Banksters, Corrupt Politicians Face Prosecution – in Iceland

Calls for constitutional reform follow investigation into financial collapse; bankers, former government ministers face possibility of jail time.

Last month, the publication of an Icelandic Parliamentary report commissioned “to investigate and analyze the processes leading to the collapse of the three main banks in Iceland” shook the old guard on the island, leaving many of the country’s rich and powerful facing the possibility of incarceration.

The long anticipated Black Report, as it is known, is seen by many Icelanders as crucial step toward recovering from its calamitous financial collapse of October 2008. The harsh critique of the old regime has presented Icelanders with an opportunity for reform not seen since the collapse itself and the Kitchenware Revolution of January 2009 that followed it, when thousands of angry demonstrators banging on pots and pans forced the government responsible for Iceland’s boom and bust to resign.

“With this report, many windows that were closed have now been opened again,” explained Left-Green Member of Parliament (MP) Ögmundur Jónasson.

Icelanders, he added, had been waiting for the report since December 2008, when the Special Investigative Commission (SIC) was first formed. The country has had to endure numerous painstaking delays, the last of which was intended to give those accused of criminal activity time to prepare their defense.

And while the delays may have been frustrating to a public desperate for answers, the end result – all 2,400 pages of it – was unexpectedly satisfying.

“Everyone was pleasantly surprised,” said Haukur Magnússon, editor of The Reykjavik Grapevine, an English language magazine based out of Iceland’s capital. “First, because no one believed it would come out. And secondly, no one expected it be well done. But they did a top notch job.”

And although there were fears that Kitchenware Revolution scale unrest would follow the report’s release – “People working on the report were coming to the media saying that they had to give the worst news possible,” Magnússon said – it never materialized. As he pointed out, few were surprised by the report’s contents.

“It confirmed in writing and research what everyone has known and has been talking about since the start of the crash.”

“Gross Dereliction of Duties”

What everyone has known and has been talking about is that illegal practices by the banks fueled the country’s boom. Considering that Icelandic banks had borrowed ten times the country’s national wealth at the time of their bankruptcies, the banks’ numerous critics rightly suspected that their expansions would not have been possible without the help of market manipulation and creative accounting practices.

However, it came as a surprise to many that a report commissioned by Parliament itself would provide such a gripping account of these practices and the incompetent libertarian government that encouraged them.

But while there was little disagreement that the mammoth report itself was extremely impressive, not everyone was satisfied with its recommendations. MP Birgitta Jónsdóttir, a representative from a post-revolution protest party called The Movement, largely approved of how it addressed ethical deficiencies during the expansion years, but described it as incomplete. “We call it the modern Icelandic Saga,” she said, “but it doesn’t go deep enough into the political responsibilities.”

“[The report’s authors] are only suggesting that three ministers should be brought to justice when everyone knew what was happening in the government and nobody did anything,” she contended. Those cited by the SIC for violating Iceland’s 1963 Act on Ministerial Responsibilities were Former Prime Minister Geir Haarde, former Finance Minister Árni Mathieson and former Commerce Minister Björgvin G. Sigurdsson.

And despite the distinct possibility that Iceland could become the first country in the world to imprison politicians for their role in exacerbating the global financial crisis of 2008, many feel that the SIC has let the ruling class off with a slap on the wrist. Expressing these frustrations in an article for Voxeu.org, Icelandic sociologist Thorvaldur Gylfason wrote that the report, when describing leaders’ crimes “uses the gentle word ‘neglect’ to refer to what might more accurately be called gross dereliction of duties.”

Then there are those for whom, controversially, the Black Report failed to recommend prosecution altogether. One such figure that sticks out of the political landscape is former Prime Minister, Central Bank Governor and current editor of Iceland’s most prominent newspaper, David Oddsson.

