Sigrún Davíðsdóttir's Icelog

Prosecuting big banks and senior bankers is hard for many reasons: they hire big name lawyers that fight tooth and nail, with delays, deviations and imaginable and unimaginable obstructions of all sorts. PR firms are hired to deviate and create smoke and mirrors. And some journalists seem easily to identify with the pillars of financial society, even talking about “victimless crime.” All of this springs to mind regarding the SFO charges against John Varley former CEO of Barclays and three senior managers – where an Icelandic parallel can possibly throw some light on the few facts in the case of Varley e.al.

In the summer of 2008, as liquidity was tight for many banks, two high-flying banks in the London business community, Barclays and Kaupthing, were struggling. Both sought salvation from Qatari investors. Not the same investors though the name al Thani, a ruling clan in the dessert state of Qatar, figures in both investment stories.

In 2012 as the Icelandic Office of the Special Prosecutor, OSP, brought charges against three Kaupthing managers and the bank’s second largest investor Ólafur Ólafsson, related to Qatari investment in Kaupthing in September 2008, the British Serious Fraud Office, SFO, was just about to start an investigation into the 2008 Qatari investment in Barclays.

In 2015 the four Icelanders were sentenced to 4 to 5 1/2 years in prison for fraudulent lending and market manipulation (see my overview here). SFO is now bringing ex CEO John Varley and three senior Barclays bankers to court on July 3 on the basis of similar charges. As the first UK bankers are charged for actions during the 2008 crisis such investigations are coming to a close in Iceland where almost 30 bankers and others have been sentenced since 2011 in crisis-related cases.

The Kaupthing charges in 2012 filled fourteen pages, explaining the alleged criminal deeds. That is sadly not the case with the SFO Barclays charges: only the alleged offences are made public. Given the similarities of the two cases it is however tempting to use the Icelandic case to throw some light on the British case.

SFO is scarred after earlier mishaps. But is the SFO investigation perhaps just a complete misunderstanding and a “victimless crime” as BBC business editor Simon Jack alleges? That is certainly what the charged bankers would like us to believe but in cases of financial assistance and market manipulation, everyone acting in the financial market is the victim.

These crimes wholly undermine the level playing field regulators strive to create. Do we want to live in a society where it is acceptable to commit a crime if it saves a certain amount of taxpayers’ money but ends up destroying the market supposedly a foundation of our economy?

The Barclays and Kaupthing charges – basically the same

When the Icelandic state prosecutor brings charges the underlying writ can be made public three days later. The writ carefully explains the alleged criminal deeds, quoting evidence that underpins the charges. Thus, Icelanders knew from 2012 the underlying deeds in the Icelandic case, called the al Thani case after the investor Sheikh Mohammed bin Khalifa al Thani who was not charged.

As to the SFO charges in the Barclays case we only know this:

Conspiracy to commit fraud by false representation in relation to the June 2008 capital raising, contrary to s1 and s2 of the Fraud Act 2006 and s1(1) of the Criminal Law Act 1977 – Barclays Plc, John Varley, Roger Jenkins, Thomas Kalaris and Richard Boath.

Conspiracy to commit fraud by false representation in relation to the October 2008 capital raising, contrary to s1 and s2 of the Fraud Act 2006 and s1(1) of the Criminal Law Act 1977 – Barclays Plc, John Varley and Roger Jenkins.

Unlawful financial assistance contrary to s151 of the Companies Act 1985 – Barclays Plc, John Varley and Roger Jenkins.

The Gulf investors named in 2008 were Sheikh Hamad bin Jassim bin Jabr al Thani, Qatar’s prime minister at the time and Sheikh Mansour bin Zayed al-Nahyan of Abu Dhabi. The side deals the bankers are charged for relate to the Qatari part of the investment, i.e. Barclays capital raising arrangements with Qatar Holding LLC, part of Qatar’s sovereign wealth fund and al Thani’s investment vehicle Challenger Universal Ltd and $3bn loan issued by Barclays to the State of Qatar, acting through the Ministry of Economy and Finance in November 2008.

Viewing the Barclays side deals via the Kaupthing case

The Barclays saga is allegedly that apart from the Qatari investments in Barclays in June and October 2008, in total £6.1bn, there were two side deals, allegedly financial assistance: Barclays promised to pay £322m to Qatari investors, apparently fee for helping Barclays with business development in the Gulf; in November 2008, Barclays agreed to issue a loan of $3bn to the State of Qatar, allegedly fitting the funds prime minister Sheikh al Thani invested, according to The Daily Telegraph.

Thus it seems the Barclays bankers (all four following the June 2008 investment, two of them following the October investment) were allegedly misleading the markets, i.e. market manipulation, when they commented on the two Qatari investments.

If we take cue from the Icelandic al Thani case it is most likely that the Barclays managers begged and pestered the Gulf investors, known for their deep pockets, to invest.

In the al Thani case, the Abu Dhabi sovereign wealth fund had earlier considered buying Kaupthing shares but thought the price was too high. Kaupthing then wooed the Qatari investors with some good offers.

What Kaupthing promised was a “risk-free” loan, a classic Kaupthing special offer to special clients, to place as an investment in Kaupthing. In other words, there was never any money coming into Kaupthing as an investment. It was just money merry-go-round from one Kaupthing account to another: funds going out as a loan and coming back as an investment. In addition, the investors got a loan of $50m directly into their pockets, defined as pre-paid profit.

Barclays hardly made such a crude offer to the Qatari investors but the £322m fee leads the thought to the pre-paid profit in the Kaupthing saga; the Barclays fee could allegedly be defined as pre-payment for services-to-come.

The $3bn loan to the state of Qatar is intriguing, given that the state of Qatar is and the finances of its ruling family have allegedly often seemed closely connected.

What we don’t know regarding the Barclays side deals

The September 2008 Qatari investment in Kaupthing figured in the 2010 report of the Special Investigative Commission, SIC, a report that thoroughly explained and mapped the operations of the Icelandic banks up to the 2008 collapse. The criminal case added details to the SIC saga. It is for example clear that Kaupthing didn’t really expect the Gulf investors to pay back the investment but handed them $50m right away.

Little is yet known about the details of the alleged Barclays side deals. How were the covenants for the $3bn loan? Has this loan been repaid or is it still on Barclays books? And was the service for the £322m ever carried out? Was there any specification as to what Barclays was paying for? Why were these services apparently pre-paid instead of being paid against an invoice after the services had been carried out?

These are some of the things we would need to know in order to assess the side deals and their context and connections to the Qatari investment in Barclays. Clearly, the SFO knows and this will no doubt be part of the coming court case.

The whiff of Qatari investors and how it touches Deutsche Bank

The Kaupthing resolution committee went after the Qatari investors to recover the loans, threatening them with legal proceedings. Investigators from the Office of the Special Prosecutor did question the investors.

According to Icelog sources, the Qatari investors were adamant about clarifying the situation both with Kaupthing and the OSP. The understanding was that the investors were worried about their reputation. They did in the end reach a settlement with the Kaupthing resolution committee as Kaupthing announced in 2013.

