomberg the airline might be sold within the next two years. Finding other shareholders has also been in the air. Now, he aims at an IPO in 18 months. The losses last year were ISK2.4bn, that is around €19m or $22m.

In the meantime, Wow needs to stay in the air. The bond offering now was supposed to give a financial boost of around ISK12bn, €94m or $110m, but half that would be a minimum. After the offering opened the conditions were changed, making the bonds convertible. And the minimum proved elusive. The Icelandic banks and pension funds were courted and apparently put under serious pressure, as there were fears of reputational damage and a nose-diving króna.

Part of the problem is that equity is next to none, something that Wow’s owner nonchalantly mentioned in an interview with the Icelandic Morgunblaðiðin spring. In addition to losses last year and this year, with rising oil prices. Wow does not own any airplanes, which makes it difficult to find any tangible collateral.

In an interview yesterday with the Financial TimesMogensen did not mention the bond offering, only that Wow Air was aiming to raise $200m to $300m in an IPO within 18 months. Those who have studied Wow’s available financial information scratch their head – it is hard to see anything that indicates a turn-around except for Wow’s own very optimistic forecast.

From Oz to Wow

With his predilection for short and sassy company names, Skúli Mogensen had his second coming in the Icelandic business community as the owner of Wow Air in 2012. The first one was in the 1990s as one of the founders of the Icelandic dotcom sputnik Oz. Oz crashed but the experience spawned many other IT companies in the following years as Oz founders and staff kept going elsewhere.

Mogensen however left Iceland and ran Oz Communications in Canada, selling it in 2008 to Nokia. Since it was a private deal little information is available. However, it seems that in spite of rapid and bold, some might say hubristic, expansion the company has been under-financed from the beginning, according to an Icelog source. In may ways, the Wow saga is similar in audacity to the Icelandic banks expansion after 2000.

One of the unanswered questions regards Wow’s debt to Isavia, the state-owned company that runs Keflavík Airport. Morgunblaðið claims Wow’s debt to Isavia is ISK2bn; the number I’ve heard is ISK1bn. If it’s the case that Wow has been allowed to run up a debt to Isavia or has secured more favourable terms than its competitors that is a serious issue. Sadly, that will remind Icelanders of how certain large shareholders in the collapsed banks were allowed to bank on wholly unsustainable terms.

Low-cost carriers are feeling the strain. The business model of offering stop-over in Iceland is also being tested. All of this is at play in the Wow cliff-hanger saga.

*According to Wow Air statement at 3pm Icelandic time, the bond offering has now been closed. Wow Air issuing €60m, €50m of which have already been sold:

*** WOW air – New Bond Issue – Book is closed ***


Issue Size……………EUR 60mm

Coupon………………3m Euribor +9% (Euribor floor at zero) + warrants

Update: Recently, Icelandair made a bid to buy Wow Air. The offer was dependent on due diligence ending this week, in time for Icelandair shareholder meeting on Thursday. According to unconfirmed Icelog sources, the state of affairs at Wow Air is not looking very promising, making it less likely that the sale will go through. Were that to happen, Wow Air would go into receivership. Today, the Icelandic Stock Exchange stopped trade in Icelandair shares, on demand of the FME, the Icelandic financial regulator.

Update 29 November, 9:30: Icelandair has just announced that it’s not going ahead with buying Wow Air, as it had announced, due diligence pending, November 5. Wow CEO Skúli Mogensen recently announced there were other possible buyers. I doubt they will materialise, more likely this is the end of Wow…

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Written by Sigrún Davídsdóttir

September 18th, 2018 at 8:48 am

Posted in Uncategorised

The unsolved case of Landsbanki in dirty-deals Luxembourg / 10 years on

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The Icelandic SIC report and court cases in Iceland have made it abundantly clear that most of the questionable, and in some cases criminal, deals in the Icelandic banks were executed in their Luxembourg subsidiaries. All this is well known to authorities in Luxembourg who have kindly assisted Icelandic counterparts in obtaining evidence. One story, the Landsbanki Luxembourg equity release loans, still raises many questions, which Luxemburg authorities do their best to ignore in spite of a promised investigation in 2013. Some of these questions relate to the activities of the bank’s liquidator, ranging from consumer protection, the bank’s investment in the bank’s own bonds on behalf of clients and if the bank set up offshore companies for clients without their consent.

The Landsbanki Luxembourg equity release loans were issued to clients in France and Spain. Indeed, all these loans were issued to clients outside of Luxembourg. One intriguing fact emerged during the French trial in Paris last year against Landsbanki Luxembourg and nine of its executives and advisors: the French clients got the bank’s loan documents in English, the non-French clients got theirs in French.*

Landsbanki Iceland went into administration October 7 2008. The next day, Landsbanki Luxembourg was placed into moratorium; liquidation proceedings started 12 December. Over the years, Icelog has raised various issues regarding the Landsbanki Luxembourg equity release loans, mostly sold to elderly people (see here). These issues firstly relate to how the bank handled these loans, both the marketing and the investments involved and secondly, how the liquidator Yvette Hamilius, has handled the Landsbanki Luxembourg estate and the many complaints raised by the equity release clients.

A liquidator is an independent agent with great authority to investigate. There is abundant material in Iceland, both from the 2010 Report of the Special Investigative Commission, SIC and Icelandic court cases where almost thirty bankers and others close to the banks have been sentenced to prison. These cases have invariably shown that the most dubious deals were done in the banks’ Luxembourg operations.

Already by June 2015, liquidators of the estates of the three large Icelandic banks were ending their work, handing remaining assets over to creditors. In the, in comparison, tiny estate of Landsbanki Luxembourg there is no end in sight due to various legal proceedings. Yet, its arguably largest problem, the so-called Avens bond, was solved already in 2011. At the time, Már Guðmundsson governor of the Icelandic Central Bank paid tribute to the help received from amongst others Hamiliusfor “considerable efforts in leading this issue to a successful conclusion.”

The Landsbanki Luxembourg equity release clients have another story to tell, both in terms of their contacts with the liquidator and Luxembourg authorities. In May 2012, these clients, who to begin with had each and everyone been struggling individually, had formed an action group and aired their complaints in a press release, questioning Luxembourg’s moral standing and Hamilius’ procedures.

The following day, the group got an unexpected answer: Luxembourg State Prosecutor Robert Biever issued a press release. As I mentioned at the time, it was jaw-droppingly remarkable that a State Prosecutor saw it as his remit to address a press release directed at the liquidator of a private company in a case the Prosecutor had not investigated. According to Biever, Hamilius had offered the borrowers “an extremely favourable settlement” but “a small number of borrowers,” unwilling to pay, was behind the action.

In 2013 Luxembourg Justice Minister promised an investigation into the Landsbanki products that was already taking “great strides.” So far, no news.

The Landsbanki Luxembourg equity release scheme: high risk, rambling investments

In theory, the magic of equity release loans is that by investing around 75% of the loan the dividend will pay off the loan in due course. I have seen calculations of some of the Landsbanki equity release loans that make it doubtful that even with decent investments, the needed level of dividend could have been reached – the cost was simply too high.

If something seems too good to be true it generally is. However, this offer came not from a dingy backstreet firm but from a bank regulated and supervised in Luxembourg, a country proud to be the financial centre of Europe. And Landsbanki was not the only bank offering these loans, which interestingly have long ago been banned or greatly limited in other countries. In the UK, equity release loans wrecked havoc and created misery some decades ago, leading to a ban on putting up the borrower’s home as collateral.

Having scrutinised the investments made for some of the Landsbanki Luxembourg clients the first striking thing is an absolutely staggering foreign currency risk, also related to the Icelandic króna. Underlying bonds on the foreign entities such as Rabobank and European Investment Bank were nominated in Icelandic króna (see here on Rabobank ISK bond issue Jan. 2008), in addition to the bonds of Kaupthing and Landsbanki, the largest and second largest Icelandic banks at the time.

Currencies were bought and sold, again a strategy that will have generated fees for the bank but was of dubious use to the clients.

The second thing to notice is the rudderless investment strategy. To begin with the money was in term deposits, i.e. held for a fixed amount of time, which would generate slightly higher interest rates than non-term deposits. Then shares and bonds were bought but there was no apparent strategy except buying and selling, again generating fees for the bank.

The equity release clients were normally not keen on risk but the investments were partially high risk. The 2007 and 2008 losses on some accounts I have looked have ranged from 10% to 12%. These were certainly testing years in terms of investment but amid apparently confused investing there was indeed one clear pattern.

One clear investment pattern: investing in Landsbanki and Kaupthing bonds

Having analysed statements of four clients there is a recurring pattern, also confirmed by other clients and a source with close knowledge of the bank’s investments: in 2008 (and earlier) Landsbanki Luxembourg invariably bought Landsbanki bonds as an investment for clients, thus turning the bank’s lending into its own finance vehicle. In addition, it also bought Kaupthing bonds. The 2010 SIC report cites examples of how the banks cooperated to mitigate risk for each other.

It is not just in hindsight that buying Landsbanki and Kaupthing bonds as equity release investment was a doomed strategy. Both banks had sky-high risk as shown by their credit default swap, CDS. The CDS are sort of thermometer for banks indicating their health, i.e. how the market estimates their default risk.

The CDS spread for both banks had for years been well below 100 points but started to rise ominously in 2007 as the risk of their default was perceived to rise. At the beginning of 2008, the CDS spread for Landsbanki was around 150 points and 300 points for Kaupthing. By summer, Kaupthing’s CDS spread was at staggering 1000 points, then falling to 800 points. Landsbanki topped close to 700 points. The unsustainably high CDS spread for these two banks indicated that the market had little faith in their survival. With these spreads, the banks had little chance of seeking funds from institutional investors (SIC Report, p.19-20).

The red lights were blinking and yet, Landsbanki Luxembourg staff kept on steadily buying Landsbanki and Kaupthing bonds on behalf of clients who were clearly risk-averse investors.

Equity release investment in some details

To give an idea of the investments Landsbanki Luxembourg made for equity release borrowers, here is some examples of investment (not a complete overview) for one client, Client A:

Loan of €2.1m in January 2008; the loan was split in two, each half converted into Swiss francs and Japanese yens. The first investment, €1.4m, two thirds of the loan,was in LLIF Balanced Fund (in Landsbanki Luxembourg loan documents the term used is Landsbanki Invest. Balanced Fund 1 Cap but in later overviews from the liquidator it is called LLIF Balanced Fund, a fund named in Landsbanki’s Financial Statements 2007 as one of the bank’s investment funds).

Already in February 2008 Landsbanki Luxembourg bought Kaupthing bond for this client for €96.000. End of April 2008 €155.000 was invested in Landsbanki bond, days before €796.000 of the LLIF Balanced Fund investment was sold. Late May and end of August Landsbanki bonds were bought, in both cases for around €99.000. In early September 2008 Landsbanki invested $185.000 in Kaupthing bonds for this client. The next day, the bank sold €520.000 in LLIF Balanced Fund.

Landsbanki’s investments were focused on the financial sector that in 2008 was showing disastrous results. For client A the bank bought bonds in Nykredit, Rabobank, IBRD and EIB, apparently all denominated in Icelandic króna. In addition, there were shares in Hennes & Maurits, and a Swedish company selling food supplement.

A similar pattern can be seen for the other clients: funds were to begin with consistently invested in LLIF Balanced Fund but later sold in favour of Kaupthing and Landsbanki bonds. Although investment funds set up by the Icelandic banks were later shown to contain shares in many of the ill-fated holding companies owned by the banks’ largest shareholders – also the banks’ largest borrowers – a balanced fund should have been seen as a safer investment than bonds of banks with sky-high CDS spreads.

MiFID and the Landsbanki Luxembourg equity release loans

Landsbanki certainly did not invent equity release loans. These loans have been around for decades. Much like foreign currency, FX, loans, a topic extensively covered by Icelog, they have brought misery to many families, in this case mostly elderly people. FX lending has greatly diminished in Europe, also because banks have been losing in court against FX borrowers for breaking laws on consumer protection.

