SFO launches fraud inquiry over failed Icelandic bank Kaupthing

Published on Wednesday 16 December 2009 20:23

THE Serious Fraud Office is to investigate suspected fraud by collapsed Icelandic bank Kaupthing.

It said it is particularly interested in efforts by the bank to attract British investors to its "high-yield" deposit account, Kaupthing Edge.

"The investigation will seek to identify whether misrepresentations or false representations were communicated by the bank in the push to attract UK investors," the SFO said in a statement.

Investigators will also look closely at the series of decisions that "appear to have allowed substantial value to be extracted from the bank in the weeks and days prior to its collapse", the agency added.

The potential offences fall under the remit of Britain's Fraud Act, but the SFO said the investigation crossed numerous jurisdictions and that it planned to work with the Icelandic special prosecutor's office.

Kaupthing was one of several Icelandic banks to collapse at the height of the global credit crisis in October of last year. Its UK savings business and those of Landsbanki, another of the failed banks, were bought by Dutch bank ING at the height of the crisis, when Chancellor Alistair Darling stepped in to guarantee deposits.

Earlier this year the Commons Treasury select committee heard that local authorities lost almost 1 billion investing in Icelandic banks while UK charities took a 120 million hit.

The SFO estimates that more than 30,000 British individuals, companies and organisations invested in the Kaupthing Edge account.

Eight Scottish councils put 45m into Kaupthing and other banks such as Landsbanki. The most exposed were North Ayrshire, with a 15m stake, and Scottish Borders, which invested 10m.

The Icelandic government nationalised three banks after the trio racked up debts equivalent to six times the country's national output, and credit markets froze in the wake of the collapse of US bank Lehman Brothers.

But its demise sparked a political row between Reykjavik and London, because Kaupthing failed after the British government invoked anti-terrorist legislation to freeze the UK assets of Landsbanki.

The British Treasury said the move was necessary to ensure the money that British savers had placed in the bank would not be whisked back to Iceland.

But Iceland's prime minister at the time, Geir Haarde, blasted the move as an "unfriendly act" and blamed the decision for inspiring panic that led to the subsequent collapse of Kaupthing.

A cross-party committee of British MPs was later critical of London's handling of the situation, saying that the government's statements on the ability and willingness of Reykjavik to compensate non-Icelandic account holders was "ultimately unhelpful".