These two investment sagas do however leave a certain whiff. In August last year, when it transpired that Qatari investors had invested in troubled Deutsche Bank I sent a query to Deutsche’s spokesman asking if the bank was possibly lending the investors money. I got a stern reply that I was hinting at Deutsche committing a legal offense (well, as if Deutsche had not been found to have rigged markets, assisted in money laundering etc) but was later assured that no, Deutsche had not given any financial assistance to its Qatari investors, no side deals related to their investment in the bank.

Companies don’t commit crimes – people do

Although certainly not the only one, Barclays is a bank with a long register of recent financial sins, inter alia: in 2012 it paid a fine of £290m for Libor manipulation; in 2015 it paid £2.3bn for rigging FX markets and £72m to settle money laundering offenses.

As to lessons learnt: this spring, it turned out that Barclays CEO Jes Staley, has broken whistleblower-rules by trying to unmask a Barclays whistleblower. CEOs have been remarkably short lived at Barclays since Varley left in 2010: his successor Bob Diamond was forced out in 2012, replaced by Antony Jenkins who had to leave in 2015, followed by Jes Staley.

In spite of Barclays being fined for matters, which are a criminal offence, the SFO has treated these crimes (and similar offences in many other banks) as crimes not committed by people but companies, i.e. no Barclays bankers have been charged… until now.

After all, continuously breaking the law in multiple offences over a decade, under various CEOs indicates that something is seriously wrong at Barclays (and in many other big banks). Normally, criminals are not allowed just to pay their way out of criminal deeds. In the case of banking fines banks have actually paid with funds accrued by criminal offences. Ironically, banks pay fines with shareholders’ money and most often, senior managers have not even taken a pay cut following costs arising from their deeds.

In all its unknown details the Barclays case is no doubt far from simple. But compared to FX or Libor rigging, it is manageable, its focus being the two investments, in June and October 2008, the £322m fee and the November 2008 loan of $3bn.

The BBC is not amused… at SFO charges

Instead of seeing the merit in this heroic effort by the SFO BBC’s business editor Simon Jack is greatly worried, after talking to what only appear to be Barclays insiders. There is no voice in his comment expressing any sympathy with the rule of law rather than the culpable bankers.

Jack asks: Why, over the past decade, has the SFO been at its most dogged in the pursuit of a bank that DIDN’T require a taxpayer bailout? In fact, it was Barclays’ very efforts to SPARE the taxpayer that gave rise to this investigation.

This is of course exactly the question and answer one would hear from the charged bankers but it is unexpected to see this argument voiced by the BBC business editor on a BBC website as an argument against an investigation. In the Icelandic al Thani case, those charged and eventually sentenced also found it grossly unfair that they were charged for saving the bank… with criminal means.

Jack’s reasoning seems to justify a criminal act if the goal is deemed as positive and good for society. One thing for sure, such a society is not optimal for running a company – the healthiest and most competitive business environment surely is one where the rule of law can be taken for granted.

Another underlying assumption here is that the Barclays management sought to safe the bank by criminal means in order to spare the taxpayer the expense of a bailout. Perhaps a lovely thought but a highly unlikely one. There were plenty of commentaries in 2008 pointing out that what really drove Barclays’ John Varley and his trusted lieutenants hard to seek investors was their sincere wish to avoid any meddling into Barclays bonuses etc.

Is the alleged Barclays fraud a “victimless crime”?

It’s worth remembering that taxpayers didn’t bail out Barclays and small shareholders didn’t suffer the massive losses that those of RBS and Lloyds did. One former Barclays insider said that if there was a crime then it was “victimless” and you could argue that Barclays – and its executives – did taxpayers and its own shareholders a massive favour, writes Jack.

It comes as no surprise that “one former Barclays insider” would claim that saving a bank, even by breaking the law, is just fine and actually a good deed. For anyone who is not a Barclays insider it is a profound and shocking misunderstanding that a financial crime like the Barclays directors allegedly committed is victimless just because no one is walking out of Barclays with a tangible loss or the victims can’t be caught on a photo.

We don’t know in detail how Barclays was managed, there is no British SIC report. So we don’t know if the $3bn loan has been paid back. If it was not repaid or had abnormally weak covenants it makes all Barclays clients a victim because they will have had to pay, in one way or another, for that loan.

Even if the loan was normal and has been paid a bank that uses criminal deeds to survive turns the whole society into the victims of its criminal deeds: financial assistance and market manipulation skew the business environment, making the level playing field very uneven.

Pushing Jack’s argument further it could be conclude that the RBS and Lloyds managers at the time did evil by not using criminal deeds to save their banks, compared to the saintly Barclays managers who did – a truly absurd statement.

Charging those at the top compared to charging only the “arms” of the top managers, i.e. those who carry out the commands of senior managers, shows that the SFO understands how a company like Barclays functions; making side deals like these is not decided by low-level staff. Further, again with an Icelandic cue, it is highly likely that the SFO has tangible evidence like emails, recordings of phone calls etc. implicating the four charged managers.

The Barclays battles to come

Criminal investigations are partly to investigate what happened, partly a deterrent and partly to teach a lesson. If the buck stops at the top, charging those at the top is the right thing to do when these managers orchestrate potentially criminal actions.

But those at the top have ample means to defend themselves. Icelandic authorities now have a considerable experience in prosecuting alleged crimes committed by bankers and other wealthy individuals.

And Icelanders also have an experience in observing how wealthy defendants react: how they try to manipulate the media via their own websites and/or social media, by paying PR firms to orchestrate their narrative, how their lawyers or other pillars of society, strongly identifying with the defendants, continue to refute sentences outside of the court room etc. And how judges, prosecutors and other authorities come under ferocious attack from the charged or sentenced individuals and their errand boys.

All of this is nothing new; we have seen this pattern in other cases where wealth clashes with the law. And since this is nothing new, it is stunning to read such a blatant apology for the charged Barclays managers on the website of the British public broadcaster. Even if the SFO prosecution against the Barclays bankers were to fail apologising the bankers ignores the general interest of society in maintaining a rule of law for everyone without any grace and favour for wealth and social standing.

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There is no end in sight of the ELSTAT saga of political vendetta against the ex ELSTAT director Andreas Georgiou who oversaw the correction of Greek statistics  2010 to 2015. Yes, the Prosecutor of the Appeals Court has recommended to throw the case of Georgiou and his colleagues out, not once but three times, only to resurface again. In addition, the case has transformed into several case all migrating through the Greek judicial system. I’ve earlier claimed that the ELSTAT case is a test of Greek political willingness to own up to the past and move on. The steadfast will to prosecute civil servants for doing their job exposes the damaging corrupt political forces still at large in Greece, a very worrying signal for the European Union and the International Monetary Fund – but most of all worrying for Greece.

If anyone thought that the long-running saga of prosecutions against ex head of ELSTAT Andreas Georgiou was over, just because so little is now heard of it, then pay attention: the case is still ongoing, there is an upcoming decision in the Appeals Court that could potentially send Georgiou to trial with the possibility of a life sentence for him. In addition, there are side stories here, other ongoing investigations and prosecutions.