There might actually be a case for considering the equity release loans as FX loans since the loans, taken in euros, were on a regular basis converted into other currencies, as mentioned above. – This is, so far, an unexplored angle of these cases that Luxembourg authorities have refused to consider.

Another legal aspect is that the first investments were normally done before the loans had been registered with a notary, as is legally required in France.

The European MiFID, Markets in Financial Instruments Directive was implemented in Luxembourg and elsewhere in the EU in 2007. The purpose was to increase investor protection and competition in financial markets.

Consequently, Landsbanki Luxembourg was, as other banks in the EU, operating under these rules in 2007. It is safe to say, that the bank was far below the standard expected by the MiFID in informing its clients on the risk of equity release loans.

The following paragraph was attached to Landsbanki Luxembourg statements: “In the event of discrepancies or queries, please contact us within 30 days as stipulated in our “General Terms and Conditions.”– However, the bank almost routinely sent notices of trades after the thirty days had passed.

It is unclear if the liquidator has paid any attention to these issues but from the communication Hamilius has had with the equity release clients there is nothing to indicate that she has investigated Landsbanki operations compliance with the MiFID. MiFID compliance is even more important given that courts have been turning against equity release lenders in Spain due to lack of consumer protection – and that banks have been losing in courts all over Europe in FX lending cases.

Clients offshorised without their knowledge

The “Panama Papers” revealed that Landsbanki was one of the largest clients of law firm Mossack Fonseca; it was Landsbanki’s go-to firm for setting up offshore companies. Kaupthing, no less diligent in offshoring clients, had its own offshore providers so the leak revealed little regarding Kaupthing’s offshore operations. The prime minister of Iceland Sigmundur Davíð Gunnlaugsson, who together with his wife owned a Mossack Fonseca offshore company, became the main story of the leak and resigned less than 48 hours after the international exposure.

In September 2008, a Landsbanki Luxembourg client got an email from the bank with documents related to setting up a Panama company, X. The client was asked to fill in the documents, one of them Power of Attorney for the bank and return them to the bank. The client had never asked for this service and neither signed nor sent anything back.

In May 2009, this client got a letter from Hamilius, informing him that the agreement with company X was being terminated since Landsbanki was in liquidation. The client was asked to sign a waiver and a transfer of funds. Attached was an invoice from Mossack Fonseca of $830 for the client to pay. When the client contacted the liquidator’s office in Luxembourg he was told he should not be in possession of these documents and they should either be returned or destroyed. Needless to say, the client kept the documents.

Company X is in the Offshoreleak database, shown as being owned by Landsbanki and four unnamed holders of bearer shares. – Widely used in offshore companies, bearer shares are a common way of hiding beneficial ownership. Though not a proof of money laundering, the Financial Action Task Force, FATF, considers bearer shares to be one of the characteristics of money laundering.

This shows that Landbanki Luxembourg set up a Panama company in the name of this client although the client did not sign any of the necessary documents needed to set it up. Also, that the liquidator’s office knew of this. (This account is based on the September 2009 email from Landsbanki Luxembourg to the client and a statement from the client).

Other clients I have heard from were offered offshore companies but refused. The story of company X only came out because of the information mistakenly sent from the liquidator to the client.

Landsbanki Luxembourg clients now wonder if companies were indeed set up in their names, if their funds were sent there and if so, what became of these funds. This has led them to attempt legal action in Luxembourg against the liquidator. Only the liquidator will know if it was a common practice in Landsbank Luxembourg to set up offshore companies without clients’ consent, if money were moved there and if so, what happened to these funds.

The curious role of a certain Philomène Ruberto

Invariably, the equity release loans in France and Spain were not sold directly by Landsbanki Luxembourg but through agents. This is another parallel to FX lending characterised by this pattern. According to the Austrian Central Bank this practice increases the FX borrowing risk as agents are paid for each loan and have no incentive to inform the client properly of the risks involved.

One of the agents operating in France was a French lady, Philomène Ruberto. In 2011, well after the collapse of Landsbanki, the Landsbanki Luxembourg was putting great pressure on the equity release borrowers to repay the loans. At this time, Ruberto contacted some of the clients in France. Claiming she was herself a victim of the bank, she offered to help the clients repay their loans by brokering a loan through her own offshore company linked to a Swiss bank, Falcon Private Bank, now one of several banks caught up in the Malaysian 1MDB fraud.

Some clients accepted the offer but that whole operation ended in court, where the clients accused Ruberto of fraud and breach of trust. In a civil case judgement at the Cour d’appel d’Aix en Provence in spring 2013, the judge listed a series of Ruberto’s earlier offenses, committed before and during the time she acted as an agent for Landsbanki:

Screenshot 2018-07-04 17.41.41

This case was sent on a prosecutor. In a penal case in autumn 2014 Ruberto was sentenced by Tribunal Correctionnel de Grasse to 36 months imprisonment, a fine of €15,000 in addition to the around €190,000 she was ordered to pay the civil parties. According to the 2104 judgement Ruberto was, at the time of that case, detained for other causes, indicating that she has been a serial financial fraud offender since 2001.

But Ruberto’s relationship with Landsbanki Luxembourg prior to the bank’s collapse has a further intriguing dimension: GD Invest, a company owned by Ruberto and frequently figuring in documents related to her services, was indeed also one of Landsbanki Luxembourg largest borrowers. The SIC Report (p.196) lists Ruberto’s company, GD Invest, as one of the bank’s 20 largest borrowers, with a loan of €5,4m.

In 2007, at the time Ruberto was acting as an agent in France for Landsbanki Luxembourg, she not only borrowed considerably funds but, allegedly, on very favourable terms. In March 2007, GD Invest borrowed €2,7m and then further €2.3m in August 2007, in total almost €5,1m. Allegedly, Ruberto invested €3m in properties pledged to Landsbanki but the remaining €2m were a private loan. It is not clear what or if there was a collateral for that part.

By the end of 2011, Ruberto’s debt to Landsbanki Luxembourg was in total allegedly €7,5m. In January 2012 it is alleged that the Landsbanki Luxembourg liquidator made her an offer of repaying €2,4m of the total debt, around 1/3 of the total debt. Ruberto’s track record of fraudulent behaviour from 2001, raises questions to her ties first to Landsbanki and then to Landsbanki Luxembourg liquidator. (The overview of Ruberto’s role is based on emails and court documents provided by Landsbanki Luxembourg equity release borrowers.)

Inconsistent information from the Landsbanki Luxembourg liquidator

From 2012, when I first heard from Landsbanki Luxembourg equity release borrowers, inconsistent information from the liquidator has been a consistent complaint. The liquidator had then been, and still is, demanding repayment of sums the clients do not recognise. There are also examples of the liquidator coming up with different figures not only explained by interest rates. The borrowers have been unwilling to pay because there are too many inconsistencies and too many questions unanswered.

As mentioned above, Landsbanki Luxembourg was put in suspension of payment, in October 2008 and then into administration in December 2008. As far as is known, people who later took over the liquidation were called on to work at the bank during this time. During this time, many clients were informed that their properties had fallen in value, meaning that the collateral for their loan, the property, was inadequate. Consequently, they should come up with funds. At this time, there was no rational for a drop in property value. This is one of the issues the borrowers have, so far unsuccessfully, tried to raise with the liquidator.

Other complaints relate to how much had been drawn. One example is a client who had, by October 2008, in total drawn €200,000. This is the sum this client want to repay. Mid October 2008, after Landsbanki Luxembourg had failed, this client got a letter from a Landsbanki employee stating that close to €550,000, that the client had earlier wanted transferred to a French account, was still “safe” on the Landsbanki account. This amount was never transferred but the liquidator later claimed it had been invested and demanded that the client repay it.

The liquidator has taken an adversarial stance towards these clients. The clients complain of lack of transparency, inconsistent information, lack of information and lack of will to meet with them to explain controversies.

The role and duty of a liquidator

By late 2009 the liquidator had sold off the investments. This is what liquidators often do: after all, their role is to liquidate assets and pay creditors. However, a liquidator also has the duty to scrutinise activity. That is for example what liquidators of the banks in Iceland have done. A liquidator is not defending the failed company but the interests of creditors, in this case the sole creditor, LBI ehf.

Incidentally, the liquidator has not only been adversarial to the clients of Landsbanki but also to staff. In 2011 the European Court of Justice ruled against the liquidator in reference for a preliminary ruling from the Luxembourg Cour du cassation brought by five employees related to termination of contract.

Liquidators have great investigative powers. In addition to documents, they can also call in former staff as witnesses to clarify certain acts and deeds. If this had been done systematically the things outlined above would be easy to ascertain such as: is it proper in Luxembourg that a bank systematically invests clients’ funds in the bank’s own bonds? Was the investment strategy sound – or was there even a strategy? Were clients’ funds systematically moved offshore without their knowledge? If so, was that done only to generate fees for the bank or were there some ulterior motives? And have these funds been accounted for? A liquidator can take into account the circumstances of the lending and settle with clients accordingly.

And how about informing the State Prosecutor of Landsbanki’s investments on behalf of clients in Landsbanki bonds and the offshoring of clients without their knowledge?

But having liquidators in Luxembourg asking probing questions and conducting investigations is possibly not cherished by Luxembourg regulators and prosecutors, given that the country’s phenomenal wealth is partly based on exactly the kind of dirty deals seen in the Icelandic banks in Luxembourg.

LBI ehf – the only creditor to Landsbanki Luxembourg

Landsbanki Luxembourg has only one creditor – the LBI ehf, the estate of the old Landsbanki Iceland. According to the LBI 2017 Financial Statements the expected recovery of the Landsbanki Luxembourg amounts to €84,3m, compared to €74,3m estimated last year. The increase is following what LBI sees as a “favourable ruling by the Criminal Court in Paris on 28 August 2017,” i.e. that all those charged were acquitted.

The only assets in Landsbanki Luxembourg are the equity release loans. The breakdown of the loans, in EUR millions, in the LBI 2017 Statements is the following:

Screenshot 2018-07-04 17.37.26

Further to this the Statements explain that “LBI’s claims against the Landsbanki Luxembourg estate amounted to EUR 348.1 million, whereas the aggregate balance of outstanding equity release loans amounted to EUR 293.0 million with an estimated recoverable value … of EUR 84.3 million.”

As pointed out, the information “regarding legal matters pertaining to the Landsbanki Luxembourg estate is mainly based on communications from that estate‘s liquidator, and not all of such information has been independently verified by LBI management.”

Apart from the criminal action in Paris and the appeal of the August 2017 judgment, the Financial Statements mention other legal proceedings: “Landsbanki Luxembourg is also subject to criminal complaints and civil proceedings in Spain. … In November 2012, several customers in France and Spain brought a criminal complaint in Luxembourg against the liquidator, alleging that the former activities of Landsbanki Luxembourg are criminal and thus that the estate’s liquidator should be convicted for money laundering by trying to execute the mortgages. Other criminal complaints have been filed in Luxembourg in 2016 and 2017 based on the same grounds against the liquidator personally.”

This all means that “LBI’s presented estimated recovery numbers are subject to great uncertainty, both in timing and amount.”

What is Luxembourg doing?

It is not the first time I ask this question here on Icelog. In July 2013 there was the news from Luxembourg, according to the Luxembourg paper Wort, that there were two investigations on-going in Luxembourg related to Landsbanki. This surfaced in the Luxembourg parliament as the Justice Minister Octavie Modert responded to a parliamentary question from Serge Wilmes, from the centre right CSV, Luxembourg’s largest party since founded in 1944.

According to Modert both cases related to alleged criminal conduct in the Icelandic banks. One investigation was into financial products sold by Landsbanki. “…the deciding judge is making great strides,” she said, adding that in order not to jeopardize the investigation, the State Attorney was unable to provide further details on the results already achieved.”

Sadly, nothing further has been heard of this investigation.

In spring 2016 the Luxembourg financial regulator, Commission de surveillance du secteur financier, CSSF had set up a new office to protect the interests of depositors and investors. This might have been 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.

