How Iceland stalks its banksters

In London, Barclays rigged the interest rates on interbanks loans, while in Madrid, Bankia cooked the books in order go public. How can banks be held accountable? Iceland has appointed a team of investigators that seeks out fraud and sends the perpetrators to court. Excerpts.

Prior to the economic crisis, Olafur Hauksson was police commissioner in Akranes, a small port town of 6,500 inhabitants stranded at the end of a frozen peninsula some fifty kilometres from Reykjavik. Since 2009, he tracks down and brings to justice those who played a role in the country's economic collapse of 2008.

At the end of 2008, the Icelandic bubble burst as a consequence of the subprime crisis in the United States. Two weeks after the dramatic fall of Lehman Brothers, the country's three major banks – valued at 923% of gross domestic product (GDP) – collapsed. The crisis swept through the island, the Icelandic krona dropped in value and no intervention could halt its downward spiral. On October 6, 2008, live on national television, the then-prime minister ended his speech by asking God to "save the island".

Since that fateful day, Iceland has known troubled times. In 2009, the Icelanders, although not used to demonstrating over social issues, shouted their anger against the politicians and the "neo-Vikings" of finance that betrayed them. The "revolution of pots and pans" forced the resignations of the Parliament and of the conservative government.

One of the demands of that movement was that those that profited from the economic situation and who pushed Iceland into the economic abyss be brought to justice. Early legislative elections [in 2009] brought the left to power. The new prime minister, Johanna Sigurdardottir, wanted to quickly appoint a special prosecutor to investigate the causes of the crisis but candidates applying for the post were hard to find.

Olafur Hauksson, isolated in his little provincial police station, had the merit of having no relations with the elite accused of having hastened the island towards bankruptcy. Despite his total inexperience concerning matters of economic law, he was the only one to apply for the job. More than three years after his appointment, he recognises himself "only recently feeling at ease in his function". Starting out with a team of five, he now manages over one hundred assistants.

Theirs is a double burden: "On one hand, we have to investigate all suspicion of fraud and offences committed before 2009, on the other hand, we bring the lawsuits against the suspects to court ourselves," Hauksson explains. This is a "totally new" method which allows the investigators to "follow the case" and the judicial system to "know the cases like the back of their hand". This is indispensable in order "to compete with the well-prepared defence attorneys".

To ease the prosecutor's job, the government modified the laws on banking secrecy. "Today, we have access to all information with no objections possible," claims Olafur Hauksson. Suspected bank fraud, swindles, professional identity theft, misuse of funds, the types of investigations are wide-ranging and the three – soon to be four – interview rooms are never empty. The prosecutor says he is currently working on "a hundred priority cases".

Most of those targeted are former banking sector officials or were board members of banks before the crisis. These Icelanders have often opted to relocate abroad – to Luxembourg, for example – to further their careers. A dispersal that complicates the task of Hauksson's team. Yet searches continue and the team pursues its investigations abroad in the foreign subsidiaries of the Icelandic banks and includes questioning foreigners. "We enjoy full international cooperation," stresses Olafur Hauksson.

To date, some convictions have been achieved. Two former officials of the Byr bank, the first to be brought to trial, are now serving prison sentences of four and a half years. The former chief of staff to the finance minister at the time of the crisis, Baldur Gudlaugsson, was sentenced to two years in jail for insider trading. More recently, Sigurdur Einarsson, former CEO of the Baupthing Bank was sentenced to reimburse the bank 500 million Icelandic kronur – 3.2 million euros – and had his assets frozen.

Others are awaiting their day in court. Jon Thorsteinn Oddleifsson, former head of treasury at the Landsbanki, should soon discover his fate, as should Làrus Welding chief executive of the Glitnir Bank.

Olafur Hauksson's work raises vivid criticism from the population. "We know that all eyes are on us, that we must not fail," he says, but "to hasten the process would inevitably lead to errors and, given the current context, with so much mistrust towards institutions on the part of Icelanders, we must, more than ever, be above reproach."