Frequently mentioned in the Black Report, Oddsson is a man whose political career has been somewhat of a saga itself. Iceland’s answer to Reagan and Thatcher, he was the country’s longest serving prime minister, presiding over Independence Party rule from 1991 until 2004. A divisive figure and an ardent supporter of Milton Friedman, his premiership was characterized by slash-and-burn privatization, which included the sale of Iceland’s publicly-owned banks. By the time Oddsson’s experiment imploded, he had moved on to become the governor of the Central Bank of Iceland. And while the Kitchenware Revolution forced most leading political figures to resign, Oddsson was too stubborn. Desperate to wash their hands of him, the post-Revolution emergency government passed a law requiring the Central Bank governor to have a masters degree in economics. Despite his love for laissez-faire ideology, Oddsson never studied economics. He first went to acting school, then received his law degree.

Having overseen the tail end of the boom and then the collapse as Central Bank governor, it is surprising that Oddsson didn’t make the SIC’s list of criminally negligent officials. One of the many interesting informational morsels served up by the Black Report: the notoriously abrasive Oddsson wasn’t on speaking terms with Commerce Minister Sigurdsson, a Social Democrat in the coalition cabinet, for the entire year leading up to the crash because of a public row over EU membership. The SIC denounced Sigurdsson, but not Oddsson, as criminally negligent.

But it is Oddsson’s premiership that arguably deserves more legal scrutiny than his failed foray into Central Banking; his backroom privatizations doomed Iceland’s financial sector from the start. In 2002, Landsbanki was sold to Björgólfur Gudmundsson, a friend of the conservatives and a convicted white-collar criminal who wasn’t even the highest bidder. Despite protests by the chairman of the privatization committee to Oddsson that the sale was approved without proper due diligence, it was allowed to continue.

“In many ways, Iceland resembles a third world society in the way people do things and the way they talk about things,” Grapevine Editor Magnússon attempted to explain, pointing out that the tiny country only received its independence in 1944. “This off-handed way of doing things gets blurred into our business and politics.”

Iceland’s Most Wanted

One of the positive aspects of Iceland’s crisis is that the collapse has forced the country to confront some of its more undesirable elements.

When asked, Jónsdóttir did not hesitate to say that Oddsson should “absolutely” face charges, but stressed that he is just one of many politicians who should be punished for acts of questionable legality. Parliamentarians should take moral responsibility, she said, and resign without having to be forced out, whether by elections or Parliamentary procedure.

“How can we have these people play a role in this country’s resurrection?” Jónsdóttir asked in exacerbation.

Since the interview, however, it appears increasingly likely that some of the most notorious pre-collapse political figures will get their comeuppance. Controversial Social Democrat Parliamentarian and former Reykjavik Mayor Steinunn Valdís Óskarsdóttir – one of the people to whom Jónsdóttir alluded – resigned recently. She accepted $100,000 in campaign finance donations from business interests. In a country where corporations aren’t afforded the same rights as individuals, this was seen as a corrupting influence.

And it appears even Oddsson himself may not escape his day in court; on June 1, The Reykjavik Grapevine reported that the Parliamentary committee in charge of reviewing the Black Report will recommend that Oddsson face charges of either mismanagement or negligence.

As for the others – Haarde, Mathieson and Sigurdsson – a Parliamentary committee chaired by Left-Green MP Atli Gíslason is currently deciding how to proceed with criminal charges. No Icelander has ever been charged with violating the Act on Ministerial Responsibilities before.

Iceland’s criminal bankers – the other half of the joint public-private initiative that bankrupted the country – were not as lucky as the politicians who escaped the wrath of the Black Report. The special prosecutor’s office in Iceland and lawyers around the world have been whipped into a frenzy as a result of the SIC’s findings.

“According to legislation, you can’t decide to remain silent for the Special Investigative Committee,” Special Prosecutor Ólafur Hauksson remarked. Meanwhile, the special prosecutor’s office – created after the collapse to pursue financial criminals – is “abiding on the basis of a criminal investigation.”

When the SIC came knocking, naughty financiers were unable to hide from behind Iceland’s version of the Fifth Amendment. Since the Black Report’s release, the ex-owners of Glitnir have been slapped with a $2 billion lawsuit, Landsbanki’s former managers have been sued for $750 million by the bank’s winding-up committee and Hauksson has filed charges against Kaupthing Chairman Sigurdur Einarsson, who is currently in exile in the UK.