The person chosen to be in charge is Karin Guillaume, the magistrate who ruled on the Landsbanki Luxembourg liquidation in December 2008. 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. From the perspective of the Landsbanki Luxembourg clients, CSSF has chosen a person with a proven track record of ignoring the interests of depositors and investors.

So far, Luxembourg authorities have resolutely avoided investigating Landsbanki and the other Icelandic banks. In Iceland almost 30 bankers, also from Landsbanki, and others close to the banks have been sentenced to prison, up to six years in some cases (changes to Icelandic law on imprisonment some years ago mean that those sentenced serve less than half of that time in prison before moving to half-way house and then home; they are however electronically tagged and can’t leave the country until the time of the sentence is over).

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

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

Almost ten years after the collapse of Landsbanki, equity release clients of Landsbanki Luxembourg are still waiting for the promised investigation, wondering why the liquidator is so keen to soldier on for a bank that certainly did participate in doubtful matters.

*In court, the French singer Enrico Macias mentioned that all his documents were in English. I found this strange since I had seen documents in French from other clients and knew there was a French documentation available. When I asked Landsbanki Luxembourg clients this pattern emerged. All the clients asked for contracts in their own language. When the non-French clients asked for contracts in English they were told the documentation had to be in French as the contracts were operated in France. Conversely, the French were told that the language was English as it was an English scheme. I have now seen this consistent pattern on documents for the various clients. – Here is a link to all Icelog blogs, going back to 2012, related to the equity release loans. Here is a link to the Landsbanki Luxembourg victims’ website.

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Written by Sigrún Davídsdóttir

July 4th, 2018 at 5:55 pm

Posted in Uncategorised

Lessons from Iceland: the SIC report and its long lasting effect / 10 years after

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The Bill passed by the Icelandic parliament in December 2008 on setting up an independent investigative commission, the Special Investigative Commission did not catch much attention at the time. The goal was nothing less than finding out the truth in order to establish events leading up to the 2008 banking collapse, analyse causes and drawing some lessons. The SIC report was an exemplary work and immensely important at the time to establish a narrative of the crisis. But in hindsight, there is yet another lesson to be learnt: its importance does not diminish with time as it helps to counteract special interests seeking to rewrite history.

There were no big headlines when on 12 December 2008 Alþingi, the Icelandic parliament, passed a Bill to set up an investigative commission “to investigate and analyse the processes leading to the collapse of the three main banks in Iceland,”which had shaken the island two months earlier. The palpable lack of enthusiasm and attention was understandable: the nation was still stunned and there was no tradition in Iceland for such commissions. No one knew what to expect, the safest bet was to not expect very much.

That all changed when the Commission presented its results in April 2010. Not only was the report long – 2600 pages in print in addition to online-only material – but it did actually tell the real story behind the collapse: the immensely rapid growth of the banks, from one GDP in 2002 to ten times the GDP in 2008, the stronghold the largest shareholders, incidentally also the largest borrowers, had on the banks’ managements, the political apathy and lax regulation by weak regulators, stemming from awe of the financial sector.

Unfortunately, the SIC report was not translated in full into English; see executive summary and some excerpts here.

With time, the report’s importance has not diminished: at the time, it clarified what had happened thus preventing those involved or others with special interest, to reshape the past according to their own interests. With time, hindering the reshaping of the past has become of major importance, also in order to draw the right lessons from the calamitous events in October 2008.

What was the SIC?

According to the December 2008 SIC Act (in Icelandic), the goal was setting up an investigative commission, that would, at the behest of Alþingi, seek “the truth about the run-up to and the causes of the collapse of the Icelandic banks in 2008 and related events. [The SIC] is to evaluate if this was caused by mistake or neglect in carrying out law and regulation of the financial sector in Iceland and its supervision and who could be held responsible for it.” – In order to fulfil its goal the SIC was inter alia to collect information on the financial sector, assess regulation or lack thereof and come up with proposals to prevent the repetition of these events.

In some countries, most notably in South Africa after apartheid, “Truth Commissions,” have played a major part in reconciliation with the past. Although the remit of the Icelandic SIC was to establish the truth, the SIC was never referred to as a “truth commission” in Iceland though that concept has been used in foreign coverage of the SIC.

The SIC had the power to make use of a vast array of sources, both by calling in people to be questioned and documents, public or private such as bank data, including data on named individuals, data from public institutions, personal documents and memos. Data, normally confidential, had to be shared with the SIC, which was obliged to operate as any other public body handling sensitive or confidential information.

Although the SIC had to follow normal procedures of discretion on personal data the SIC could “publish information, normally subject to discretion, if the SIC deems this necessary to support its conclusions. The Commission can only publish information on personal matters of named individuals, including their financial affairs, if the public interest is greater than the interest of the individuals concerned.” – In effect, this clause lift banking secrecy.

One source close to the process of setting up the SIC surmised the political intentions behind the SIC Act did not include lifting banking secrecy, indicating that the extensive powers given to the SIC were accidental. Others have claimed the SIC’s extensive powers were always part of the plan. I am in two minds about this but my feeling is that the source close to the process was right – the powers to scrutinise the main shareholders were far greater than intended to begin with.

Naming the largest borrowers, incidentally also the largest shareholders

Intentional or not, the extensive powers enabled naming the individuals who received the largest loans from the banks, incidentally their largest shareholders and their closest business partners. This was absolutely essential in order to understand how the banks had operated: essentially, as private fiefdoms of the largest shareholders.

In order to encourage those called in for questioning to speak freely, the hearings were held behind closed doors; there were no public hearings. The SIC had extensive powers to call people in for questioning: it could ask for a court order if anyone declined its invitation, with the threat of taking that person to court on grounds of contempt in case the invitation was declined.

Criminal investigation was not part of the SIC remit but its power to call for material or call in people for questioning was parallel to that of a prosecutor. As stated in the report, the SIC was obliged to inform the State Prosecutor if there was suspicion of criminal conduct:

The SIC’s assessment, pursuant to Article 1(1) of Act no. 142/2008, was mainly aimed at the activities of public bodies and those who might be responsible for mistakes or negligence within the meaning of those terms, as defined in the Act. Although the SIC was entrusted with investigating whether weaknesses in the operations of the banks and their policies had played a part in their collapse, the Commission was not expected to address possible criminal conduct of the directors of the banks in their operations.

As to suspicion of civil servants having failed to fulfil their legal duties, the SIC was supposed to inform appropriate instances. The SIC was not obliged to inform the individuals in question. As to ministers, the SIC was to follow law on ministerial responsibility.

The three members

The SIC Act stipulated it should have three members: the Alþingi Ombudsman, then as now Tryggvi Gunnarsson, an economist and, as a chairman, a Supreme Court Justice. The nominated economist was Sigríður Benediktsdóttir, then lecturer at Yale University (director of Financial Stability at CBI 2012 to 2016 when she returned to Yale). The chairman was Páll Hreinsson (since 2011 judge at the EFTA Court).

In addition to the Commission there was a Working Group on Ethics: Vilhjálmur Árnason professor of philosophy, Salvör Nordal director of the Centre for Ethics, both at the University of Iceland and Kristín Ástgeirsdóttir director of the Equal Rights Council in Iceland. Their conclusions were published in Vol. 8 of the SIC report.

In total, the SIC had a staff of around 30 people. As with the Anton Valukas report, published in March 2010, on the collapse of Lehman Brothers, organising the material, especially the data from the banks, was a major task. The SIC had access to the databases of the three collapsed banks but had only limited data from the banks’ foreign operations.

There were absolutely no leaks from the SIC, which meant it was unclear what to expect. Given its untrodden path, the voices expressing little faith were the most frequently heard. I had however heard early on, that the SIC had a firm grip on turning material into searchable databases, which would mean a wealth of material. With qualified members and staff, I was from early on hopeful that given their expertise of extracting and processing data the SIC report would most likely prove to be illuminating – though I certainly did not imagine how extensive and insightful it turned out to be.

Greed, fraud and the collapse of common sense

After the October 2008 collapse, my attention had been on some questionable practices that I heard of from talking to sources close to the failed banks.

One thing I had quickly established was how the banks, through their foreign subsidiaries, had offshorised their Icelandic clients. This counted not only for the wealthy businessmen who obviously understood the ramifications of offshorising but also people with relatively small funds. These latters had in many cases scant understanding of these services.

In the last few years, as information on offshorisation has come to the light via Offshoreleaks etc., it has become clear that Iceland was – and still is – the most offshorised country in the world (here, 2016 Icelog on this topic). Once the “art” of offshorisation is established, with all the vested interests accompanying it, it does not die easily – this might be considered one of the failed banks’ more evil legacies.

Another point of interest was how the banks had systematically lent clients, small and large, funds to buy the banks’ own shares, i.e. Kaupthing lent funds to buy Kaupthing shares etc. Cross-lending was also a practice: Bank A would lend clients to buy Bank B shares and Bank B lent clients to buy Bank A shares. This was partly used to hinder that shares were sold when buyers were few and far behind, causing fall in market value. In other words, massive market manipulation had slowly been emerging. Indeed, the managers of all three failed banks have in recent years been sentenced for market manipulation.

It had also emerged, that the banks’ largest shareholders/clients and their business partners had indeed been what I have called “favoured clients,” i.e. enjoying services far beyond normal business practices. One side of this came to light in the banks’ covenants in lending agreements: in the case of the “favoured clients,” the lending agreements tended to guarantee clients’ profit, leaving the banks with the losses. In other words, the banks took on far greater portion of the risk than these clients.

Icelog blogs I wrote in February 2010, before the publication of the SIC report, give some sense of what was known at the time. Already then, it seemed fair to conclude that greed, fraud and the collapse of common sense had been decisive factors in the event in Iceland in October 2008.

Monday morning 12 April 2010 – when time stood still in Iceland

The excitement in Iceland on Monday morning 12 April 2010 was palpable. The press conference was transmitted live. All around Iceland employers had arranged for staff to watch as the SIC presented its conclusions.

After Páll Hreinsson’s short introduction, Sigríður Benediktsdóttir gave an overview of the main findings regarding the banks, presenting “The main reasons for the collapse of the banks,” followed by Tryggvi Gunnarsson’s overview of the reactions within public institutions (here the presentations from the press conference, in Icelandic).

The main reason for the collapse of the three banks was their rapid growth and their size at the time they collapsed; the three big banks grew 20-fold in seven years, mainly 2004 and 2005; the rapid expansion into new/foreign markets was risky; administration and due diligence was not in tune with the banks’ growth; the quality of loans greatly deteriorated; the growth was not in tune with long-time interest of sound banking; there were strong incentives within the banks grow.

Easy access to short-term lending in international markets enabled the banks’ rapid growth, i.e. the banks’ main creditors were large international banks. With the rapid expansion, also abroad, the institutional framework in Iceland, inter alia the Central Bank and the FME, quickly became wholly inadequate. The under-funded FME, lacking political support, was no match for the banks, which systematically poached key staff from the FME. Given the size of the humungous size of the Icelandic financial system relative to GDP there was effectively no lender of last resort in Iceland; the Central Bank could in no way fulfil this role.

This had no doubt be clear to the banks’ management for some time. In his book, “Frozen Assets,” published in 2009, Ármann Þorvaldsson, manager of KSF, Kaupthing’s UK operation, writes that he “always believed that if Iceland ran into trouble it would be easy to get assistance from friendly nations… despite the relative size of the banking system in Iceland, the absolute size was of course very small.” (P. 194). – A breath-taking recklessness, naivety or both but might well have been the prevalent view at the highest echelons of the Icelandic financial sector at the time.

The banks’ largest shareholders and their “abnormally easy access to lending”

When it came to “Indebtedness of the banks’ largest owners” the conclusions were truly staggering: “The SIC concludes that the owners of the three largest banks and Straumur (investment bank where the main shareholders were the same as in Landsbanki, i.e. Björgólfur Thor Björgólfsson and his fater) had abnormally easy access to lending in these banks, apparently only because their ownership of these banks.”

