[A-List] Britain Uses Anti-terrorism Laws to Freeze Iceland's Assets
critical.montages at gmail.com
Sun Nov 2 03:09:43 MST 2008
Financial Sanctions Notice
8 October 2008
The Landsbanki Freezing Order 2008
2008 No. 2668
BANKS AND BANKING
The Landsbanki Freezing Order 2008
November 2, 2008
Iceland, Mired in Debt, Blames Britain for Woes
By SARAH LYALL
LONDON — No one disputes that Iceland's economic troubles are largely
the country's own fault. But there may be more to the story, at least
in the view of Iceland's government, its citizens and even some
outsiders. As grave as their situation already was, they say, Britain
— their old friend, NATO ally and trading partner — made it
The troubles between the countries began three weeks ago when Britain
took the extraordinary step of using its 2001 antiterrorism laws to
freeze the British assets of a failing Icelandic bank. That appeared
to brand Iceland a terrorist state.
"I must admit that I was absolutely appalled," the Icelandic foreign
minister, Ingibjorg Solrun Gisladottir, said in an interview,
describing her horror at opening the British treasury department's
home page at the time and finding Iceland on a list of terrorist
entities with Al Qaeda, Sudan and North Korea, among others.
In a volatile economic climate, in which appearance matters almost as
much as reality, being associated with terrorism is not a good thing.
"The immediate effect was to trigger an almost complete freeze on any
banking transactions between Iceland and abroad," said Jon Danielsson,
an economist at the London School of Economics. "When you're labeled a
terrorist, nobody does business with you."
The Icelandic prime minister, Geir H. Haarde, accused Britain of
"bullying a small neighbor" and said the action was "very out of
proportion." In a recent speech in Beijing, Sir Howard Davies, a
former deputy governor of the Bank of England and now the director of
the London School of Economics, said that Britain had used a "beggar
thy neighbor" approach to Iceland.
And an online petition signed so far by more than 20 percent of
Iceland's population said the British prime minister, Gordon Brown,
had sacrificed Iceland "for his own short-term political gain,"
thereby turning "a grave situation into a national disaster."
Iceland's financial problems had been brewing for some time. This past
spring, the country's banks, bloated with foreign deposits and debts,
began to falter. This fall, as the financial crisis deepened, the
government took over two of the country's three largest banks.
Britain's government, alarmed about the tens of thousands of accounts
held by its citizens, companies, local governments and charities,
froze the British assets of one of the failed banks, Landsbanki. It
also seized the assets of Kaupthing Singer & Friedlander, the British
subsidiary of another Icelandic bank, Kaupthing.
"The Icelandic government, believe it or not, told me yesterday that
they have no intention of honoring their obligations here," Alistair
Darling, the chancellor of the Exchequer, declared the day Britain
seized the assets.
The Icelandic government disputed that, saying it was merely asking
for time to make good on its obligations.
Whatever the case, reaction was immediate and severe, particularly
when Mr. Brown said the following day — inaccurately — that "we are
freezing the assets of Icelandic companies in the U.K. where we can."
Iceland's ambassador to Britain, Sverrir H. Gunnlaugsson, said in an
interview that this statement was particularly damaging. "There was a
perception in the U.K. press and among suppliers that everything
Icelandic had been frozen," he said. "The word was put out belatedly
that this was not the case."
Icelanders say that it is now nearly impossible to get foreign
currency into or out of the country. Many banks have refused even to
transfer money to Iceland. Importers are having difficulty paying
their foreign bills, and exporters are having trouble getting paid by
their foreign customers.
Many people in Iceland are also furious about what happened to
Kaupthing Singer & Friedlander. The British government's seizure of
its assets precipitated the immediate collapse of its parent bank,
Kaupthing, which the Icelandic government had been propping up and had
hoped would survive.
"Kaupthing was the last, best hope of the Icelandic banking system,
and it was killed there and then," Andres Magnusson, an editorial
writer for Icelandic Financial News, said in an interview. "This
really was the last straw. A lot of Icelanders are asking, 'Excuse me:
who's the terrorist here?' "
The bank's collapse had repercussions beyond Iceland and Britain. More
than 8,000 depositors, individuals and businesses, hold Kaupthing
Singer & Friedlander accounts worth about $1.34 billion on the Isle of
Man, money they cannot get their hands on now — and may never.
Iceland is in line to receive a $2 billion loan from the International
Monetary Fund and is talking to other Scandinavian countries. It is
not entirely friendless: it was recently offered a loan of about $52
million from the tiny Faroe Islands, for which it is very grateful,
Mr. Gunnlaugsson said.
The Icelandic government has pledged to make good on domestic bank
accounts. But it is still fighting with Britain over how much it is
obliged to pay — and how much it can afford to pay — to compensate
customers with accounts in Icesave, Landsbanki's British branch.