The ELSTAT saga started after Georgiou had only been in office for just over year. It really is a saga (here my earlier reports and detailed account of it) of upside down criminal justice but it’s so much taken for granted in Greece that little or no attention is paid to the fundamental issue:

How is it possible that the man who as Head of ELSTAT from August 2010 until August 2015, putting in place procedures for correct reporting of statistics following the exposure of fraudulent statistics for around a decade, is being prosecuted and not the people who for years provided false and fraudulent statistics to Greece, European authorities and the world?

This case of a Hydra with many heads is rearing one of these heads next on 6 December when Georgiou is to face charges of violation of duty in producing the correct 2009 government deficit statistics. On important aspect is this: the charges imply that the Greek government isn’t accepting the correct figures on which the current bailout program and debt relief is based on.

European and international organisations have supported Georgiou’s point of view, the last being a letter from the International Association for Research in Income and Wealth (IARIW), to prime minister Alexis Tsipras now in November. However, the support from abroad does not seem to have had any effect on the prosecutions against Georgiou in Greece. As can be seen from the overview below of how the cases have sprawled in various directions there really is no end in sight. A worrying trend in a European democracy, the country that calls itself the cradle of Western democracy.

To Icelog, Georgiou says: “The numerous prosecutions and investigations against me and others that have been going on for years – as well as the persistence of political attacks and the absence of support by consecutive governments – have created disincentives for official statisticians in Greece to produce credible statistics. As a result, we cannot rule out the prospect that the problem with Greece’s European statistics will re-emerge. The damage already caused concerns not only official statistics in Greece, but more widely in the EU and around the world, and will take time and effort to reverse.”

Charges three times thrown out resurface in wider charges

The original criminal case concerned criminally inflating the 2009 deficit causing damages to Greece in the order of €171bn or €210bn (depending on how it was calculated on different occasions by his detractors). For three consecutive years – in 2013, 2014 and 2015 – investigating judges and prosecutors proposed to drop the case only to see the charges resurfacing again each and every time. In 2016, the Prosecutor of the Appeals Court assigned to the case yet again proposed that the case be dropped. A decision is pending at the Council of the Appeals Court.

The same issue of the 2009 deficit did indeed resurface in the form a separate, brand new case on 1 September this year, now not only alleging criminal actions by Georgiou and ELSTAT staff but by the EU Commission and the IMF. A separate criminal investigation has begun and is running parallel to the over five year old case above. On the losing end here are not only the individuals hit by these charges but also public statistics, Greece, EU and international partners.

A worrying disincentive to service truthful information

Now, on 6 December, Georgiou is facing a trial for violation of duty, exactly the violations that various prosecutors and investigating judges had, in 2013, 2014 and 2015, proposed to drop. However, the Appeals Court decided in 2015 to refer the case to an open trial. In Greece, this trial is being presented as doing justice for Greece, implying that earlier cases may have been dropped due to European pressure.

Again, this clearly shows that there are political forces in Greece refusing to shoulder any responsibility for fraudulent statistics and a huge cover up of the dismal governance in Greece up to the surfacing crisis in 2009.

If convicted for violation of duty, Georgiou faces a possible conviction of two years in prison. Greek statistics face an uncertain future: a trial against the people who fixed the problem of Greek statistics is hardly a great incentive to Greek civil servants to service truthful information instead of untruthful politicians.

Twelve months for “criminal slander”: told the truth but should have kept quiet

In June, Georgiou was tried for criminal slander for defending the 2009 deficit statistics, the very numbers ELSTAT produced as required by the European Statistics Code of Practice. The Court Prosecutor recommended to the Court that the case be dropped and that Georgiou be acquitted. But the Court ruled in the end that although it believed Georgiou to have told the truth he should still not have said the things he said and sentenced him to twelve months in prison.

The appeal of this conviction was due to be heard in October in the Appeals Court. However, the plaintiff – actually the former director of national accounts at the National Statistics Office (later ELSTAT) in 2006 to 2010, i.e. during the fraudulent reporting – succeeded in having the appeal trial postponed. It’s now due in 16 January 2017, possibly a tactical move to influence two other ongoing cases involving Georgiou, the above-mentioned criminal case and a civil case.

The civil case is related to the criminal slander case. Decision is due in the coming weeks and could land Georgiou with a crippling fine of tens of thousands of euro.

Protecting the perpetrator of a crime, not the victim

As reported last summer in my detailed article of the ELSTAT saga, ELSTAT’s former vice president Nikos Logothetis was found by the police to have repeatedly hacked into Georgiou’s ELSTAT email account. This started already on Georgiou’s first day as president of ELSTAT, in August 2010, before he had even started to look at the thorny issue of the 2009 deficit, and continued until the hacking was exposed late October 2010.

Police investigations showed who was responsible for the criminal action of hacking Georgiou’s account – Logothetis was actually logged into the account as the police came unannounced to his home.

Georgiou was informed that Logothetis would be prosecuted for this and that following the criminal case he could then bring a civil case against Logothetis. However, in early July this year Logothetis was acquitted of violating Georgiou’s email account in a felony case. The Court also decided Logothetis could not be retried for the felony charge due to the time passed since the hacking.

According to the ruling it was not disputed that Logothetis had indeed accessed Georgiou’s account. However, the action was deemed not to have been carried out because of monetary gains or to hurt Georgiou but only because Logothetis “wanted to understand Georgiou’s illegal actions and to legally defend the legitimate interests of ELSTAT and consequently of the Greek state.”

Quite remarkably, the felony case was allowed to wait for five years before it was considered by the Appeals Court, thus triggering the statute of limitations. In addition, somehow Georgiou received no notice of the decision of the Appeals Court on the Logothetis felony case acquittal and thus had no chance to take legal action to potentially reverse the ruling within the allowed one month period.

Furthermore, the Court hadn’t taken any note of the fact that Logothetis actually hacked the account before Georgiou even looked at the 2009 deficit numbers nor did it figure in the case that Logothetis had continuously slandered and attacked Georgiou during his five years in office, even calling for the hanging of Georgiou in a published interview.

Another case against Logothetis, also for the hacking but as a misdemeanor and not a felony, was due to go to trial now in November but has been postponed in accordance with Logothetis’ wishes. It’s now been set for February 2017.

The ELSTAT case in the European Parliament:

On 22 November the ongoing political pressure on Greek statistics and Georgiou and his colleagues was taken up in a hearing at the Committee on Economic and Financial Affairs of the European Parliament. Both Georgiou and Walter Rademacher president of Eurostat participated, presented their views and were questioned by MEPs.

Rademacher gave an overview of the problems with Greek statistics and emphasised the need to close with the past, stop going after ELSTAT staff and to recognise what had been wrong (see video; Rademacher at 2:20-12:15). Rademacher paid tribute to Georgiou and the ELSTAT staff in modernising the organisations, bringing the governance to the proper standard and thus re-establishing trust in Greek statistics, a much needed contribution.