Einarsson responded to Hauksson’s request for questioning by asking for immunity from arrest upon repatriation. In response, Hauksson filed charges and an extradition request with Interpol.

What led Hauksson to seek out Einarsson was the arrest of several Kaupthing executives: They had borrowed money from the bank for the sole purpose of manipulating its share price. The bank had even written off the loans after Kaupthing became insolvent, but administrators and government authorities reversed that decision in the aftermath of the Black Report.

Style Points

Given the heinous acts that the Black Report set out to chronicle, it goes without saying that there was always going to be drama following its release. Appropriately enough, a theater group in Reykjavik committed itself to reading the report in its entirety onstage. It took five days.

What Icelanders did not expect, however, was for the mammoth investigation to give the country a taste of its proud literary tradition.

“Everybody kind of expected a dry whitewash,” Icelandic writer Andri Snær Magnason explained, “but this report is not written like an official document. It’s exciting to read.”

“It’s full of bold, humorous and often daring remarks,” he added, “but at the same time, it spins a delicate thread by attempting to find a value base to stand on. A standing point of what is normal and what isn’t.”

The report contained an addendum, which offered an ethical criticism of Icelandic society written by two Icelandic professors of philosophy and a historian. Such an approach made an impression.

“It’s important because we could not denounce anything as vulgar or absurd before,” Magnason recalled. “You could take a private jet to London to buy underwear and people would say, ‘It’s your money and you can do what you want with it’.” But the report, he said, has forced Icelanders to reflect upon ethical issues and what constitutes healthy behavior. “It’s refreshing for people,” he said. “It takes a human approach to the issues.”

Magnason also praised the report’s authors for managing to maintain objectivity while simultaneously producing a scathing criticism. “They manage to get this cool, cold oversight that we thought was not possible anymore,” he explained. “We thought everyone was tied into their old families and classmates that no one could find out what happened. But, remarkably, they managed to do it without a single word leaking before it was released.”

And while the Black Report was pushed out of what few international headlines it made shortly after its release due to the eruption of Eyjafjallajökull, Magnason – who has written poems, plays, and, most famously, an environmentalist manifesto entitled “Dreamland” – reveled in the timing of it all.

“It was very well choreographed, the nature and politics,” he said. “We are all starting to believe in supernatural things now.”

Waiting for Katla

Just as the beauty of Eyjafjallajökull’s awakening inspired many Icelanders (those not living near it, anyway), the Black Report has inspired the more reform minded among them. In the ongoing battle to reform Icelandic society, the report has added fuel to the fire. Now, reformers are waiting for their metaphorical Katla; every time Eyjafjallajökull has erupted in the past millennium, Katla, a neighboring volcano with the moniker “the angry sister” has followed suit.

“When you get an insight into the system and everything is brought out into the open, this creates a wider debate,” Left-Green MP Ögmundur Jónasson explained. “This report, instead of closing a chapter, opens a new one because now people are so aware of the power that information gives.” Although Iceland was previously thought to have been one of the most transparent societies in the world, the crisis revealed a whole seedy underworld of clannish, nefarious behavior.

But, as Jónasson pointed out, opacity is as much of a global problem as the financial crisis itself. The IMF, for example, made Iceland agree to aid preconditions under complete secrecy. Only after signing the deal, he said, “you can discuss it in your parliaments. Until then, complete secrecy. This is not confined to Iceland. This the working method of the IMF.” In September, Jónasson resigned his position as health minister in protest over the government’s cooperation with the IMF.

It should be noted that the IMF has been unusually flexible with Iceland. Remarkably, it has allowed the country to maintain capital controls and has dropped demands that Iceland agree to the controversial Icesave terms presented to it by Britain and Holland.

Despite the leniency, there are still concerns that the IMF will, in the end, harm Iceland with its aid conditions and lack of transparency.