The largest exposures of the three large banks were to the banks’ largest shareholders. “This raises the question if the lending was solely decided on commercial terms. The banks’ operations were in many ways characterised by maximising the interest of the large shareholders who held the reins rather than running a solid bank with the interest of all shareholders in mind and showing reasonable responsibility towards shareholders.” – Creative accounting helped the banks to avoid breaking rules on large exposures.

Benediktsdóttir showed graphs to illustrate the lending to the largest shareholders in the various banks. It is worth keeping in mind that these large shareholders all had foreign assets and were all clients of foreign banks as well. In general, the Icelandic lending shot up in 2007 when international funding dried up. At this point, the Icelandic banks really showed how favoured the large shareholders were because these clients were, en masse, getting merciless margin calls from their foreign lenders.

In reality, the Icelandic banks were at the mercy of their shareholders. If the large shareholders and/or their holding companies would default, the banks themselves were clearly next in line. The banks could not make margin calls where their own shares were collateral as it would flood the markets with shares no one wanted to buy with the obvious consequence of crashing share prices.

Two of the graphs from the SIC report, shown at the press conference in April 2010, exposed the clear drift in lending at a decisive time: to Björgólfur Thor Björgólfsson, still an active investor based in London and to Fons, a holding company owned by Pálmi Haraldsson, who for years was a close business partner of Jón Ásgeir Jóhannesson, once a king on the UK high street with shops like Iceland, Karen Millen, Debenhams and House of Fraser to his name.

Screenshot 2018-06-13 17.22.46

Screenshot 2018-06-14 10.43.22

The lending related to Fons/Haraldsson is particularly striking since Haraldsson was part of the consortium Jóhannesson led in spring of 2007 to buy around 40% of Glitnir: after the consortium bought Glitnir, the lending to Haraldsson shot up like an unassailable rock.

Absolution of risk

The common thread in so many of the SIC stories was how favoured clients – and in some cases bank managers themselves – were time and again wholly exempt from risk. One striking example is an email (emphasis mine), sent by Ármann Þorvaldsson and Kaupthing Luxembourg manager Magnús Guðundsson, jokingly calling themselves “associations of loyal CEOs,” to Kaupthing’s chairman Sigurður Einarsson and CEO Hreiðar Sigurðsson.

Hi Siggi and Hreidar, Armann and I have discussed this (association of loyal CEOs) and have come to the following conclusion on our shares in the bank: 1. We set up a SPV (each of us) where we place all shares and loans. 2. We get additional loans amounting to 90% LTV or ISK90 to every 100 in the company which means that we can take out some money right away. 3. We get a permission to borrow more if the bank’s shares rise, up to 1000. It means that if the shares go over 1000 we can’t borrow more. 4. The bank wouldn’t make any margin calls on us and would shoulder any theoretical loss should it occur.We would be interested in using some of this money to put into Kaupthing Capital Partners [an investment fund owned by the bank and key managers] Regards Magnus and Armann

This set-up, where the borrower is risk-free and the bank shoulders all the risk, has lead to several cases where bankers being sentenced for breach of fiduciary duty, i.e. lending in such a way that it was from the beginning clear that losses would land with the bank. (Three of these Kaupthing bankers, Guðmundsson, Einarsson and Sigurðsson, not Þorvaldsson, have been charged and sentenced in more than one criminal case).

The “home-knitted” crisis

Due to measures taken in October 2008 in the UK against the Icelandic banks, there was a strong sense in Iceland that the Icelandic banks had collapsed because of British action. The use of anti-terrorism legislation by the British government against Landsbanki greatly contributed to these sentiments.

A small nation, far away from other countries, Icelanders have a strong sense of “us” and “the others.” This no doubt exacerbated the understanding in Iceland around the banking collapse that if it hadn’t been for evil-meaning foreigners, hell-bent on teaching Iceland a lesson, all would have been fine with the banks. Some leading bankers and large shareholders were of the opinion that Icelanders had been such brilliant bankers and businessmen that they had aroused envy abroad: British action was a punishment for being better than foreign competitors (yes, seriously; see for example Þorvaldsson’s book “Frozen Assets”).

The story told in the SIC report showed convincingly and in great detail how wrong all of this was: the banks had dug their own grave. Icelandic politicians and civil servants had tried their best to fool foreign countries and institutions how things stood in Iceland. Yes, the turmoil in international markets toppled the Icelandic banks but they were weak due to bad governance, great pressure by the largest shareholders and then weak infrastructure in Iceland, as I pointed out in a blog following the publication of the SIC report.

This understanding is at times heard in Iceland but the convincing and well-documented story told in the SIC report has slowly all but eradicated this view.

Court cases and political controversies

Some, but by far not all, of the dubious deals recounted in the SIC report have ended up in court. The SIC brought a substantial amount of cases deemed suspicious to the attention of the Office of Special Prosecutor, incidentally set up by law in December 2008. However, most if not all of these cases had also been spotted by the FME, which passed them on to the Special Prosecutors.

CEOs and managers in all three banks have been sentenced in extensive market manipulation cases – the bankers were shown to have directed staff to sell and buy shares in a pattern indicating planned market manipulation. In addition, there have been cases involving shareholders, most notably the so-called al Thani case (incidentally strikingly similar to the SFO case against four Barclays bankers) where Ólafur Ólafsson, Kaupthing’s second largest shareholder, was sentenced to 5 1/2 years in prison, together with the bank’s top management.

In total, close to thirty bankers and major shareholders have been sentenced in cases related to the old banks, the heaviest sentence being six years. The cases have in some instances thrown an interesting light on operations of international banks, such as the CLN case on Deutsche Bank.

The SIC’s remit was inter alia to point out negligence by civil servants and politicians. It concluded that the Director General of the FME Jónas Fr. Jónsson and the three Governors of the CBI, Davíð Oddsson, Eiríkur Guðnason and Ingimundur Friðriksson, had shown negligence as defined in the law “in the course of particular work during the administration of laws and rules on financial activities, and monitoring thereof.” – None of them was longer in office when the report was published in April 2010 and no action was taken against them.

The Commission was of the opinion that “Mr. Geir H. Haarde, then Prime Minister, Mr. Árni M. Mathiesen, then Minister of Finance, and Mr. Björgvin G. Sigurðsson, then Minister of Business Affairs, showed negligence… during the time leading up to the collapse of the Icelandic banks, by omitting to respond in an appropriate fashion to the impending danger for the Icelandic economy that was caused by the deteriorating situation of the banks.”

It is for Alþingi to decide on action regarding ministerial failings. After a long deliberation, Alþingi voted to bring only ex-PM Geir Haarde to court. According to Icelandic law a minister has to be tried by a specially convened court, which ruled in April 2012 that the minister was guilty of only one charge but no sentence was given (see here for some blogs on the Haarde case). Geir Haarde brought his case to the European Court of Human Rights but the judgment went against him. Haarde is now the Icelandic ambassador in Washington.

The SIC lacunae

In hindsight, the SIC was given too short a time. With some months more, the role of auditors in the collapse could for example have been covered in greater detail. It is quite clear that the auditing was far too creative and far too wishful, to say the very least. The relationship between the banks and the four large international auditors, who also operate in Iceland, was far too cosy bordering on the incestuous.

The largest gap in the SIC collapse story stems from the fact that the SIC had little access to the banks foreign operations. Greater access would not necessarily have altered the grand narrative. But court cases have shown that some of the banks’ criminal activities, were hidden abroad, notably in the case of Kaupthing Luxembourg. – As I have time and again pointed out, it is incomprehensible that authorities in Luxembourg have not done a better job of investigating the banking sector in Luxembourg. The Icelandic cases are a stern reminder of this utter failure.

As mentioned above, only excerpts of the report were translated into English. To my mind, this was a big error and extremely short-sighted. Many of the stories in the report involve foreign banks and foreign clients of the Icelandic banks. The detailed account of what happened in Iceland throws light on not only what was going on in Iceland but also in other countries where the banks operated. The excerpts are certainly better than nothing but by far not enough – publishing the whole report in English would have done this work greater justice and been extremely useful in a foreign context.

Why the SIC report’s importance has grown with time

It is now just over eight years since the publication of the SIC report. Whenever something related to the collapse is discussed the report is a constant source and the last verdict. The report established a narrative, based on extensive sources, both verbal and written.

Some of those mentioned in the report did not agree with everything in the report. When they sent in their own reports these have been published on-line. However, undocumented statements amount to little compared to the report’s findings. Its narrative and conclusions can’t be dismissed without solid and substantiated arguments to counter its well-documented conclusions.

This means the story of the 2008 banking collapse cannot easily be reshaped. This is important because changing the story would mean undermining its conclusions and lessons to be learnt. In a recent speech, Tory MP Tom Tugendhat mentioned the UK financial crisis as the “forces of globalisation.” These would be the same forces that caused the collapse of the Icelandic banks – but from the SIC report Icelanders know full well that this is far too imprecise a description: the banks, both in the UK and Iceland, collapsed due to lack of supervision and public and political scrutiny, following year of lax policies.

Lessons for other countries

In order to learn from the financial crisis, countries need to know why there was a crisis – with no thorough analysis no lessons can be learnt. Also, not only in Iceland was criminality part of the crisis. Though not a criminal investigation, many of these stories surfaced in the SIC report, another important aspect.

Greece, Cyprus, UK, Ireland, US – five countries shaken and upset by overstretched banks, which needed to be bailed out at great expense and pain to taxpayers. However, all of these countries have kept their citizens in the dark as to what happened apart from some tentative and wholly inadequate attempts. The effect of hiding how policies and actions of individuals, in politics, banking etc, caused the calamities has partly been the gnawing discontent and lack of trust, i.a. visible in Brexit and the election of Donald Trump as US president.

Although Iceland enjoyed a speedy recovery (Icelog Sept. 2015), I’m not sure there are any particular economic lessons to be learned from Iceland. There were no magic solutions in Iceland. What contributed to a relatively speedy recovery was the sound state of the economy before the crisis, classic but unavoidably painful economic measures, some prescribed by the IMF, in 2008 and the following years – and some luck. If there is however one lesson to learn it is the importance of a thorough analysis of the causes of the crisis.

The SIC was, and still is, a shiny example of thorough investigative work following a major financial crisis, also for other countries. It did not alleviate anger; anger is still lingering in Iceland. An investigative report is not a panacea, nothing is, but it is essential to establish what happened and why, with names named.

There are never any mystical “forces” or laws of nature behind financial crisis and collapse. They are caused by a combination of human actions, which can all be analysed and understood. Without analysis and investigations it is easy to tell the wrong story, ignore the causes, ignore responsibility – and ultimately, ignore the lessons.

This is the second blog in “Ten years later” – series on Iceland ten years after the 2008 financial collapse, running until the end of this year.

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Written by Sigrún Davídsdóttir

June 14th, 2018 at 2:28 pm

Posted in Uncategorised

EU is financing Greece – as the Greek government persecutes ex-head of ELSTAT

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The horrifying political prosecutions by the Greek government against the former head of ELSTAT, ongoing for seven years, is no longer just a Greek affair. The European Union is undermining Greek and European statistics by not taking a stronger stance. 

Even the Greek newspaper Kathimerini has called the relentless prosecutions of Andreas Georgiou former head of ELSTAT “witch hunt.” Last year, the paper published a cartoon showing Kostas Karamanlis playing a videogame of chasing Georgiou. Karamanlis, prime minister from 2004 to 2009, is widely seen as the driving force behind the political persecutions against Georgiou and other ELSTAT staff. Karamanlis’ party, New Democracy, is in opposition and Karamanlis long out of office. The cases against Georgiou, now running for seven years, indicate that Karamanlis is still a political force to be reckoned with, a sign of ill omen for Greece.

Andreas Georgiou had been working at the IMF in Washington when he applied for the position of head of ELSTAT. When he took over in August 2010, the systematic falsification of Greek statistics, ongoing since before 2000, had already been exposed. During his five year in office, Georgiou and his staff made the last correction, rebuilt ELSTAT, helped introduce the necessary legal framework and fully implemented the statistical principles in the European Statistics Code of Practice: professional independence, impartiality and objectivity, commitment to quality and other principles. All of this was vital in order to put Greece on a more virtuous economic path, fulfilling its duties as a member of the European Union.