Rademacher pointed out that the serious misreporting didn’t cause the crisis in 2009 but was a “blatant symptom of very serious flaws” within the Greek statistics administration “at that time.” He also underlined the immense effort taken by various organisations to aid and support ELSTAT in improving its work, inter alia hundred Eurostat missions since 2010 to the present day, around one a month, to ELSTAT as well as to Eurostat in-house assistance, to the cost of around €1m in addition to technical assistance from the IMF and other EU National Statistical Institutes – no other country has needed anything like this.

In his presentation, Georgiou (12:26-20:12) emphasised the enormous disincentive for official statistics in Greece his case has been.

“These and other cases and investigations send a strong signal to today’s guardians of honest, transparent statistics in Greece: you do so at your own risk. The point cannot be lost on them that compiling reliable statistics according to EU law and statistical principles can endanger their personal well-being.”

The ELSTAT case: a scary disincentive for Greek civil servants

Georgiou had only been in office for around thirteen months when political forces in Greece openly started questioning in parliament his professional integrity. That was also the time when allegation emerged of him committing treason in reporting the correct figures.

Now, more than five years later, the case is still going on in various ways. Quite remarkably, Georgiou has not had any support from the Tsipras government. Given how the ELSTAT case has progressed, there are clearly forces both in the government and in the main opposition party who have a personal and political interest in hiding the truth on how the fraudulent reporting was kept going for around a decade, until 2009 and who find a convenient scapegoat in Georgiou and his staff.

Given the strong Greek political forces at large here the only way to stop the scapegoating seems to be that the donor countries and institutions show Greece that it can’t be helped until it helps itself. Until it helps itself by putting an end to prosecuting civil servants who fixed a serious problem that severely undermined the trust in the Greek government. As it stands, there is no incentive for Greek civil servants to withstand political pressure for corrupt action.

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Three ex-Landsbanki bankers have been sentenced (in Icelandic) at Reykjavík County Court in an extensive market manipulation case. The bankers were charged with manipulating Landsbanki share price almost a year up to the collapse of Landsbankinn October 7 2008. The action was judged to have influenced the share price of the bank, i.e. slowed its fall and prevented the shares falling in price. Consequently, price movements were not properly reflected and the share price appeared stronger than it would have been without the intervention.

Landsbanki ex-CEO Sigurjón Árnason was sentenced to a 12 months imprisonment, of which nine months are suspended. Two others, Júlíus Steinar Heiðarsson and Ívar Guðjónsson both working on the bank’s proprietary trading desk, were sentenced to nine months imprisonment, six of which are suspended. The fourth charged, Sindri Sveinsson, was acquitted.

*The judgement is not yet on the Court’s website but will be attached here when published. – Published here.

Updated: an addition now that I have read the judgment (Nov 23 2014):

The OSP brought the case following charges to the OSP made by the FME in October 2010. The original charges were against 18 ex-Landsbanki employees for market manipulation since May 2003 (nothing less) until the collapse of the bank in October 2008.

This means that according to the regulator, Landsbanki shares were actually manipulated for over five years.

In the end, the OSP charged 4 ex-Landsbanki managers for market manipulation from beginning of November 2007 until the last day Landsbanki shares were traded on the Icelandic Stock Exchange October 3 2008.

The sentences are far more lenient than the prosecutor had asked for. The judges (three in all) thought there were two mitigating circumstances: the deeds took place at a time of great turbulence in the markets and the bankers might be seen as having tried to save the bank (as they had claimed themselves) – and the deeds took place in 2008, i.e. a long time ago.

Re the first, buying the bank’s shares and risking the bank’s own capital is not the standard reaction (or even a creative one) in turbulent times and credit crunch.

Re the long time: financial crimes are rarely visible with bare eyes. Staff at the Icelandic Stock Exchange did indeed notice some of the actions taken and reported them to the FME, which resulted in an FME investigation and charges later on.

Interestingly, the day after the Landsbanki judgment three British businessmen were convicted for fraud in a case brought by the SFO. The fraud took place in 2007 and 2008, as in the Landsbanki case. The case was referred to the SFO, which opened an investigation in August 2009. One of those convicted is Chris Ronnie, known in Iceland as a client of Kaupthing.

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Today, I was interviewed both on BBC radio 5 live and BBC radio 2 regarding bankers being sentenced to prison in Iceland. On both stations I was asked why bankers are being prosecuted in Iceland. I would rather turn that question around? Why are bankers not being investigated – and eventually charged, if there is a case against them – in other countries, for example in Britain?

Lets imagine that a huge big building crashes in the centre of London. Luckily, no one gets killed but damages run to millions, the whole area is disrupted, causing further financial damages and troubles for people and businesses for weeks and months and even years. How would this incident be treated? Would the authorities just say that this was tough luck and let it be? No, I very much doubt it. This incident would be investigated to the core and no one would rest until the cause was found. Also to make sure other buildings could not just suddenly and unexpectedly collapse. If it was then found there was willful negligence, corners cut to make more money and there would be emails and other evidence to show it those to blame would be prosecuted and their case brought to court.

The financial collapse, not just in Iceland but here in the UK and elsewhere was like a huge big building – indeed many of them – crashing. No, no one died but the financial damage has been great, shocks and after-shocks, lives and societies disrupted and upset.

Following the collapse of the three largest banks in Iceland in October 2008, the parliament decided on two things: one, to set up a special investigative commission, the SIC commission, that would clarify all aspects of the collapse, causes and failures in the running up to the collapse. This report, 2600 pages in 9 volumes (with some digital appendixes) came out in April 2012.

The chapters on the banks tell well documented stories of their lending practices, how some of the largest shareholders used the banks like their private banks, loans against no or weak collaterals, lending beyond legal limits and so on. A true thriller beating all financial fiction.

The other measure was to set up an office of a special prosecutor. No one applied. Finally, a sherif from Akranes, a small town on the bay opposite Reykjavík, was talked into taking on the job, Ólafur Þór Hauksson. He had no experience and no resources. Eva Joly was brought to Iceland to tell Icelanders and the authorities that staff and resources would be needed, this would take a long time and be costly. Eventually, three other prosecutors were hired and when the Office was at its biggest there were over 100 people working there. Now it’s being reduced and the cuts of the new centre-right government have also been sensed there.

Already in the SIC report there were stories that raised questions about possible criminal activities. The al Thani loan saga was one of them. Further, the OSP has now charged the top managers in all the three banks. The al Thani case was the first big case to reach sentencing. The three Kaupthing managers now sentenced are also charged in another large market manipulation case, as are managers from Landsbanki and Glitnir (on both cases see here).

Ólafur Ólafsson, Kaupthing’s second largest shareholder, was also charged in the al Thani case and now sentenced. Other earlier high-fliers charged earlier are Jón Ásgeir Jóhannesson, Glitnir’s largest shareholder and also Hannes Smárason, once a close business partner of Jóhannesson and then recently called in by Kári Stefánsson CEO of the genome company deCode, where Smárason was once a CFO, to run a company in the US. After the charges Smárason stepped down from the post.