“It is non-democratic,” Jónasson said, “and has been objected to by governments and the international labor movement. I think this illustrates that the problem is global. Secrecy is in the interest of capital. Transparency is in the interest of people.”

In a bid to boost transparency in Iceland and beyond, Icelandic MPs, including Jónsdóttir, introduced The Icelandic Modern Media Initiative (IMMI) earlier this year. An act of comprehensive legislation designed to protect journalists and whistleblowers, it has yet to undergo a final vote. But, if approved, the IMMI could turn Iceland into a haven for dissenting opinions from around the world.

Still, the masses can’t eat free speech. The IMMI is scant comfort to those on the island enduring serious financial hardship.

To compound the misery surrounding the massive public and private financial obligations Icelanders have accrued, unemployment is at its highest level since it was first measured in 1991, the government faces austerity measures (although the IMF said the budget will be balanced by 2014), and many of the brightest have migrated in search of better opportunities (although many Icelanders choose to spend part of their youth abroad, anyway).

However, the most pressing concern to many on the island is the fate of Iceland’s natural resources. The country’s sacred cow – the publicly-owned geothermal energy sector – in particular, is being lusted over by foreign investors in pursuit of cheap, clean, burning power. Canadian mining conglomerate Magma Energy, for example, is now majority owners of HS Orka, one of Iceland’s leading geothermal energy producers. While Icelanders have been confronted with this sort of conflict before, the financial crisis thrust the issue of foreign ownership of utilities into the spotlight.

“Many of our public power companies are heavily indebted in foreign currency and need the cash from abroad,” Jónasson said. “This is the time for the vultures to step in.”

“Our problem is not lack of investment from abroad,” he insisted. “What we need is balance in our economy. We need normal relations – banking relations – with the outside world.”

For Jónasson, it is beyond absurd that the country would consider policies cut from the same ideological cloth that plunged it into crisis in the first place. If bankers and politicians serve time in prison, what does it matter if the country forgets the policies that led it to the brink?

“What I think is important is that ultra-neoliberalism should face charges by the electorate in the future,” he opined. “And it should be voted out of existence.”

MP Birgitta Jónsdóttir echoed Jónasson’s call to challenge elitist power structures.

“We have to completely change the framework of our bureaucratic body,” she declared. “If people only have laws as decoration, but not something to obey, then we may as well live in an anarchistic society,” she said somewhat ironically (she has proudly described herself as an anarchist before).

As an example of Icelandic injustice, Jónsdóttir compared the treatment of a group of demonstrators on trial to the consequences of violating the Act on Ministerial Responsibilities:

The Reykjavik Nine – as they are known – face up to sixteen years in jail. They are charged with assault and violent conduct in Parliament for interrupting it from the gallery. Meanwhile, politicians who mired the country in an existential crisis face no more than two years in the slammer.

And if that didn’t seem sufficiently unjust, it has emerged since the start of the trial that the government withheld key video surveillance tapes.

While Jónsdóttir didn’t express any desire to see former ministers serve life sentences, she couldn’t help but bemoan this preferential treatment.

“Do we want to live in a class divided society and pretend we’re not?” she asked in exacerbation.

To redress such power imbalances, Jónsdóttir argued that that the country’s constitution should be rewritten and approved by referendum – something that is being discussed in circles on the island. Not only would it would force Icelanders to reconsider their passive relationship with the state, but, she said, the foundation of Icelandic law is a bit dated.

“Our constitution is basically copy and pasted from the Danish constitution,” the parliamentarian said. “It’s embarrassing.”

One needn’t look further than the recent Reykjavik municipal elections to know that there is something rotten in the state that formerly belonged to Denmark: the Best Party, a party founded and led by comedian Jón Gnarr that may or may not have started out as a joke, rode a wave of popular discontent to victory. Now, a post-ironic party, whose leader has called for a cultural revolution, declared political discourse to be dead and has promised “transparent corruption” looks set to lead a coalition government in what is by far the country’s most populated municipality.

Whether this represents the Katla that reformers have been waiting for or not remains to be seen. Either way, it is an ominous sign for traditional parties.