But this was more than the dark forces around Karamanlis and those who had been in power during the years of falsified statistics could endure. Although Georgiou and his staff had only been doing their duty as public servants and statisticians, the first prosecution started already a year after Georgiou took over at ELSTAT.

In 2015, when his five year term ended, Georgiou left ELSTAT and has now moved back to Washington DC. However, the preposterous abuse of power continues, giving good reasons to worry about the state of justice in Greece. There are several court cases ongoing – Georgiou has been charged with damages to Greece of €171bn, violation of duty, felony and slander. Acquittals have systematically been annulled, cases re-opened and new charges brought – an utter travesty of justice.

Economists, statisticians and others in the international community have time and again expressed support for Georgiou’s case, condemning the Greek government’s behaviour and the abuse of the justice system. There is now an international fundraising to meet Georgiou’s legal costs (see here, please consider supporting it).

As Georgiou said on May 29 when addressing the Financial Assistance Working Group of the Economic and Monetary Affairs Committee at the European Parliament the fact that these prosecutions have continued for seven years in Greece seriously undermines Greek and ultimately European statistics. This has long ceased to be only a Greek affair – it is a serious threat to European institutions.

As Georgiou pointed out incentives created in Greece “are poisonous. Would the responsibility for allowing such incentives to arise burden only the Greek State or also EU institutions and other EU stakeholders that are willing to live for years with this situation, which gives rise to these incentives?”

Further, Georgiou stated he was “not happy to report all this. But Greece—which I love dearly—will leave its troubles behind and prosper only if there is a firm commitment to credible official statistics. And this commitment will not be there—irrespective of anything that may be declared or signed—as long as the relentless prosecution of statisticians who followed European statistical law and statistical principles continues.”

Allowing these prosecutions to continue within the borders of the European Union surely undermines not only European statistics everywhere and the governance of the Union, but also the fundamental principles of human rights and the rule of law that the European Union is supposed to uphold and champion in the world.

Icelog has covered the ELSTAT case extensively since I visited Greece in 2015. In “Greek statistics and poisonous politics, July 2015, I explained in some detail the whole saga of the falsified statistics, the corrections and then the processes Georgiou put in place. Here is an overview of later blogs on the ELSTAT case. – Here is the link to the crowdfunding page with a short overview of Georgiou’s case and links to international media coverage of his case. Again, please consider donating.

UPDATE: the case of Andreas Georgiou has now taken a turn for the worse. The Greek Supreme Court has rendered “final and irreversible his conviction for not submitting the 2009 deficit and debt statistics to approval by a vote (this was judged to be a violation of duty, despite the fact that the European Statistics Code of Practice is very clear that statistics are not voted upon). This conviction makes final Andreas’ conviction to 2 years in prison, which is suspended for two years unless he gets another conviction in the meantime. Moreover, there is no further recourse in the Greek justice system for this case. The next step would be to take the case to the European Court of Human Rights.” See here, please consider supporting the crowd-funding for Georgiou’s legal defence. – Following the news, around 80 chief statisticians and heads of statistical associations from all over the world have published a statement, declaring their support for the cause of Georgiou, see their statement and names here.


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Written by Sigrún Davídsdóttir

June 7th, 2018 at 9:02 am

Posted in Uncategorised

Iceland: from fishing to tourism / 10 years on

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For some years, Iceland has been the new darling of international tourism, giving the economy a real boost and healthy balance of payment. There are however some worrying signs – overheating is a clear and present risk, never far off in Iceland. The Central Bank warns against compounding risk in tourism and real estate, even more worrying if unhealthy practices in the old banks have not entirely been eradicated in the new ones. In addition, the growing dependence on tourism is, in itself, not entirely a healthy sign, especially as Iceland still lacks clear policy for tourism, which should ideally not be based on ever more tourists but sustainability.

“It’s either at ankles or ears” – This Icelandic saying, meaning it’s either too little or too much, certainly fits the Icelandic economy. Navigating the years following the 2008 banking collapse and laying a reasonably sound foundation for the future was done with reasonable success. Lately, tourism is reshaping the Icelandic economy.

In addition to classic crisis policies, luck played its part in the relatively speedy recovery – low oil prices, high fish prices in international markets and last but not least, Iceland’s popularity as a tourist destination. Consequently, Iceland has, again, seen booming growth– 7.5% of GDP 2016 and 3.6% 2017 with forecast of 2.9% this year.

This time the growth is not leveraged; Icelanders can literally see the cash cows walking around in colourful outdoor clothing: since a few years, tourism, not fishing, is the largest sector in the economy. Though tourism has done miracles for the balance of payment and strengthened the króna to record levels, tourism may not bode much good for young Icelanders.

Add to that the interdependence of tourism, housing and foreign workers and the conclusion is the one reached in the Central Bank of Iceland’s latest Financial Stabilityreport: “Risks relating to tourism and high house prices could interact.”

Why did Iceland become such a popular destination?

The huge growth in tourism over the last few years has taken Icelanders by surprise; a common question is: “Why is Iceland suddenly so popular?” followed by: “Will this popularity last?”

As to the “why” did not entirely materialise out of thin air. Icelandair and later Icelandic tourist authorities have over the years and decades run rather successful campaigns. Posters with glorious photos from Iceland have for example appeared regularly on the walls in London tube stations.

The rise in tourism was not as sudden as it might seem – there had been a steady increase since 2003 when the number of tourists were 320.000, then roughly the size of the population, growing by 3.5% to 15.1% a year until a downturn by 1.6% and 1.1% in 2009 and 2010 –  though the great increase 2014 to 2016 were indeed staggering.

Screenshot 2018-05-17 00.31.27


Icelandic Tourist Board (International visitors and cruises)

Currency fluctuations have at times made Iceland an expensive destination. That changed for some years after the 2008 banking collapse, making Iceland quite a reasonable destination until around 2014.

Luck helped Iceland when it came to international reports of the banking collapse. At the first Greek bailout in 2010, I did some comparison of international reporting of the crisis in the two countries. As in Greece there had been dramatic scenes of demonstrations and some altercations in the centre of the Reykjavík during the winter of 2008 to 2009.

But quite remarkably, foreign media would often choose to adorn reports from crash-struck Iceland with glorious landscapes rather than demonstrations, fire and fury. Greece also has spectacular and photogenic nature but the Greek financial crisis seemed more often shown in pictures of violent clashes and aggressive graffiti than alluring landscapes.

Far from being the negative impact feared at first, the Eyjafjallajökull eruption in April 2010 proved a gift literally from heaven for Icelandic tourism. An eruption is an awe-inspiring magnificent thing to behold; the Eyjafjallajökull coverage had quite an impact in drawing attention to the island.

The Instagram effect has helped. With the rise of Instagram, the popularity of Iceland was bound to rise – the island is a stunning Instagram backdrop.

Will the popularity last?

“The experience is that if you have a tourism boom of this magnitude, it is there to stay. There might be some ebb and flow, but tourism will, to my mind, continue to be one of the main pillars of the economy. That means we need to manage it well,” said Már Guðmundsson governor of the CBI in an interview with IMF2017.

Common sense dictates that the increase in tourism by 30% to 40% is unlikely to continue but experience from other countries shows that surge in tourism is durable – tourists are not as fickle as fish. According to an IMF study, countries whose travel exports increased by at least 4% of GDP over a decade were likely to see the number of tourists above the pre-surge levels ten years later. Iceland is a case in point – even the drop in arrivals in 2009 and 2010 did not change the underlying trend.

The latest figures show however a dramatic turnaround: the increase the four first months this year was 3.7% compared to last year. The increase was 28.6% 2014 to 2015, 34.7% 2015 to 2016 and a staggering 55.7% 2016 to 2017. The stats do indeed show a decline but all in all still a healthy growth though not the staggering growth of the record years.

In countries where the numbers did indeed decline, the causes are most often political turmoil, crumbling infrastructure – and most interestingly if also worryingly, from the Icelandic perspective – overcrowded tourist sites, environmental degradation and loss in price competitiveness.

The forecast for this year had been 2.2m but there are already some indications that this figure will be lower, even substantially lower. In addition to overcrowding and environmental degradations, difficult to measure, there is the loss in price competitiveness.

With the strong króna Iceland has become the most expensive tourist destination in Europe, even more expensive than Switzerland and Norway. The effect is bordering on the ridiculous: an underwhelming main course at €35 buys in a Reykjavík restaurant doesn’t compare with the quality of a main course at this price in the neighbouring countries.

Manifestos on tourism – but so far, little action

All of this is highly relevant to tourism in Iceland and merits a close scrutiny as it helps to identify the possible weaknesses.

All indicators show that tourists go to Iceland to experience nature. Even if they only go for a long weekend in Reykjavík they will almost certainly go on a tour for a day. The fantastic aspect of Iceland is that nature is not distant to urban areas, i.e. Reykjavík; it’s all around, in sight and easily accessed. The island is small, distances short. But there are some indications that overcrowding and faulty infrastructure is starting to detract from the pleasures of visiting the most famous places.

Arriving at Þingvellir or Geysir, with these spectacular spots hidden on arrival by dozens of buses and the passengers that spill from them, is not optimal. On the other hand, there are plenty of little known places to be enjoyed in solitude though it may take some research to find them.

As both the IMF and the OECD have pointed out in recent reports on Iceland, the varying governments over the last few years have failed to form a coherent policy for tourism in Iceland. The last three governments that came to power – in 2013 Progressives with the Independence party, in 2016 the Independence party with Bright Future and Revival and the present one, 2017 Left Green with Independence party and the Progressives – had all set high goals for tourism in their manifestos.

All of them aimed at forming a coherent policy for tourism, including plans to tax the sector in order to fund the necessary infrastructure for sustainable tourism. Nothing, absolutely nothing, has come of these well-intended manifestos – there is no policy and consequently, no plan on which to form a coherent tax policy.

Rudderless tourist economy

Managing the tourism boom, as governor Guðmundsson mentions, is still lacking in Iceland. The danger is that without a policy that aims at building up a quality tourism, fitting the (unavoidably) high prices, tourists will soon shun Iceland because they hear too much of crowded attractions and crumbling infrastructure with the pictures on social media to prove it.

With nature like the Icelandic one and high prices, the aim should not be to increase the number of tourists but develop tourism where fewer tourists spend more. This is what Costa Rica and Ireland have successfully done. Again, this requires strategic policies, so far wholly lacking in Iceland.

An economy of diminishing opportunities for high skills and education

Once upon a time in Iceland, there was little to be gained from lengthy education in order to be a high earner. Being a fisherman on a trawler meant very high salary and owning a large house as can still be seen in small fishing villages around the country. Working as a tradesman could also mean good salary.

This is no longer the case. There are fewer trawlers than earlier; a job on a good trawler is harder to come by than a highly paid managerial job. And the construction industry is not providing the same well-paying jobs as earlier. The large construction companies are very different from the small-scale constructor who hired his relatives to work for him.

All movements in a small economy like the Icelandic one tend to be rapid. The rise of tourism is no exception. The labour-intensive tourist sector is gobbling up a lot of manpower. The Dutch Disease might be around the corner, especially in an economy where the largest sector is mostly lacking direction and policies.

Recently, I have heard a number of Icelandic parents express their worries of what the labour market will offer their children in the coming years. In this rudderless tourist economy, there is no policy to develop other sectors. There is a budding tech sector in Iceland but some of the most successful Icelandic tech entrepreneurs have moved abroad and encouraged others to do the same, for the lack of tech infrastructure in Iceland. There is also a small pharmaceutical sector that could be developed further.

But a visionary policy of a diversified economy needs a government with a vision – and that has so far been lacking. The strong economic growth seems to lull Icelandic politicians into complacency. But a country that does not offer its young people the opportunities to seek education and then make use of it at home is not a good place to be. That’s greatly worrying many Icelandic parents.