But what about the UK? The Serious Fraud Office investigated Kaupthing but dropped the investigation after serious mistakes were done. Libor rigging was at first only investigated as if it was a natural disaster so no person was culpable. A bank rigged Libor, a bank got fined – and yet a bank is made up of people who think, plan and act.

The SFO is now investigating Libor rigging as possibly criminal activities and some people have been charged. Who are these people? Traders and others who actually carried out the alleged criminal activities. Are we to believe that they took up this pastime of fixing libor just for the fun of it? However it could happen it means that those in charge of these banks did a rather poor job of overseeing them. Shouldn’t that failure be investigated?

Every day seems to bring news of banks being fined – there are record fines, ever bigger fines, ever more serious deeds and banks are still more willing to buy sovereign bonds or some financial product with the cheap money they get from governments rather than dirtying their hands on servicing companies. There is libor rigging, money laundering, selling swaps that customers lose money on, currency rate rigging and alleged driving companies into bankruptcy rather than helping them to restructure – all of these “oversights” are treated as if they were carried out by machines and systems, not by reasoning and calculating people of flesh and blood. And for some reason shareholders patiently see their dividend capped by fines and yet say nothing.

When asked about the ongoing investigations in Iceland by non-Icelandic journalist they often seem to assume that there is something special about bankers being investigated; that this is somehow because something is different in Iceland, perhaps the law, perhaps that smallness. No, there is nothing special about Iceland in this respect. Deeds were done, they looked suspicious, there are laws against which these deeds can be tested and then a prosecutor brings charges if there are enough reasons to assume something criminal could have been going on. This is normal if someone robs a car or causes something as disastrous as a house collapse. When banks and banking systems collapsed it suddenly seemed something else had gone on. The strange thing is not why bankers are being prosecuted in Iceland – but why this is not happening elsewhere to the same degree.

PS Anrigaut, an Icelog reader has pointed out to me that Max Keiser has copied and pasted this log on his website but without attributing it to Icelog. I asked him (via Twitter and in a comment on his website) to add a link to the Icelog article. My tweet has now been added to his website.

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No one in his/her right mind would try to make a one-size pair of jeans – human beings are too varied in size and shape. It is the same for debt-ridden Eurozone countries: debt is the apparition of their problems that do however come in different sizes and shapes, making it impossible to look for any Eurozone template. As Mario Draghi emphasised, a lot of political capital is invested in the euro – and it is not a sliding door.

A good central banker never says anything that shakes the markets. Governor of the European Central Bank Mario Draghi was on central banker’s form at the ECB press conference last Thursday, April 4 with measured words, on interest rates, inflation and on Cyprus.

However, Draghi did throw in some interesting observation on two things that are a fixture in the euro debate. One is the dominance of politics vs economics in solving the Eurozone debt problems, crucial to the understanding of the Greek conundrum.  The other, brought to the surface by the Cypriot crisis, is the search for a Eurozone crisis-solution “template.”

What does ultimately decide actions in the Eurozone debt problems?

Since it took about two years (and more might be to come) to find a Greek solution that vaguely resembled a sustainable solution the coverage partly turned into febrile forecasting if Greece would leave the euro or not. Citigroup’s chief economist Willem Buiter and his Citi colleague Ebrahim Rahbari coined the word encapsulating a Greek exit – Grexit – in a research note in Februar 2012, estimating the Grexit likelihood to be 50%.

So far, the Grexit-league has not been right. But why was it that so many learned men – in spite of careful calculations, graphs and historical parallels – have, so far, been wrong on the Grexit? The simple answer is that they focused on the economics, not on the politics, of the euro.

At his April 4 press conference Draghi touched upon this topic. Showing a bit of his Italian animated character towards the end, Draghi made an interesting observation. It came as an answer to some very hypothetical questions: assume that the situation in Greece and Spain would deteriorate; is there or isn’t there some safety net in place, especially regarding derivatives?

Possibly because the question came from viewers on Zero Hedge, Draghi felt these possibly non-European viewers needed a lecture on the meaning of the euro. Saying first he had no answer to such hypothetical questions he added he might actually have a partial answer:

“These questions are formulated by people who vastly underestimate what the euro means for the Europeans and for the euro area. They vastly underestimate the amount of political capital that has been invested in the euro. And so, they keep on asking questions like “if the euro breaks down” and “if a country leaves the euro area tomorrow”. The euro is not like a sliding door, it is a very important thing; it is a project in the European Union. So, that is why you will have a very hard time asking people like me “what would happen if?” There is no plan B.”

Draghi is not the first senior European official to point this out – but his observation is succinct and strikes a few clear points. Yes, it can be difficult for non-Europeans – and indeed for economists of all nationalities – to understand the political importance of the euro and consequently the political capital invested in this political project over more than twenty years. But understanding this is necessary so as to understand that no, there is no plan B.

In the Eurozone, the Euro is the alfa and omega. There is no other option – and therefore no plan B. All solutions are about mending and fixing, not shrinking the Eurozone, even though bright economists suggest various solutions to the Eurozone woes by calculating certain countries out.

Unfortunately for the euro and the Eurozone, more and more Europeans have lost sight of the euro’s political importance. Practicing politics is partly about waking up every morning, assuming that everything said yesterday is now totally forgotten and therefore needs to be repeated.

Too little is been heard about the gains brought by the euro in countries like Germany where cost of bailing out others is indeed dwarfed by years of euro-gains. And politicians in debt-stricken countries are too often been too focused on saving their own reputation after years of bad policies by blaming the euro for the situation.

Will any country every leave the Eurozone?

The pondus of Draghi’s words is a good reference when it comes to gauging and forecasting measures in debt-stricken countries. Of course, the economics matter in concrete terms – and after all, the IMF and the ECB both are part of the troika, forming the solutions – but the policies do follow the over-arching Real-Politik of the Eurozone, which is to hold onto the Eurozone, no matter what.

From this logic it follows that the answer to the question above has to be “no.” If any one country leaves – no matter for what reason – the euro spell will be broken and the endlessly and chronic nagging doubt will be hanging over all other countries, which might be seen, according to some calculations, likely to leave. As Draghi said: “The euro is not like a sliding door…”

That said, the last few years have seen the doubt festering, partly because, as mentioned above, politicians have not always given the euro a good support. But the ECB, now under a very determined Draghi, the EU and the IMF (so far, always led by a European though that might to change one day), have shown a dogged grit and resolve to stick to the one and only euro-plan.

This is not to say the troika is blameless but the troika is only called – like the fire brigade – when the fire rages and all other solutions fail. The fire brigade may choose the wrong strategy but it would not be there if it weren’t for the fire.

A template – or tailored solutions?

The debate in every debt-stricken country always seems to centre on specific words. In Ireland it was the “Promissory Notes,” in Greece the “Grexit” – and in Cyprus the word is “template.” For some reason, and suddenly now, everyone is asking if the measures used in Cyprus will be a “template” for other countries.

It is not clear why the Cypriot measures are seen to be more of a possible template than measures in other countries. Four Eurozone countries have needed help to overcome debt problems and the troika-prescriptions have all been different, according to circumstances and the most pressing problems.