Under European regulations, Iceland is obliged to pay 20,000 euros
(about $25,000) to each individual account holder in Icesave. But the
total, Ms. Gisladottir, the foreign minister, said, would amount to
about 600 billion Icelandic kronur — only about $5 billion at today's
collapsed exchange rate but fully 60 percent of Iceland's gross
"The compensation that we would give would be twice as much per head
as the reparations Germany faced in the Treaty of Versailles after the
First World War," she said. "That is something we cannot afford."
The British government has guaranteed that individual British account
holders will be compensated fully, which is why it is seeking to wrest
as much money as possible from Iceland. But no such guarantees have
been made to the British companies, local governments, charities and
universities — including Oxford and Cambridge — that had Icesave
accounts. That figure alone is well over a billion dollars.
Iceland's key interest rate now stands at 18 percent. The currency,
the krona, has declined 44 percent in the last year. Mr. Danielsson,
the economist, visited the country recently and found the situation
"Salaries are frozen, food prices are shooting up and they are laying
off people left, right and center," he said. "Companies are going
bankrupt all over the place. It's unimaginable how bad it is."
Ms. Gisladottir said Britain's decision had sent Iceland back some 30
or 40 years, to a time when it was an isolated, poor country,
dependent mostly on its fishing trade.
"This is a major crisis," she said. "We haven't been in this situation
for, probably, ever. We cannot solve it alone. We need solidarity from
partners, from friendly countries, and we thought the U.K. was one of
Warning on use of anti-terror law on banks
By Michael Peel
Published: October 10 2008 04:14 | Last updated: October 10 2008 04:14
The use of anti-terror powers to freeze billions of pounds of
Icelandic bank assets in Britain is a distortion of the law's intent
and risks further gumming up the ailing financial system, legal
experts warned on Thursday.
Financial crime lawyers said the government's unprecedented decision
to apply the freezing order for purposes other than tackling terrorism
opened the way to its use in other cases centred on commercial and
The Treasury's action on Wednesday to protect the deposits of British
account holders has highlighted broader concerns that some
security-related laws passed since the September 11 2001 terrorist
attacks are so widely drafted they are open to abuse.
Martin Saunders, a partner at Clifford Chance, the law firm, said it
was "surprising" the government was addressing an economic problem
with "the kind of order issued against organisations like al-Qaeda".
The firm said that the Treasury order freezing an estimated £4bn of
assets of Landsbanki, which went into receivership this week, could
create a ripple effect of disruption on deals involving other
The freezing provisions applied to many assets other than account
deposits, potentially affecting transactions involving instruments
such as gold, securities and letters of credit.
Gareth Rees QC, a leading financial crime counsel, questioned whether
use of the powers was justified even though "everyone is being urged
to treat the present financial crisis as requiring a new approach".
He said: "Using powers clearly designed to combat terrorism in this
commercial and political way seems to be stretching the meaning of
this legislation beyond its intended limits."
It is the first time the Treasury has deployed the 2001
Anti-Terrorism, Crime and Security Act powers in a non-terrorist case,
using the sweeping discretion the law offers to combat "action to the
detriment of the UK's economy".
Lawyers say that this term is so widely drawn that it appears to offer
support both to what the government did and to similar action in
future situations involving troubled overseas institutions.
Asked if the government saw the Landsbanki case as constituting a kind
of financial terrorism, one official responded wryly: "The question
is: who are the terrorists?"
The Treasury stressed it had used the power as a precautionary measure
to protect British retail depositors, as it was not clear whether
Landsbanki could cover its obligations to them.
The order was temporary and officials were working "co-operatively and
constructively" with the Icelandic authorities to resolve the
The Treasury on Thursday issued a licence allowing a partial
relaxation of the order to allow businesses to access their accounts
and other facilities with Landsbanki's London branch.
The government approach came under political fire, with Baroness
Miller, Liberal Democrat home affairs spokesman, condemning it as
"clearly a misuse" of the 2001 act.
"Although it may have been right to freeze the assets, it is appalling
to use terrorism legislation for anything other than counter-terrorism
Her attack echoes criticisms of the broad application of official
powers in areas such as surveillance, which can ordered by hundreds of
authorities, including local councils, to safeguard "the interests of
the economic well-being of the UK".
Stephen Grosz, the head of public law and human rights at Bindmans,
the law firm, said that the Iceland asset freezing was another example
of "function creep", under which the breadth of potential applications
of an act meant powers adopted for one purpose could be deployed for
Liberty, the human rights group, declined to criticise the
government's use of the anti-terrorism law, arguing that it seemed to
fall under the umbrella of the "security" provisions referred to in
the act's title.
Additional reporting by Jimmy Burns
Terror law used for Iceland deposits
By FT reporters
Published: October 8 2008 17:11 | Last updated: October 8 2008 22:54
Anti-terrorism powers were used on Wednesday to recoup money owed to
UK depositors in a failed Icelandic bank in a move that risked sending
Britain's relations with Reykjavik to their lowest since the 1970s
More information about the A-List