More Iceland banking arrests likely

kaupþing1Further arrests of former Kaupthing bosses by Iceland’s Special Prosecutor into the banking collapse are considered likely in the near future.

Former Kaupthing CEO, Hreidar Mar Sigurdsson and Kaupthing Luxembour boss, Magnus Gudmundsson are both now sitting in the Litla Hraun prison awaiting trial. The Special Prosecutor’s investigation has uncovered regular serious criminal activity within the bank by senior figures in the lead up to the banking crisis.

Investigations into Kaupthing began shortly after the bank was taken over by the government in autumn 2008 and the Special Prosecutor has ordered several raids and searches over the last year in connection with the case. Among the things being investigated was the allegation of Kaupthing owners’ engaging in illegal market manipulation to support the bank’s share price.

Kaupthing loaned many billions of kronur to holding companies which then used the money to buy Kaupthing shares or bonds issued by the bank, reported.

The so-called Al-Thani issue falls into this category. Kaupthing loaned Sheik Mohammed Bin Khalifa Al Thani ISK 25 billion in the summer of 2008 and the Sheik then bought a five percent stake in the bank. The shady deal is described as a show-trade and came shortly after Kaupthing bosses met to discuss the importance of getting new foreign investment.

Suspicious transfers of money from Kaupthing in Iceland to foreign accounts shortly before the bank’s demise are also a key element of the Special Prosecutor’s investigation. Little or no explanation for the transfers has been found so far. Undisclosed sources put the figure transferred overseas, mostly to Luxembourg, at around ISK 100 billion (USD 786.5 million at today’s exchange rate). Part of this sum is probably connected to the previously mentioned loans to buy shares.

Still more investigations into Kaupthing are in progress at the FME national financial regulator and have not been handed over to the Special Prosecutor yet. The Luxembourg-based Kaupthing daughter company, Black Sunshine is the subject of one such investigation.

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