Here, Draghi also made a relevant observation. “Cyprus is not a template,” he said. “Cyprus is not a turning point in euro area policy. We have said many times that our resolution… is to resolve banks without using taxpayers’ money and without disrupting the payment system. That is why we have to have a resolution framework in place. So, it is not a turning point. That is exactly the resolution framework that all other countries have and the euro area will have.”

Draghi makes it clear that there is no template as how to do things – but there is a clear goal: “to resolve banks without using taxpayers’ money and without disrupting the payment system.”

This goal was not clearly formed when the Irish Government felt compelled to pass a legislation issuing a blanket guarantee to safeguard the Irish banks. Quite interesting to read minister for finance the late Brian Lenihan’s speech and the following debate in the Irish Dáil September 30 2008 where the word “taxpayer” figures 46 times. As Lenihan said:

“This legislation is not about protecting the interests of the banks; it is about the safeguarding of the economy and everyone who lives and works in this country… The guarantee provided by the State is not intended to insulate the shareholders of these financial institutions from the risks attached to the investments they have made, as much as they may have benefited from significant rewards over the years… The guarantee is not free and the taxpayer who ultimately underwrites this support will be remunerated for the value of the support provided. The terms and conditions on which the guarantee is provided will ensure the taxpayer gets value for money.”

Unfortunately, the taxpayer got more burden than value in January 2009 when the Irish Government had to shoulder the bank debt it had guaranteed. Thus began the crippling Irish debt saga. The goal – to avoid using public money – springs from avoiding the repetition of the Irish saga, to avoid transforming bank debt into sovereign debt. It is still too early to tell if Cyprus will be a success – the situation there doesn’t quite look like a success for the moment (but neither did the situation in Iceland in October 2008 resemble a successful beginning).

Although repeatedly asked, Draghi did not give any clear answers regarding the unfortunate intention to collect necessary Cypriot funds by putting a levy on insured depositors. He could only be drawn on admitting that it “was not smart, to say the least, and it was quickly corrected in a Eurogroup teleconference on the next day. But that is what is past.” – Not quite the past since this has now become part of a perceived template for fixing a debt crisis. And although it seems that the idea came from the Cypriot government it is still inexplicable – and unexplained so far – that no one in that room on March 16 saw what Draghi admits “was not smart, to say the least…” – and prevented that idea from being let out in the open.

Politics, not economics, ultimately govern the euro

In spite of all the talk about “Super Mario,” Draghi will know better than most that neither the ECB nor the IMF will save the euro. It is a political task – which is probably one of the reasons why Draghi’s refrain is “within our mandate,” meaning the ECB. And as one-size jeans will never fit all, so one template cannot solve the present crisis in various Eurozone countries.

The banking union in spe is set to provide the much-needed framework to prevent the present situation where debt migrates from the private to the public sector. It will take some resourcefulness to survive the present debt debacle until the nirvana of the integrated approach that “will oversee the safety and stability of the financial system as a whole,” as described in a recent IMF report, is reached.

Maybe it is the general dominance of markets on government policy, which lead so many to conclude that the most likely solutions to the problems, caused by the deadly debt in some Eurozone countries, could be found through clever calculations leading to euro exit. Draghi’s words are a clear reminder that ultimately, the euro is governed more by politics than economics.

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The case that the Icelandic Office of the Special Prosecutor is bringing against three Kaupthing managers and Olafur Olafsson, at the time Kaupthing’s second largest shareholder, is coming up in the Reykjavik County Court today. It seems that now all legal quibbles the defendants brought up have been dealt with – all of them brushed aside – which means that the case can now take its course. Not quite now though, that will happen in mid April when the main proceedings are due to start. The Kaupthing managers charged are Sigurdur Einarsson, Hreidar Mar Sigurdsson and Magnus Gudmundsson.

This is by far the largest case brought so far by the OSP. There are fifty names on the witness list. One of them is the man who has given the case its name, Sheikh Mohammed bin Khalifa al Thani. The Sheikh is not accused of any wrongdoing and has not been charged but the OSP would like him to bear witness. It is not known if he will answer the request.

This case has been extensively dealt with on Icelog, i.a. here. The interesting UK angle to the story is that there are striking parallels of this loan story – a Middle Eastern investor being lent money by a bank to invest in that same bank, which then uses that investment as a sign of its rude health – in the Barclay story, also from 2008, now being investigated by the SFO, also covered earlier on Icelog.

Middle Eastern and Russian money is famously finding its way into many London-based investments and investment companies, adding glamour and building cranes to the city. The question is how sparkling clean and healthy all this money is – but as we know from the HSBC money laundering case even major banks are not too squeamish when it comes to the choosing their customers.

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The Icelandic Supreme Court has sentenced Jon Asgeir Johannesson to one year  prison, suspending the sentence for two years for tax evasion. In addition, Johannesson is ordered to pay ISK62m, €371.445. The case is a part of a case that has been running since Baugur’s offices were raided in 2002. In the summer of 2008 he was sentenced to 3 month prison, also suspended, for fraud, in a case that also sprung from the raids in 2002. In its sentencing the Supreme Court reprimanded the Reykjavik County Court for giving Johannesson too much scope to delay the case. The sentence was more lenient, according to the judgement, because the criminal behaviour stems from tax returns in the years 1999-2003. The charges were not brought until 2008.

But this is not the only case that brings Johannesson to court these days. The Office of the Special Prosecutor has charged Johannesson and Glitnir managers for causing Glitnir fraudulent losses, as recounted earlier on Icelog. In another case the Glitnir Winding-up Board is suing Johannesson and eight others – Glitnir managers and board members – for a fraudulent lending of ISK15bn to companies related to Johannesson. In both these cases Johannesson is effectively being charged and sued as a shadow director – as someone who was not legally a director but who acted like one who by putting pressure on managers and board caused these huge losses, stemming from loans issued to companies related to Johannesson and his close business partners.

The Glitnir case is related to a case the WuB tried to bring to a New York court but failed. This case is now being fought in Iceland but the New York exercise did probably help the WuB gather valuable information, which will benefits its case in Reykjavik. Johannesson’s defender claimed in court today that his client had no powers to manipulate the Glitnir management. Johannesson emphasises his innocence in both cases.

Johannesson has lately made some investments in the UK, on behalf of his independently wealthy wife. His investment in Muddy Boots, a very successful fine food start-up, made headlines recently. News of his investment indicated he would be on the board of Muddy Boots. It is unclear if this sentencing will affect these plans but with this sentencing he can’t sit on boards of Icelandic companies in the near future. After the sentencing in 2008 he was forced to step down from the board of some UK companies where he had been a board member.

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From 1998-2000 I lived in Denmark and followed how things evolved both there and in the Nordic neighbouring countries. Outside, these countries seemed an oasis of tranquillity, peace and harmony though that feeling was less prominent inside. Of course, there were a lot of problems to be discussed and solved at a closer look – and it is that closer look that colours the public debate.