More Icelanders leaving than returning

The demographics of Iceland is pretty healthy, it’s a nation of young people, compared to some other European nations. Icelanders are now just over 350.000, the number rises steadily. Except for a few years in the 1960s, 1970s and 1990s and then more recently in 2009, 2010 and 2011, more people enter the country than leave.

This looks promising – the nation is growing and more people move to Iceland than leave. However, there is potentially a more worrying underlying trend: in spite of the boom, more Icelanders are leaving Iceland than Icelanders moving home. Foreign nationals are keeping the inflow figures up – more foreigners come to Iceland than leave.

After the 2008 banking collapse whole sectors like construction were nearly wiped out, meaning not only the construction workers and tradesmen but also architects and engineers. Icelanders left in droves, both families and individuals, for work abroad. Norway was a particular popular destination as well as Denmark and Sweden.

The interesting – and for the Icelandic economy, worrisome – thing is that this flow has not stopped though the figures are lower. Icelanders are still leaving for jobs abroad. This, in addition to the decades-long tradition of young Icelanders seeking education abroad, returning as they graduate.

In 1999, 2000 and 2005 more Icelanders moved to Iceland than left but that is the exception. The rule is the other way around: more Icelanders leave than return. The one question Icelandic politicians really do not like to be asked is how they explain that in spite of the boom, there are still more Icelanders moving abroad than returning:

Screenshot 2018-05-17 00.16.08


The intriguing fact is that going back as far as the stats show, more Icelanders have been leaving than foreigners immigrating, with over 2.500 foreigners arriving in 2005, 2006 and 2007 – and again since 2015.

There is no statistics to show clearly who is leaving but the Icelandic Statistics is working on a more informative registry. Anecdotal evidence indicates that the Icelanders who leave are better educated than the foreigners who immigrate; young people who leave to study look for jobs after studying abroad and do not necessarily return.

Also, that it is not just young people leaving but people in mid career. As Icelanders tend to have children early (though not as early as twenty years ago) some might be tempted to leave as the children have left home. One thing that all Icelanders notice when travelling abroad is how expensive food is in Iceland, one good reason to move, in addition to a primitive rental market. More Icelanders living abroad now own property in Iceland as a pied-à-terre. Iceland is well connected to Europe and the US, which does not only facilitate tourism but makes it easier for Icelanders to visit.

My sense is that the old tradition of faithfully returning after studying abroad might be changing. In international studies on migration the general reference is that if people do not return after eight years abroad it is unlikely they return. If the Icelandic pattern is indeed changing it might take some time before the statistics capture it clearly.

The main risk: the combined effect of falling tourist numbers and falling property prices

What could be the interaction between tourism and property prices that the CBI is warning against? To a certain degree it comes down to the classic effect of leverage and falling demand.

At first sight, the connection between tourism and property prices may not be an obvious one. However, one figure connects the two sectors: 16.5% of working people in Iceland are foreigners, up from just under 6% in 2005.

Since 1996, Poles have consistently been the largest number of immigrants each and every year, except in 2004, when they were beaten by Portuguese workers. Consequently, the largest foreign community in Iceland is the Polish one, just under 4% – in total, 8.9% of Icelanders are foreigners, i.e. born abroad. The foreign workers who came in the 1990s mostly came to work in the fishing industry. Later, the construction industry needed foreign workers – building sites in Iceland and London look the same, mostly foreigners from Eastern and Central Europe working there – and now there are the jobs in tourism.

The foreigners are, for obvious reasons, more likely to live in rental accomodation than own their home. If there is a real downturn in tourism, the foreigners will most likely be the first to lose their jobs. If there are few or no jobs to go around, the foreigners leave meaning they will leave their rented accommodation. This would most likely cause a downturn in the rental market, largely catered for by few large property companies. A downturn in tourism will to a certain degree affect construction work, with a compounding effect on the rental market.

This is how Iceland might be hit by the combined effect of falling number of tourists and falling property prices. In addition, external changes affect foreign workers such as changing circumstances in their countries. Poland is doing better, which might tempt some of the Polish workers to return home.

Tourism and the real estate market dominated by few large unlisted companies

An IMF 2014working paper on determinants in international tourism found that tourism “to small islands is less sensitive to changes in the country’s real exchange rate, but more susceptible to the introduction/removal of direct flights.”

Consequently, one risk to the Icelandic tourism economy is a rupture in flights. The eruption in Eyjafjallajökull was one example of how that might happen. That eruption luckily only caused disruption in flights for a few days. Other scenarios might be different.

But man-made havoc may be a cause for greater concern. The two Icelandic airlines, Icelandair and Wow Air carry between 70 and 80% of tourists coming to Iceland; this figure was 73.5%in April. The rest was shared by 13 international airlines with EasyJet having the largest market share among the foreign ones.

Icelandair is a listed company; Wow Air is privately owned. Icelandair has often had a bumpy ride in terms of profits and profitability. With new management and some new board members there is good reason to believe it will be better run now than in the past.

Wow Air is a different story. Early last year it published some financial indicators, which were not great. This year, so far – a total silence. Quite remarkably, its CEO and main owner Skúli Mogensen mentioned in a recent interview that the company was thinly capitalised – a statement that had some wow factor to it. It’s unlikely it was just a slip of the tongue, more likely a message but to whom is less clear.

In general, budget airlines have been experiencing problems; the demise of Monarch and the troubles of Norwegian are two cases in point. It’s difficult to see why Wow Air would be doing that much better. An under-capitalised company in a market of fewer customers and diminishing returns sounds ominous though they claim their sales went up this winter when Icelandair sold fewer seats.

The three largest property companies – Gamma, Heimavellir and Almenna leigufélagið – are all privately held. Again, the question is how well capitalised they are, how leveraged and how prepared for a down-turn in property prices, demand and rental prices. Gamma has recently shed its CEO and founder, shrunk its foreign operations (which seemed more based on dreams of 2007 than reality) but claims it is otherwise doing well.

Are there still “favoured” clients in the Icelandic banks?

The CBI risk warning related to the interlinked tourism and property market. A compounding factor is the relative opacity of the privately-held companies, quite large in the context of the Icelandic economy. The question is if any of the unhealthy practices of Icelandic banking pre-collapse can still be found such as the banks having, what I have called, “favoured” clients they serviced in a wholly abnormal way.

The Icelandic financial regulator, FME, has recently given noticeto Stefnir, an Arion Bank investment fund, for its risk management: Stefnir had, amongst other things, seven times exceeded its legal investment limits during the year from July 2016 to end of June 2017.

The FME notice does not mention what the investments relate to but most likely they are investment in United Silicon, a now failed venture that Arion was highly exposed to. The story of United Silicon is a sorry saga (which I investigated in detail for Rúv) of fraud and greed where Arion played a rather doubtful role as a lender and investor. In addition, pension funds managed by Arion were investors in United Silicon and kept investing well after it was clear that something was seriously wrong in United Silicon.

The Arion involvement with United Silicon smacked of how Kaupthing (and the two other large banks, Glitnir and Landsbanki) went out on a limb for their largest shareholders and their fellow travellers: the rule was that the “favoured” clients never lost, only the banks (i.a. by buying assets above market price). That the pension funds lost on United Silicion, is a sad reminder of how the old banks used (or abused) pension funds before the collapse, leading to gigantic losses after the collapse.

Given these indications of the return of bad banking, the large privately held and possibly thinly capitalised tourism companies and property companies take on a whole new dimension of risk.

If the risk materialises?

The short- and medium-term risk to the Icelandic economy is as the CBI has identified, overheating and the interconnection between tourism and the real estate market. Were this risk to materialise the effect would be nothing like the 2008 collapse, more the classic contraction of the economy Iceland has known for decades where depreciating króna and inflation eat away purchasing power, with rising unemployment (but not necessarily in a dramatic way; the foreigners partly take the hit and leave) and a lower standard of living.

To my mind, the no less worrying risk related to tourism is however the Dutch disease and lack of job opportunities for people with higher education or good skills – circumstances, that would cause young Icelanders to move abroad or stay abroad after studying and might also tempt mid-career people to leave.

Given that Icelanders who leave are more likely to be better educated than the foreigners who move to Iceland there might already be an on-going brain-drain in Iceland. All of this would in the long run make Iceland less attractive for Icelanders.

This risk is growing bigger every year as Icelandic governments seem sadly complacent in forming a long-term policy for tourism – a policy that would develop a high-yield tourism economy and tax it, both to invest in infrastructure and the diversification of the economy.

Next October there will be ten years since the banking collapse. Over the comings months I’ll be publishing blogs that in some way reflect on where Iceland is at now. This is the first “10 years on” blog.

Follow me on Twitter for running updates.

Written by Sigrún Davídsdóttir

May 17th, 2018 at 12:34 am

Posted in Uncategorised

Sale of Arion – are the Icelandic authorities failing the IMF test?

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Recent movements around ownership of Arion bank indicate that opacity and under-cover deals are again rife in Iceland, this time with foreigners involved. It could be seen coming: last year, the International Monetary Fund pointed out that an IPO of Arion bank would pose a test for the banking regulator; IMF also stated its worries about a weak regulator, exposed to political pressure, indeed worrying signs.

Mid February, Arion bank published its 2017 annual accounts. At the same time, changes to its ownership were announced: Kaupthing, Arion’s largest shareholder is buying the Icelandic state’s 13% shareholding in Arion. This seems to be a move towards fulfilling an agreement from last year, kept secret at the time: four of Kaupthing’s almost 600 owners, who last year bought shares directly in Arion, aim at getting hold of an Arion subsidiary, Valitor, a payment solution company, before Arion’s IPO, planned in the coming months. – The four particularly active funds are Taconic Capital Advisors, Attestor Capital, Och-Ziff Capital and Goldman Sachs.*

The International Monetary Fund sees the sale of Arion as a major test for the Icelandic financial regulator, FME, post-2008 collapse. As the IMF pointed out last year in its Article IV Consultations: “The Arion transaction poses a test for Fjármálaeftirlitid (FME, the banking, securities, and insurance regulator), which must ensure its fit and proper assessments are stringent and evenhanded.” According to the IMF FME is currently “not sufficiently insulated from the political process…”

The Arion test is now on-going and so far, it is not obvious that the Icelandic authorities will pass with flying colours.

Foreign funds buy into Arion – for a reason

Arion bank was founded on the ruins of old Kaupthing. Until last year, its owners were the Icelandic state, holding 13% and the rest by Kaupthing, the old bank’s estate owned by Kaupthing’s creditors. Kaupthing’s ownership in Arion is through a subsidiary, Kaupskil, set up to create an arm’s length between Kaupthing and Arion. Events over the last year or so do however cast doubt over this exercise: Kaupthing has all the power over Arion it wishes, i.e. in selecting and de-selecting board members.

In 2015, some Icelandic pension funds approached Kaupthing and indicated willingness to buy shares in Arion. After talks for over a year, Kaupthing brought the talks to an abrupt end last year. At the same time Kauphing unexpectedly announced four new Arion shareholders: Taconic Capital Advisors, Attestor Capital, Och-Ziff Capital and Goldman Sachs,* respectively holding 9.99%, 10.44%, 6.58% and 2.57%. After these transactions Kaupskil owned 57.41% and the Icelandic state 13%.

This came as a surprise to the pension funds that had not known of other Kaupthing negotiations. “This was just business,” a representative of one of the funds said to me, indicating that there had been no hard feelings. Yet, both he and others I have talked to felt that Kaupthing had fooled the pension funds. The result was a breach of trust, seen from the pension funds’ perspective.

Arion and Icelandic ministers made much of the fact that new shareholders were now on board, indicating a trust in the bank. Another way to look at it was that these four funds were all previously shareholders in Kaupthing. Therefor, Kaupthing was effectively selling to a part of itself.

These transactions between related parties did not bring any new shareholders aboard. The four funds are now both directly and indirectly, through Kaupthing, shareholders in Arion.

The secret agreement hidden in the 2017 transaction: Valitor

Part of this transaction between Kaupthing and four of its shareholders was however kept secret: the four funds made an agreement with Kaupthing that should Kaupthing come into possession of shares in Valitor the four funds would have an option on the Valitor shares.