Evolutionary Fervor

Working mostly outside of the system, one umbrella group of civic-minded organizations called The Anthill is attempting to revive meaningful political discourse with its own cultural revolution-type thing. In November 2009, it organized a mock National Assembly – an exercise in direct democracy and participatory politics.

The Anthill’s goal, which it accomplished, was to crowdsource a basic, symbolic manifesto using a significant portion of Iceland’s population. Organizers invited 1,200 people randomly selected from the voting registry and 300 handpicked guests (including leading political figures) to an arena in Reykjavik. To get their guests to work toward a collaborative edict, organizers asked the group (comprising roughly 0.5 percent of the diminutive country’s population) to answer a simple question: in what sort of society did they wish to live?

The tricky part was that organizers actually had to piece together a consensus from the collective wisdom of 1,500 people in a timely fashion. To achieve this result, organizers had participants form discussion groups, where they talked about the values that they cherished most. Once the values most frequently mentioned by individual participants in all groups were ascertained by a backroom IT staff with the help of discussion facilitators, the groups then brainstormed ways to create social frameworks based on these shared values. The ideas most frequently mentioned, in the end, formed the basis for the final manifesto.

Gudjón Már Gudjónsson, one of the organizers and founder of the Ministry of Ideas, a member of the Anthill, said that the National Assembly demonstrated that it was possible to approach political problems “using a more creative methodology,” even if the process is still in one of its first iterations.

“We can do it,” he insisted. “The participants were quite pleasantly surprised how sophisticated, but at the same time how simple and effective it was. They saw that it was possible, and it has generated a big question around the constitution here in Iceland.” He added that the Ministry of Ideas is currently looking into how to crowdsource a constitution.

“We sense what is needed,” he said of the project, “but we are still digesting and looking for the right answers.”

Whether or not it can be successfully used to draft a meaningful constitution, before the National Assembly, Gudjonsson said that he hoped the participatory technique would prove to be as scalable and adaptable as possible. In Iceland, at least, the idea appears to be catching on in the National Assembly’s aftermath.

“There have been a lot of follow up meetings using the same methodology that was created for the National Assembly,” he said. “There have been off-site meetings by government ministers going through the same processes and there have been smaller national assemblies all over the country organized by our government.”

And although Icelandic society may remain fundamentally the same despite the collapse and the Kitchenware Revolution, Gudjónsson reiterated the need for patience – “especially following the report” – to those clamoring for immediate change. To underline the gargantuan report’s importance to Iceland, the National Assembly rated integrity as the value most important to Iceland.

“[The Black Report] demonstrated that the fundamentals of our so-called democratic system are very outdated,” he said.

And with his background in high-tech upstarts, Gudjónsson understands that groundbreaking ideas need years to catch on; participatory politics could very well be one of those ideas in a country that looks at its traditional institutions askance.

In the short term, Gudjónsson offered a simple suggestion: pass legislation that would see the country hold a National Assembly every two years.

“If we had another National Assembly next year, we’d have another adjustment in terms of values,” he said, calling the event a “guiding light” that can help keep politicians accountable. “It is a living process.”

The Fighting Canary

When Iceland’s went bankrupt, the country was dubbed “The Canary in the Coalmine” – evidence that problems in global financial markets were unusually severe. Somewhat unexpectedly, there are now many people around the world wishing that it still was the proverbial canary, that events in Iceland – the largely peaceful Revolution, the National Assembly, the Ministerial Responsibilities Act, the imprisonment of bankers and the rise of a party like Gnarr’s Best Party – still did reflect what was going on in the wider, Western world. Meanwhile, in other crisis stricken countries, politicians remain mostly unaccountable, and criminal financiers – with a few exceptions – walk the streets freely.

And while the small island country is, unusually, thrust into a position where it has become a place of interest to many disaffected people from around the world, Icelanders themselves proceed with guarded optimism, waiting to declare victory until the trauma of the collapse has passed.

Grapevine Editor Magnússon expressed hope that the country was moving in the right direction, “but, I can’t verify that.”

“We have a tendency to fuck things up, you know.”