It is difficult to be "above reproach" in a society where questionable practices were standard for a long time. In May, two members of the prosecutor's team sold information for 30 million Icelandic kronur – 191,000 euros – to a mysterious recipient. The two former police officers were investigating the Sjovar/Milestone case, concerning an insurance company in which the Icelandic Central Bank invested before yielding its shares at a loss. Accused of breaching the confidentiality of their function, the two men were suspended and placed on retirement.

The "purge" of the Icelandic financial system, as Olafur Hauksson likes to call it, will not take immediate effect. While aiming to end his mission in 2015, the special prosecutor mainly hopes that Iceland, whose economy has slowly revived, will one day "look back and be proud to have drawn the lessons of the past".

We need to adopt Icelandic reforms. These people suffered and took measure to fix things. It may not be perfect but it’s light-years better than our catch-fine and release justice system we currently have for miscreant financial criminals.

“We need to adopt Icelandic reforms. These people suffered and took measure to fix things. It may not be perfect but it’s light-years better than our catch-fine and release justice system we currently have for miscreant financial criminals.”

Heck, what are you talking about, we don't even catch.

I think what happened there is no different than what happened here in the Depression, the S&L Crisis, and now the Depression-2. Essentially government took their eye off the bankers, and the bankers, well, became bankers. Which means that they gambled away the hard-earned money of their depositors. It has happened that way for hundreds, probably thousands of years. Bankers simply CANNOT BE TRUSTED with other peoples’ money, as they have proven over and over again.

I know that I sound like OWS...but these people are PATHETIC when they're not being watched over - no different than leaving 2 year olds on their own.

(from Matt Weidner’s law blog)

First they came with forged documents, submitted them in court and threw my neighbor out of his home.

But I did nothing, because I was not in foreclosure.

Then they came with forged trades and stole hundreds of millions from farmers in the midwest.

But I did nothing, because I was not a farmer in the midwest.

Then they came with forged bank statements and stole hundreds of millions from brokerage accounts.

But I did nothing, because I didn’t have a brokerage account.

Then they came with a crowbar and an impact drill to drill out and pry down my neighbor’s door.

But I did nothing, because it was not my door.

And so when they came and cleaned out my retirement account and wiped clean my bank account leaving me no means to feed myself or fend for my family, there was nothing I could do, there was no one to fight for me.

Doesn’t sound like OWS to me. I have nothing against capitalizm or banking per se...but left to their own devices and with no consequences for legal action, the system has been corrupted. There are regulations that aren’t enforced and way too much control in the hands...

Wall St. is a minefield, the little guy can only be a flea on the big dogs. It shouldn’t be that way...and if the system can’t be trusted to create a level playing field, then it is doomed. Iceland is on the right track..there are a few in New York (see U.S. attorney Preet Barahna, FBI’s Peter Kang and a few judges) doing the right thing...but the task is daunting.

Thanks. I’ve been blasted by people that are convinced that bankers would just be a bunch of angels, had the Democrats not forced them to make loans to people that could not be paid back.

That happens to also be Rush’s position, but I know that I’ve spent at least 10 times as much time studying this latest meltdown as he could have (even if he used both halves of his brain). I’ve looked at loan paper from Florida and California and it was OBVIOUS that loans were being made to people that had no prayer of repaying. Any honest banker (there may have been some at the beginning, but the dishonest ones squeezed them out) would have simply told Congress and regulators (and Congress) that making a loan to someone that obviously can’t repay per the terms is morally wrong, hurts the depositor, and hurts the recipient. But that just doesn’t seem to seem to be the case with bankers.

I think China has the answer.

They just line the offending CEO up against the wall...in front of a firing squad.

NEXT!

Problem solved.

One quibble with some of the comments: Not all bankers are scam artists. The problem is that the TBTF banks appear to be run by crooks.

We need to let the TBTF banks go bankrupt and put the exec from First Bank of Hereford, Texas, in charge of what’s left. That’s where you find honest bankers, not crony capitalists.

I wish Romney would attack crony capitalists, e.g., Obama’s Solyndra, with a vengeance. Obama is totally guilty and it is obvious. It was pay-for-play.

As the article shows, we can win votes from people across the political spectrum who are fed up with rampant white collar crime.

There would be a huge benefit to our economy if the people and investors once again had confidence in our institutions. Obama and his gang of crooks, e.g., Corzine, are driving funds from the marketplace.

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