Since this agreement, all moves by Kaupthing and the four new Arion shareholders have been aimed at bringing this to fruition, i.e. that Kaupthing would come to possess Valitor shares, which the funds would then buy. Buying Valitor in a transparent normal sale, competing for this asset with other buyers, was apparently never part of the plan.

Why this interest in Valitor? Over half of Valitor’s earnings comes from its foreign operations, it has some clever technical solutions and operates in a market the foreign funds understand well. Therefor, the funds are well positioned to make the most of this asset in a future sale. According to Icelog sources Valitor’s value is easily twice p/b.

Kaupthing wooing the pension funds

In January this year, Kaupthing approached some Icelandic pension funds with an offer to buy up to 5% in Arion. The deadline was 12 February, two days before Arion’s annual accounts were due to be published.

One Icelog source said that late in the day, the foreign funds had realised that in Iceland you can’t do any major deal without having some of the pension funds on board: their money is useful but most of all, transactions are lacklustre if the pension funds don’t give their blessing by participating. And in this case, selling before a planned IPO later this year would give an indication of price and interest.

It soon became apparent that the pension funds were not too keen to accept the offer and in the end none of them agreed to buy. The reasons given varied: the time was too short, they would have liked to see the annual accounts first, they felt the present major shareholders had an unclear vision of the bank’s future. – But underneath, there was still the lingering rancour from the abruptly ended negotiations last year.

Not Onegin – but a story of twice fooled

With the rejection from the pension funds Kaupthing looked like Pushkin’s Onegin who didn’t accept Tatjana’s love when she offered it to him but then got rejected when he finally did fall in love with her – if you don’t want when you can, you can’t when you want to…

Then, lo and behold, the story turned out to an entirely different one: Kaupthing did (of course!) have a plan B, in case the pension funds rejected the offer. The story from last year was repeated: within 24 hours of the lapsed deadline, Kaupthing announced a sale of just over 5%: four Icelandic investment funds, managed by four Icelandic banks, materialised as buyers of 2.54%, with Attestor Capital and Goldman Sachs, buying in total 2.8%.

The four funds, i.e. the new Icelandic shareholders, are managed by Kvika, which is also Kaupthing’s advisor, Stefnir managed by Arion, where Kaupthing is the largest owner, Landsbréf by Landsbankinn and Íslandssjóðir by Íslandsbanki. The share division between the individual buyers has not been announced.

As one Icelog source said this was worse than anticipated in the sense that it only brings a very small amount of new owners in Arion and again, the Kaupthing-related Valitor-interested funds are participating.

The road to Valitor – and yet another opaque transaction

From this point, the plot thickens.

The 5% sale was crucial since the Arion board had agreed at its meeting 12 February that a sale of 5% of Arion shares was needed to unleash a dividend of ISK25bn. It also agreed to allow Arion to buy up to 10% of its own shares, a transaction that would then be deducted from the dividend.

The representative of the Icelandic state on the Arion board voted both against linking dividend payment to other transactions and against Arion buying own shares, both of which ran counter to the government’s ownership policy.

The Arion board, controlled by Kaupthing, however had its way here, i.e. the dividends are connected to other transactions and Arion could buy own shares. The share-buying sounds particularly ominous in Icelandic ears since this characterised the boom-time banking in Iceland.

Following the board meeting two things happened: Arion bought 9.95% of its own shares from Kaupthing (via Kaupskil) – and Kaupthing (via Kaupskil) made use of its option since 2009, buying the state’s 13% stake in Arion. This means that the Icelandic state will have no say, neither on the board or elsewhere, over Arion. Alors, all hindrance out of the road to Valitor.

The state leaves the Arion stage

In principle, this should be a good move; the state was only ever an involuntary shareholder. It owns quite enough of the financial sector, owning the two other big banks, Íslandsbanki and Landsbankinn. – However, given that this is being orchestrated by Kaupthing adds an unsettling feel to the sale.

Dividend in kind is another thing that has a particular ominous echo in Iceland, both from the boom years and also from some transactions in the last few years. The experience in Iceland is that this has mostly been done in order to tunnel assets to major shareholders, in effect cheating other shareholders and creditors. Tunnelling played a large part in the transition in Russia and Eastern Europe, a rather inglorious comparison. And how many systemically important banks in Europe pay out dividend in assets?

In an interview I did for Rúv in January with deputy director of FME, Jón Þór Sturluson, he emphasised there is nothing illegal in this. He did however point out that it is a doubtful action since estimating the value of a payment-in-kind may cause problems. And in particular, it causes reputational damage.

Strong words when they come from the regulator but, according to some of my sources, not strong enough. This is a serious issue since Arion is a systemic important bank. Thousands of Icelanders, Arion clients, are stakeholders.

Back to Valitor

Given that Valitor is one of Arion’s most valuable assets, distributing it with a secret agreement attached instead of selling it, gives the transaction a sense of tunnelling out valuable assets to preferred shareholders before the IPO. It has not yet happen but it is expected to be imminent.

Sources connected to Arion tell Icelog that Valitor might be worth more in the hands of experts such as the foreign funds. That is correct but handing Valitor over to Arion shareholders instead of selling to highest bidder seems far from being evenhanded. Sadly, it is a repetition of events seen in the last few years. The sale of Bakkavor, by Arion, and of Borgun, by Landsbanki both had a foul smell of friendly favours.

According to minister of finance Bjarni Benediktsson, leader of the Independence party, agreements between the state and Kaupthing hinder that assets would be tunnelled out of the bank. So far, it has clearly not been the case that the agreement secures some governmental oversight via the Kaupskil set-up. The most active Kaupthing creditors now rule the bank.

There has been some discussion in Iceland if the price for the Arion shares taken over by Kaupthing is the right price. To my mind, that is not the main issue – the main issue is how the Kaupthing creditors have manipulated events in Arion so far. If they achieve their goal of getting Valitor without bidding for it is the proof that the agreement was not worth much.

The intriguing thing is also that Benedikt Gíslason, who was the government’s main advisor in reaching the agreement with creditors in 2015, is now working for Kaupthing.

In plain sight

All of this is happening in broad daylight – and Icelanders have seen tunnelling before. Now it’s being done together with foreign investors. Iceland is tiny and often beyond the horizon of international media but the IMF comments last year underline the gravity of these matters.

An IMF is due to visit Iceland now in March. Just in time to evaluate how Icelandic authorities are doing on the Arion test.

Follow me on Twitter for running updates.

Written by Sigrún Davídsdóttir

March 1st, 2018 at 6:49 pm

Posted in Uncategorised

The Legatum Institute: the charity and its offshored sponsor

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Special-interest billionaire-funded organisations have for years been a common feature in US politics but less prominent in the UK. The UK Legatum Institute, now influential in pro-Brexit government quarters, seems to fit the US formula. It played a curious role in an Icelandic dispute in 2016 with some US funds holding offshore króna. That story throws an unflattering light on Legatum’s research and exposes intriguing US connections. In a wider context it is a cause for concern that sponsors of British charities can hide behind the offshore veil.

In October 2016 the Icelandic government suddenly found itself the target of an international ad campaign. With a photo of Central Bank governor Már Guðmundsson the Icelandic Central Bank was accused of corruption. The government was said to follow “protectionist economic policies” discriminating against offshore króna investors, in reality four American funds. Not a word on the fact that the policy of the Icelandic government was formed in close cooperation with the International Monetary Fund.

The ads ran in international media like the Financial Times, WSJ and Danish media, in addition to Icelandic media. The ads were signed by “Iceland Watch,” run by Institute for Liberty, which claimed to be a think tank.

One of the ads cited “a research team in Britain” that claimed the action against the offshore króna investors cost each Icelander between $15,000 and $27,000 a year, causing the loss of 30,000 jobs, quite fantastical figures in the context of the Icelandic economy. These findings were taken from a report, Frozen Capital: a Case Study of Icelandic Distortions by Shanker A. Singham and A. Molly Kiniry at the Legatum Institute.

Now that Legatum’s staff is publishing Brexit reports and popping up as Brexit-advisers in Whitehall Legatum’s Icelandic report and the ties it shows throws an interesting light on the Institute’s operations.

Iceland Watch and “Dark Money”

Until the ads appeared, Institute of Liberty and its Iceland Watch had been wholly unknown in Iceland. Institute of Liberty was however a familiar name in US politics. In her book, Dark Money; The Hidden History of the Billionaires Behind the Rise of the Radical Right, the American journalist Jane Mayer recounts how billionaires like David, Charles and Bill Koch, Peter Singer and lately Richard Mercer, much strengthened by the 2010 Citizens United ruling, have poured money into politics for decades, inter alia advocating in favour of tobacco and petro-interests and against Barack Obama’s healthcare.

Part of the funds to fight Obamacare flowed into a tiny organisation called Institute for Liberty. In 2008 its budget had been $52,000. The following year, it got $1.5m from the DCI Group, a Washington PR company, used for “a five-state advertising blitz targeting Obama’s health-care plan;” $400,000 were channelled back to DCI Group for “consulting.” (Mayer, p.192)

DCI turned out to be instrumental in spreading funds to groups fighting Obamacare, some of which, according to Mayer, “appeared to be shell organizations fronting for DCI Group.” One of them was Institute for Liberty. As a recent Bloomberg story (with a link to Icelog) shows the DCI Group’s operations are essentially lobbying in disguise, greased by ample funds from opaque sources.

The “dark art” of the DCI Group and Legatum Institute

At the end of October 2016 the following ad ran in Icelandic and international media, under a photo of Central Bank governor Már Guðmundsson:

“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.”

In the context of the Icelandic economy these figures are rather implausible. How could offshore króna controls hinder the creation of 30.000 jobs in an economy with close to full employment in a country of 332.000? The stated cost of $5bn to $9bn amounted at the time to 25 to 40% of Icelandic GDP. – In short, the figures were outrageously unintelligent.

The figures came from a Legatum report, Frozen Capital: a Case Study of Icelandic Distortions by Shanker Singham and Molly Kiniry, published in autumn 2016. At the same time, the Legatum Institute held a debate on Iceland and the capital controls (which by then had been lifted except for the offshore króna controls), Post-Brexit Briefing: Frozen Capital – A Case Study of Iceland. Judging from the recording, using Iceland as an example of harmful trade distortions was greatly undermined by the fact that the speakers, Singham and Iain Martin former editor of the Scotsman were rather uninformed on Iceland, in line with the report.*

My own inquiry at the time showed that the DCI Group orchestrated the Iceland Watch ad campaign in autumn 2016 on behalf of three of the four American funds that held Icelandic offshore króna – Autonomy Capital, Eaton Vance and Discovery Capital Management. My understanding was that DCI, on behalf of the funds, had turned to the Institute of Liberty, i.e. the initiative came from the DCI, just as it had used Institute of Liberty and other organisations in fighting Obamacare.

Legatum’s Brexit reports

The Legatum report on the Icelandic offshore króna was remarkably unenlightened but had, for obvious reasons, a rather limited effect.

A Legatum report in November last year on Brexit, The Brexit Inflection Point; the Pathway to Prosperity, by Singham, Radomir Tylecote and Victoria Hewson is a different matter, dealing not with a minor matter in a liliputian nation but the a vital issue for a rather bigger nation and 27 other European countries.

The November report was not the first Brexit report from Legatum but it caught much greater attention than the earlier ones because by November, the British media had become aware of Legatum’s role in Westminster. Some journalists who gave it a close reading were less than impressed. FT’s Martin Sandbu wrote of “Beware the global Britain con trick.” In the same paper, Martin Wolf wrote on “Six impossible notions about “Global Britain” referring to the White Queen in C.L. Lewis book Through the Looking Glass who claimed to believe six impossible things before breakfast. Singham published an answer to Wolf’s article on CapX and a shorter version in The Telegraph, £) but ignored other critics.