In the summer of 1992 I spent some weeks on an Italian beach immersed in hectic, loud and lively Italian family life. One of these summer days, the Sicilian judge Paolo Borsellino was assassinated, only a few months after the assassination of his colleague Giovanni Falcone. These were tense and tragic times and the uncertainty and power vacuum following spectacular corruption cases, the rise of “mani pulite” and the collapse of the Italian “partitocrazia” was palpable. There were even rumours that the army was thinking of asserting itself. Returning home to Copenhagen I opened the door. The Swedish newspaper “Svenska Dagbladet” was on the doormat. The main headline was “Bad ventilation in public places” – surely, this can only make headlines when all problems have been solved.

Moving to the UK in 2000, I looked back at these countries with certain nostalgia – compared to most, almost all, other countries the Nordic countries just seemed to have solved all problems. I nodded approvingly at the recent Economist’s front page coverage of the Nordic countries as a supermodel, excluding Iceland, embodied by a Viking. I was also glad to see the use of the term “Nordic” – a native English speaker once told me this term was not English. Well, it has now turned English though in the Nordic countries themselves the term includes the five countries – Denmark, Finland, Iceland, Norway and Sweden.

There is a good case for not including Iceland among the Nordic supermodels – the social structure is different, so is the value system. In the four other countries, social democrats have been the political architects. In Iceland it has been the conservative, the Independence Party. And so on.

Yes, there is much to be learnt from the four Nordic countries, in particular the natural inclination to egalitarianism and taking it for granted that society is made up of men and women and should be accommodating to both – an attitude woefully lacking ia in the UK. Research after research shows that such societies thrive and grow and it is not prohibitively extravagant to expect these fundamentals to be in place. Which of course doesn’t abolish political dispute but that is what democracy is for – to discuss these issues in a more or less civilised way and reach a workable conclusion and compromise.

My own country made the front page of the FT February 5, also with a Viking, this time a statue holding the Icelandic flag, embodying “The Icelanders’ angst; Saga of a society in rehab. Analysis.” The feeling is more chatty Hello than stern FT; the analysis done not with graphs and statistics but with mini portraits of seven Icelanders, all well known in Iceland. The point is to show that in spite of good economic numbers – such as unemployment falling from a peak of 9.2% to 5.7% (or 5.6% according to Iceland Statistics) and a growth of ca 2% – Icelanders are still “struggling, some are angry and some are keen to move on.”

Right, there is the whole gamut of feelings, as in most countries but angst? No, I don’t think angst is the prevailing mood among Icelanders and even much less now than a week ago when the EFTA Court ruled on Icesave. “Not enough done” has however been a common theme in the political debate. The government has been spectacularly bad at taking credit for the recovery that has, in spite of problems, taken place, giving the opposition plenty of space to spread its own version of too little, too late, wrong and bad.

Recently, I was on the Pat Kenny show on Irish Rte, explaining the Icelandic 110% way, the extensive write-downs of mortgages, one of the measures to get things moving again. Kenny asked if this meant that had he a mortgage of €400 and the value of his property was only €200 would he then get his mortgage written down to €220. Yes, exactly. There was a few seconds’ stunned silence. This would be seen as quite something to do, universally and over the line in Ireland or in any other country. In Iceland, people shrug their shoulders; yes, it’s good – but it’s not enough. Not for everyone.

Right, it’s not the panacea solution for everyone but it is quite helpful to many. The same goes for changes in bankruptcy law, to shorten the time of bankruptcy to two years and some other measures. Daniel Gros, CEPS, thinks that small countries like Latvia and Iceland do not have much to teach bigger countries re austerity. He might have a point in general but some of the measures taken in Iceland could prove of use to others, ia Ireland and Spain.

Icelanders are notoriously good at spending. The Icelandic term is “eyðslukló” – “spending claw” – and the Icelandic spending claw is now at it again. Going abroad, buying this and that, thereby showing some optimism. The spending claw is certainly not showing any sign of angst, not even now, in mid winter. According to Gallup Iceland “National Pulse” (Þjóðarpúlsinn) the mental state of the nation is slightly down from summer – as normally happens during this naturally dark time of the year – but it peaked higher in July last year than the previous year and is now also slightly higher than same time last year. Consumption of smaller goods was ISK5bn over Christmas a year ago, this time ISK7.1bn. And so on.

Plenty of things Icelandic in the international media recently. “Have you seen the front page of the International Herald Tribune,” an Icelander asked me in Brussel last Friday. “It’s the most beautiful IHT front page I have ever seen.” Right, the Esja – the majestic mountain cuddled up under white clouds on the other side of the bay from Reykjavik – was naturally well at ease on the front page and so was Olafur Hauksson, the special prosecutor and poster boy of bankers and financiers’ investigations in Iceland. The headline, “Iceland, Fervent Prosecutor of Bankers, Sees Meager Returns.”

I am not sure what the “meagre returns” mean here. The Office of the Special Prosecutor, headed by Hauksson, was set up in early 2009 with no staff and nothing. Now, three men are in prison related to financial dealing before the collapse. Some high-placed managers and large shareholders have been charged but these cases are still being processed by the Courts. HSBC has admitted to money laundering going back to the early 2000s. No one has been charged. It is only recently that bankers involved in Libor rigging, also going back number of years here in the UK are being investigated – it seemed at first there would only be fines. The investigations in Iceland are going far slower than most would like – but the bankers and other major players in the financial boom in Iceland are actually being investigated. That is more than can be said for most countries.

Is it necessary to make criminal investigations into what went on during the bubble years in Europe? Some say not, that one should look forward and not backward. I can’t see that one excludes the other. Human beings are not one-track beings and society can put efforts into both. Moreover, I think that the palpable anger in countries like Greece, Spain and Ireland – though expressed in different ways – also stems from the fact that little has been done to throw light on, investigate – and prosecute where appropriate. In addition, there is the immensely illuminating report of the Special Investigative Commission, set up at the behest of the Icelandic parliament, whose report was published in April 2012. No country has recently done comparable investigation.

It is perhaps the dark, cynical and prodding mind of editors that come through in the headlines mentioned above – there is often discrepancy between articles and headlines – but when their behaviour is scrutinised Icelanders do not seem to be particularly angst-ridden. Though the OSP investigations are taking time they take less time than some of the major SFO investigations. The judgements in OSP cases so far indicate that at least in a certain type of cases, of which there will no doubt be more, sentencing is likely, in some cases severe sentencing. The OSP might certainly experience some setbacks; charges might be thrown out, those charged found not guilty but at least Icelanders can’t say that nothing is being done in bringing bankers and financiers to justice. Too big to fail, to important to jail doesn’t quite hold in Iceland.

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I have earlier pointed out the similarities between the Kaupthing connections with the Qatari investor Sheikh Mohammed bin Khalifa al Thani and Barclays contacts with another al Thani and Qatari investors. As recounted in some details here, with Kaupthing documents, the Kaupthing saga with the Qatari investor, who bought shares in Kaupthing in September 2008 publicised at the time as showing the Qatari faith in Kaupthing, was indeed a saga of a very favourable Kaupthing loan to the Qatari investor.

