venerdì 16 aprile 2010

Iceland Report on Financial Crisis Lashes Out at Government, Banks

Iceland Report on Financial Crisis Lashes Out at Government, Banks

The American Lawyer

April 15, 2010

Reykjavik, Iceland
Source: Getty Images

A mammoth 2,300-page report compiled by a Special Investigation Commission for the Icelandic parliament heavily criticizes some of Iceland's leading political figures and banking officials over the crisis that brought the country to the brink of insolvency.

The report, the result of a 15-month investigation, exposes failings in the financial system for the northeast Atlantic island nation. According to the BBC, it also details the inability of Icelandic authorities to make sure that depositors of Icesave were insured abroad. Icesave was an online banking arm of Iceland's second-largest bank, Landsbanki, which did business in the U.K. and Netherlands.

When Landsbanki and Icesave failed amid the banking crisis in late 2008, the British government used antiterror legislation to seize Landsbanki's U.K. assets. The British and Dutch governments paid billions to compensate depositors' losses from Icesave, but then sought reimbursement from Iceland under European Union law. As previously reported by The Am Law Daily, the subsequent repayment dispute led to legal engagements for several firms in Amsterdam, London and Reykjavik.

Had regulators in Iceland required that Icesave depositors be insured in those countries, Iceland would have been spared the eventual cost of bailing out those depositors. The report released on Monday by Iceland's Special Investigation Commission -- only part of which is available in English -- states that the country's former prime minister, head of its central bank, and five other top government officials failed to take the actions necessary to prevent a collapse of the country's banking sector.

"The Commission finds that these seven have demonstrated gross negligence in the discharge of their duties," commission chairman Páll Hreinsson, a justice for the Supreme Court of Iceland, told Reuters. (Along with Hreinsson, the commission was comprised of Yale associate economics chair and lecturer Sigrídur Benediktsdóttir and parliamentary ombudsman Tryggvi Gunnarsson.)

The report also criticizes Iceland's three biggest banks -- Landsbanki, Kaupthing and Glitnir -- for creating a system that benefited powerful businessmen and banking tycoons at the expense of creditors and shareholders. (The Financial Times and The Guardian, which have reviewed the report in its entirety, have a more detailed analysis of the commission's findings.)

It's unclear at this time what the report might mean for ongoing negotiations between Iceland, the U.K. and the Netherlands to resolve the Icesave matter (voters overwhelmingly rejected a plan to repay both governments last month). Opponents of the repayment plan claim that it will bankrupt the country by saddling each of its 320,000 citizens with an estimated $20,000 in debt.

A call to Cleary Gottlieb Steen & Hamilton partner Lee Buchheit, who is advising Iceland's government in the Icesave negotiations, was not returned by the time of this post. (Buchheit is no stranger to representing foreign sovereigns in financial trouble -- he previously advised the Iraqi government on shedding $120 billion in debt accrued under Saddam Hussein.)

Another lawyer serving as a special adviser to Iceland, Donald Johnston, a founding partner of Canadian firm Heenan Blaikie and former secretary-general of the Organization for Economic Co-operation and Development, told us that he had just received the report but had yet to read it in its entirety.

"I was traveling and just received this late yesterday afternoon, so I'm not sure yet what the impact might be on [the Icesave negotiations]," Johnston said Tuesday. Before the release of the report's findings, Reuters noted that officials in Iceland were confident they could close the gap in negotiations with the U.K. and Netherlands and hammer out a final deal agreeable to all parties.

This article first appeared on The Am Law Daily blog on AmericanLawyer.com.

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