Earlier Brexit-related reports were Mutual Interests: How the UK and EU can resolve the Irish border issue after Brexit published in September 2017. The point that caught media attention was that the border issue could be solved by technology; a claim that proved short-lived. In April there was a report on A new UK/EU relationship in financial services – A bilateral regulatory partnership. Two reports papers in February dealt with the negotiations and trade, Brexit: World Trade Organisation Process and Negotiation of Free Trade Agreements and Brexit, Movement of Goods and the Supply Chain. In November 2016 a report dealt with the Cost of EEA Membership for UK Briefing.

All reports were written by Singham, mostly in cooperation with other Legatum staff. The general tone is the one of the same kind of impossibility that Martin Wolf pointed out.

Legatum’s “Brexiteering”

At the Legatum Institute its main Brexit expert, Shanker Singham has the titles Chair, Special Trade Commission and Director of Economic Policy and Prosperity Studies.

Singham has two LinkedIn profiles; one states he is managing director for Competitiveness and Enterprise Development Project at Babson Global, the other that he is the Director of Economic policy and prosperity studies at Legatum and the CEO and Chair of Competere Group, operating all over the world. There is little information on Competere but according to the Legatum website it is an “Enterprise City development company incubated at Babson College.”

On the latter LinkedIn profile Singham states that Competere was set up in 1997 but later rebranded and has “successfully engaged governments around the world who seek to harness the power of the market economy through a comprehensive pro-competitive regulatory framework. Our economic reform practice is based on the use of our econometric modelling to help (23) countries successfully realize their own reform efforts.”

In the summer of 2015, Singham incorporated Competere Limited with 1,000 GBP in the UK. A year later the company was in deficit of just over £17,000.

Together with a Washington lobby group, Transnational Strategy Group and EPPA Brussel, Competere has set up a Brexit “practice group.” TSG claims to be a “boutique international business and foreign policy consultancy focused exclusively on achieving real results for clients.” EPPA claims to be a consultancy for “creating a constructive dialogue with policy-makers” elaborated with a quote from FT’s Martin Wolf: “We need a balance between markets and governments.” EPPA does not seem to flag the cooperation with TSG and Competere on its website (at least not within easy sight).

Singham, who has a dual UK US citizenship, worked at Squire Sanders, a US law firm from 1995 to 2013. Since April last year Michael Cohen, president Donald Trump’s personal lawyer has had a strategic alliance with Squire Sanders, now Squire Patton Bogs. Cohen is one of many in Trump’s inner circle with alleged ties to Russia and Russia’s president Vladimir Putin.

Singham’s co-author on the Brexit report in November, Radomir Tylecote, was active on the Vote Leave campaign before the 2016 referendum as was Victoria Hewson, the third author of the report.

Molly Kiniry, Singham’s co-author on the Icelandic report and other Legatum publications, is also listed as a consultant with Competere since 2016, earlier at Babson Global. She writes regularly for Daily Telegraph, where two of her recent columns dealt with “The virtue-signalling British Politicians snubbing Trump are embarrassing themselves” and “Americans are sick of sending money to other countries for no discernible benefit.” – The connection with Daily Telegraph is interesting given that the paper is owned by the Barclay brothers, two Brexiters with their wealth firmly offshore.

Former Chief Executive of the Vote Leave campaign Matthew Elliott, now a frequent voice in the British media, is a Legatum senior fellow. Georgiana Bristol, Legatum’s Corporate Membership Director, ran fundraising for Vote Leave. Two well-known names from UK politics have recently joined the Institute as Fellows: the fervent Brexiter ex-MP for Labour Gisela Stuart and Sir Oliver Letwin and MP. He voted remain, was briefly in charge of Brexit after the 2016 referendum before being replaced by David Davis by Theresa May and has been seen as a Tory intellectual close to libertarian ideas.

An ex-Legatum employee is already a Whitehall Brexit-insider: Crawford Falconer, who was on Singham’s trade commission at the Legatum Institute, is working as a Brexit negotiator under International Trade Secretary Liam Fox.

Legatum’s CEO Baroness Stroud has in the past made some unsuccessful attempts to be chosen as a Conservative Party candidate. She set up the Centre for Social Justice in 2004 with Ian Duncan Smith for whom she acted as a specialist adviser 2010 to 2015 at the Department for Work and Pensions. Stephen Brien, who leads Centre for Metrics at the Legatum is on the board of CSJ and was also Duncan Smith’s adviser, 2011 to 2013. Legatum and CSJ have had some collaboration.

From corruption to Brexit

In 2015 the Legatum Institute organised some events on corruption chaired by Anne Applebaum, i.a. one where she interviewed Sarah Chayes on her book Thieves of State: Why Corruption Threatens Global Security. It was at that time I first noticed Legatum. I welcomed Legatum’s focus and the clout and eminent experience that Anne Applebaum brought to the Institute as its director of Transitions Forum 2011 to 2015, focusing on new threats to democracy.

Judging from Legatum’s website the Transitions Forum no longer exists. Applebaum is now Professor in Practice at LSE’s Institute of Global Affairs where she leads Arena, a programme on the challenges of disinformation.

Legatum’s expanding role in Westminster has drawn media attention. A whole-page FT article in December 2017 on “Legatum: the think tank at intellectual heart of “hard” Brexit” claims the focus of Legatum shifted in autumn of 2016 when Baroness Stroud became a director and a trustee.

Former employees, said to be worried about the direction taken by the Baroness talked of purges. According to them, the organisation seemed to use its influence in Westminster “to push for a libertarian and socially conservative agenda that goes beyond its educational remit as a charity emphasising “prosperity and human flourishing”.” The question posed was if Legatum’s activities were compatible with its status as a charity.

FT mentions that Brexit minister David Davis has taken fees from Legatum. That was however in 2009 and 2010, according to They Work For You: £5000 for a speech and, interestingly, unspecified travel expenses to attend a conference at the Milken Institute that attracts those with libertarian leaning. According to information on They Work for You neither Michael Gove, Boris Johnson nor Liam Fox have accepted funds from Legatum. Davis gave however a talk at a Legatum Brexit event in January 2017, Gove was a guest speaker at the Legatum’s summer party in 2016 (according to Legatum’s 2016 annual accounts); neither seems to have been paid for their input according to the They Work For You data.

In late November Daily Mail published an article on Legatum’s political connections, ‘Putin’s Link to Boris and Gove’s Brexit Coup’. According to the paper, Singham had helped two Cabinet members, Boris Johnson and Michael Gove, to pen a letter to Prime Minister Theresa May. In the letter, not meant for publication, the duo called on May to put pressure on Chancellor Philip Hammond to prepare for “hard” Brexit, to use Brexit to scrap EU rules and regulations and to appoint a new “Brexit Tsar.” No Tsar has officially been appointed but the tabloid maintains that Singham effectively has that role.

Daily Mail pointed out that Legatum’s founder Christopher Chandler and his brother Richard got rich in Russia following the collapse of the Soviet Union. The tabloid tells the story of the brothers taking part in a boardroom coup in Gazprom in 2000, installing Alexey Miller, close ally of Vladimir Putin from their St Petersburg years. This enabled Putin getting a share in Gazprom’s profit.

Chandler and the Legatum Institute deny all allegations of Russian ties and also denied allegations made by The Sunday Times and Sunday Mail in early December regarding its status as a charity.

Legatum, on- and offshore

Legatum Group ( is based in Dubai where it was set up in 2006 by Christopher Chandler. It describes him as former President of Sovereign Asset Management he set up in 1986 with no mention of his earlier Russian activities. Its website lists a whole raft of philanthropic organisations under its umbrella, the Legatum Institute being one of them.

The Legatum Institute’s own website is somewhat vague on the Institute’s funding. Under the heading “How we are funded” there is a list of four other philanthropic enterprises, funded by the Legatum Foundation (, also listed under, but the link attached leads only to a website with the four enterprises.

There are two relevant Legatum entities listed with Companies House, The Legatum Institute Foundation, which is the registered limited company operating in London and the Legatum Institute, a fund registered in the Cayman Islands.

The Foundation is registered with the Charity Commission. Out of the £4.4m of its total income in 2016, £3.9m came from Legatum Foundation Limited, according to the Legatum Institute Foundation’s 2016 full accounts at Companies House. That year the Foundation received £437K from other sponsors than its “lead sponsor, Legatum Foundation ltd … demonstrating its continued journey towards financial independence.”

The accounts do not hold any information on the real sponsor, Legatum Foundation Limited nor is it registered in the UK, judging from Companies House. The Legatum Institute Foundation has confirmed it will fund the Institute until end of 2019. As can be seen from the above figures there is still some funding to cover to match the Foundation’s funding.

According to the FT the charity has 40 donors in addition to its lead sponsors, but interestingly the charity is unwilling to disclose who these donors are – a peculiar situation for a charity.

The Legatum Institute fund was registered in the Cayman Islands in 2008. Its objective is “Philanthropic development.” The three present directors, Alan McCormick, Mark Stoleson and Philip Vassiliou, are all registered at Legatum Group’s address in Dubai. According to the 2016 full accounts of the Cayman fund at Companies House, its assets in 2016 were $8,9m, $24m in 2015.**

Christopher Chandler and Mark Stoleson have recently obtained EU passports through the widely criticised Maltese passport-for-investment scheme.

Legatum fits the “Dark Money” format of billionaire-funded partisan US think tanks

Intriguingly, Legatum’s founder and main sponsor fits the model of the American billionaires who for decades have been funding make-believe institutions to influence politics and confuse public debate. Christopher Chandler keeps firmly out of the limelight and his name off documents: people working from him are directors of his companies. The array of Legatum entities, on- and offshore, is rather bewildering and runs contrary to the transparency that charities could be expected to adhere to.

There are indications that some of those fighting for Brexit are inspired by Russian and American ideas of how to gain power by dividing and ruling, by sowing disharmony. The Kremlin propaganda machine is inspired by Vladimir Putin’s longtime political technologist Vladimir Surkov and his ideas of “non-linear wars” and other means of profiting from confusion and shifting alliances.

Paul Manafort, Trump’s campaign manager, has been indicted with conspiracy against the US, tax evasion and money laundering, as part of the investigations into Russian collusion in the US presidential elections. The Ukrainian journalist and politician Serhiy Leshchenko has explained how Manafort operated in Ukraine by putting into practice the politics of division and social polarisation.

There is of course nothing wrong with airing one’s views. But airing it on false premises is insidious and undermines public debate. And false or biased information is one way of playing the politics of division.

As Jane Mayer describes so well in her book, key strategy of billionaires is to fund organisations that produce something that looks like “research” but is indeed propaganda. This has been an effective strategy in fighting for the interests of the tobacco industry and the petro-industry, not to mention Obamacare. The damage is done when the media embraces this research as equally valid to thoroughly researched material. The danger is media unwilling to or uninterested in distinguishing between the propaganda and carefully researched studies.

Another aspect of the propaganda-driven organisations is the opacity of their sponsors, normally offshored and out of sight. The offshoring should indeed be a sure sign of warning.

These propaganda organisations have so far not been prominent in the UK. Legatum Institute, funded by Christopher Chandler, seems to fit the US model of a propaganda-driven “think tank.” Thus, their reports should be read with that in mind. The two reports, on Iceland and Brexit, certainly seem a poor addition to an enlightened discourse on these two topics.

* I pointed these figures out to a Legatum employee who forwarded them to Singham. His response was that the data was “based on the application of our ACMD productivity simulator (for more information, please see the attached link).” He agreed I made a valid points regarding the employment effects and Iceland’s small size. Consequently, they would “probably … not focus on employment effects too much in the deeper analysis.  While capital controls are generally distortionary from the perspective of an open and liberalized trading environment, the precise manner of their amendment or repeal also can have distortionary effects. The data is picking up the implicit national treatment violation as a function of the key variables on property rights and foreign investment in our simulator.” – The analysis on the website is still as it originally was, with the implausible figures.

**According to Companies House records 8 March 2018, the Cayman fund is now in administration.

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Written by Sigrún Davídsdóttir

February 3rd, 2018 at 11:12 pm

Posted in Uncategorised