This saga had surfaced in the Icelandic media but was fully documented in the SIC report in April 2010 and more recently in charges brought by the Office of the Special Prosecutor against three Kaupthing managers – Sigurdur Einarsson, Hreidar Mar Sigurdsson and Magnus Gudmundsson and Kaupthing’s second largest shareholder at the time, Olafur Olafsson. It did more than strife my mind if the Qatari share-buying in Barclays mirrored the Kaupthing story: that Barclays had lent them the money. Now the FT (subscription) is writing that this is indeed being investigated.

A recent Bloomberg article on the Libor probe refers to an investigation against Barclays chief financial officer Chris Lucas related to “payments made to Qatar’s sovereign wealth fund, the bank revealed last year.” Lucas, who had sought anonymity in the Libor investigations, is also mentioned in the FT article.

As the rumours about alleged fraud started surfacing after the Icelandic bank collapse in 2008 I heard various Icelandic bankers maintain, rather miffed, that they had not done anything differently from bankers in other banks. These words are now taking on a new meaning as we get more insight into what was actually going on in other banks, especially in the UK.

The Icelandic banking saga was laid open in the Icelandic SIC report. Unfortunately, no similar work has been done in the UK or elsewhere, with one exception: the only work comparable to the SIC report, that I am aware of, is Anton Valukas report on Lehman (earlier Icelog on Valukas’ Lehman report here), which was both extensive and thorough and a fantastic read. Recently, Valukas, in his first interview (CBS 60 Minutes) on the Lehman report, has expressed his surprise that no action has been taken against Lehman managers on the basis of his report.

The alleged Barclays deal with the Qatari is yet another addition to an ever more extensive saga of widespread questionable dealings within banks, showing a staggering lack of morality and integrity. These men were not only handsomely remunerated but in some cases knighted – and so far, the bill has been passed on to shareholders whereas none of the doers has been held accountable. That could be changing now with the Libor probe but it is still too early to say if charges will be more successfully pressed than in the SFO case against Kaupthing.

*Feb 3: Chris Lucas, Barclays finance officer for almost six years, is stepping down later this year, according to Sky News. It is unclear what sort of a leaving pay-packet he takes with him. – FT reports that Barclays general counsel Mark Harding is also leaving.

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Imagine you come home one evening to find the back door kicked in with the door and the doorframe completely destroyed. Inside, everything is in disarray, furniture badly damaged and plenty of valuables stolen. When the policemen arrive they are completely stoic. They have seen it all before, recognise the methodology and are more or less sure who did it. The friendly policeman in charge tells you that by the time they get around to arrest the culprits the stolen goods – your things – will have been sold off. Sorry, no chance of recovering any of it. The thieves move too quickly, the police too slowly though the thieves will no doubt eventually be caught.

“When can I expect to be called in as a witness,” you ask. “Well, not so sure the case will come court. We negotiate with the thieves. They will pay a fine and that’s it. Quite a hefty fine because there is a lot of damage, apart from the stolen goods, of course.” You can’t believe your own ears: the thieves have committed a criminal act – and they will sell your property to pay the fine. Dismayed, you point this out to the friendly policeman. He shrugs his shoulders. “This is the new order. Prison is only for petty street crime. The serious criminals, we negotiate with them.”

Shareholders in banks involved in LIBOR swindle, such as Barclays and others banks soon to be named, and in HSBC, which allowed itself to be used as a conduit for money laundering by Mexican drug lords, dodgy Russian and entities with ties to terrorist organisations (see earlier Icelog here), are more or less in the situation of the house-owner in the story above. This is what’s been going on for the last many years when it comes to certain actions of those who operate from the management suites of big banks. With ever rising salaries, no matter if the banks lose or not, top managers have been allowed to let the company pay the fines resulting from their lack of oversight, corrupt company culture and potential criminal acts.

HSBC has just set aside $2bn to cover potential money-laundering fines and mis-selling claims. Barclays has just paid £290m to UK and US authorities for the LIBOR rigging. In addition, Barclays is now under investigation related to its fund-raising in the Middle East in 2008. The bank has just announced its pre-tax profits, £759m – down 71% from last years £2.6bn and potentially more fines in sight for Barclays.

This might – just might – be changing though. Recently, the Serious Fraud Office announced that its new director, David Green, “is satisfied that existing criminal offences are capable of covering conduct in relation to the alleged manipulation of LIBOR and related interest rates. The investigation, announced on 6 July, involves a number of financial institutions.”

This means that the SFO is now investigating the LIBOR rigging as a potentially criminal act, in the belief laws have been broken. Part of the rigging involved portraying the bank stronger than it indeed was, in the financial turmoil of autumn 2008. If that isn’t market manipulation I find it difficult to understand that concept.

In the US, some senators have introduced a bipartisan bill to give US regulators the authority to seek tougher fines from the financial sector. The understanding is that although the fines posed on Barclays are record high it’s still decimal dust in the grand scheme of the bank’s balance sheet. The bill proposes raising the maximum penalty from up to $150,000 per violation for individuals and $725,000 per entity to respectively $1m and $10m. Crucially, the SEC could seek fines of three times the amount of ill-gotten gains – or investor losses.

Interestingly, last November, US District Judge Jed Rakoff refused to rubber-stamp a $285m settlement the SEC had posed on Citigroup. Rakoff’s reasoning was that the fine was “pocket change” and investors had been “short-changed.” To put the fines in perspective re ill-gotten gains and losses, the SEC alleged investors lost $700m from the underlying scheme while Citigroup had estimated its gain $160m. In 2009, Rakoff did the same and forced the SEC to increase its settlement with Bank of America.

None of the things that happened in banks now being fined happened because of some laws of nature but because of one decision after another, leading in the same direction. Decision taken by individuals with the power to make these things happen. If accountability is to be a word be counted on, the individuals who took the decisions have to be made accountable, instead of just using their power make shareholders pay.

Regulators still seem to believe that mild words of warning are enough. President Barack Obama says he’s in favour of making “penalties count.” If the penalties just count for the shareholders and not for those who actually condone – or carry out – what’s being penalised that’s just not enough. Seeing Raj Rajaratnam sentenced to eleven years in prison for insider trading might awake more fear of the law than letting the company pay fines and seeing shareholders lose out on dividends.

As I’ve pointed out earlier, the correlation between corruption and the recession is to my mind a clear one. Corrupt business practices played its part in the financial collapse in the autumn of 2008. Both European countries and the US are still smarting from the aftermath and the ensuing recession has led to job losses and expensive bail-outs, paid by tax payers in these countries. In that sense, tax payers are paying for potential financial crimes.

Apart from corrupt business practices and the bail-outs there are three issues at stake here. The fines are ridiculously low, compared to the balance sheets of these gigantic banks. Secondly, is it fair that managers, on whose watch these breaches occur, can just dry the losses off on shareholders? And thirdly, is it fair that those who break the law out of luxurious suites with perks such as private toilets and paid-for taxes are treated any differently than criminals operating on the high street?

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