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Iceland PM sold bank assets hours before financial crash, leaks show

The Guardian logo The Guardian 06/10/2017 Jon Henley European affairs correspondent
Iceland prime minister Bjarni Benediktsson: The revelations come as Bjarni Benediktsson faces elections at the end of October. © AFP/Getty Images The revelations come as Bjarni Benediktsson faces elections at the end of October.

The current prime minister of Iceland sold almost all his remaining assets in a major Icelandic bank’s investment fund on the day the government seized control of the country’s collapsing financial sector at the peak of the 2008 crash.

According to leaked documents, Bjarni Benediktsson, then an MP on the parliament’s economy and tax committee, sold several million króna of assets in the Glitnir bank’s fund in the final days and hours before an emergency law placed Iceland’s failed financial institutions under state control.

The documents suggest Benediktsson, whose name appeared in the Panama Papers offshore scandal that toppled Iceland’s previous prime minister, talked to senior Glitnir executives on 6 October 2008, as the country’s banking bubble was on the point of bursting.

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While he denies any wrongdoing and the Guardian has seen no evidence he broke any laws, the revelations could be embarrassing: Benediktsson faces elections on 28 October after his coalition collapsed last month over an alleged attempt to cover up a scandal involving the prime minister’s father and a convicted child sex abuser.

The leaked documents, seen by Icelandic investigative journalists and the Guardian, suggest he enjoyed a privileged relationship with Glitnir, close enough to raise questions about a possible conflict of interest between his roles as an MP and as one of the bank’s most valued clients.

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They also confirm that other members of the prime minister’s family – one of the richest and most powerful in the country – divested substantial assets in Glitnir’s Sjoður 9 fund in the run-up to the state takeover.

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Asked whether he had personally sold assets from the fund just before the bank’s collapse, Benediktsson said last year he had “some assets at one point” but “nothing that mattered”. The leaked documents show he had ISK165m (more than £1m at the time) in the fund in March 2008.

The documents offer further evidence of the many, often opaque links between Iceland’s small but powerful political and business elite. Campaigners have long railed against what they describe as endemic cronyism in Icelandic politics and the apparent impunity of the country’s wealthy few.

In early October 2008, the Glitnir, Kaupthing, and Landsbanki banks collapsed with liabilities of more than 11 times Iceland’s GDP, plunging the country into economic meltdown and a deep crisis from which it took years to recover: the Reykjavík stock market fell 97%, and the value of the króna halved.

The leaked documents show Benediktsson withdrew an initial ISK30m (just under £200,000 at the time) from Glitnir’s Sjoður 9 fund on 2 October, four days before the Financial Supervisory Authority (FSA) took control of the bank, and gave instructions for a further ISK21m (£140,000) to be sold on 6 October.

Benediktsson told the Guardian he had sold “most of my units but not all” in the fund, but did not give figures. He said all events and transactions leading up to the crash had been thoroughly, sometimes repeatedly, reviewed and investigated, and he had never been found at fault.

“Markets and confidence were falling rapidly” after the fall of Lehman Brothers in mid-September, he said. “Any sensible investor would have been considering selling then.” He insisted he had no knowledge of, and took no part in, the preparation of the emergency law, which was not discussed in his committee.

The documents also reveal that assets in the same fund belonging to Benediktsson’s uncle and worth just over ISK1bn were sold on 6 October, and suggest the MP was in telephone contact with Glitnir executives on that day.

At 2.15pm, just hours before parliament enacted the emergency banking law, Einar Örn Olafsson, the head of Glitnir’s investment banking division, sent an email to the assistant of CEO Làrus Welding. “Bjarni Ben [Benediktsson] says the FSA are working hard on this right now,” it read. “Anyone contacting Jònas?”

At the time, the head of the FSA – which hours later would take emergency control of Iceland’s banks and would soon place them in receivership, leading to heavy losses among foreign (including British) creditors – was Jònas Fr Jònsson.

Benediktsson, 47, told the Guardian he “could have called” Olafsson that day but could not recall the conversation. “But in any case, I had no idea what was happening at the FSA. I had no confidential information during this period.”

Known familiarly in Iceland as Bjarni Ben, Benediktsson is a member of the Engey family, one of Iceland’s wealthiest, who have been prominent political and business figures on the island for the past century.

His father, Benedikt Sveinsson, and uncle Einar Sveinsson own or have owned major interests in banks and financial services firms as well as energy, transport, fisheries and trading companies, among others.

The two brothers sold their shares in Glitnir for several billion kronur in 2007, and Benedikt Sveinsson sold his ISK260m assets in the Sjoður 9 fund on 27 August 2008, the documents show.

The documents show Benediktsson, who was first elected to parliament in 2003, was a longstanding friend of Glitnir’s Olafsson, who founded the MP’s campaign organisation for Iceland’s 2007 elections.

Emails show the pair travelled abroad together, for example to London, with Olafsson instructing Glitnir to book the hotel – the Sanderson – and ensuring the frequent flyer points were credited to Benediktsson.

In September 2007, emails also show Bjarni Markússon, who handled Benediktsson’s private banking account at Glitnir, “taking care of” flights and a hotel in New York for the MP and his wife. The emails are addressed to the MP’s parliamentary email account.

Another email confirms a meeting took place between Benediktsson and Welding, Glitnir’s chief executive, on 19 February 2008. Two days afterwards, the MP sold almost all his shares in the bank for ISK119m.

Further records show he sold Sjoður 9 assets four days after a crisis meeting about Glitnir’s fast-deteriorating situation on 28 September to which – along with some other politicians – he had been invited by the bank’s chairman.

Benediktsson’s name appeared in the Mossack Fonseca law firm’s Panama Papers leak last year in connection with Falson & Co, a Seychelles-based company of which he once owned a third. He failed to declare the stake in the register of parliamentary interests and later said he had thought it was based in Luxembourg.

His predecessor as prime minister, Sigmundur Davíð Gunnlaugsson, was the Panama Papers’ first major casualty. He was forced to step down amid mass protests against the revelations that his family had sheltered money offshore.

Again, there was no evidence Gunnlaugsson broke any laws. But public fury at the hypocrisy of senior Icelandic politicians using offshore holdings to conceal sizeable assets during the financial crisis forced a snap election in October last year, and it was won by Benediktsson and his Independence party.

After the crash, Glitnir’s winding-up board examined all last-minute sales from the bank’s Sjoður 9 fund for possible insider trading violations, but took no action. Creditors eventually received 85% of the 6 October value of their investments, meaning Benediktsson and his uncle saved around ISK1m by selling when they did.

The FSA said last year it had concluded there was “a reasonable suspicion that certain parties” may have broken insider information laws in the Sjoður 9 sales, but Iceland’s special prosecutor – who has said insider information cases are notoriously hard to prove – also took no action.

It could have been clear to informed investors by late September that Iceland’s banks were in serious trouble. From 29 September it was known that the government was considering refinancing Glintir. Instead, it decided to enact the emergency laws on 6 October.

Benediktsson told the Guardian that after the crash he decided it was “not appropriate” to have both major business and political interests. “I sold my shares and equities, resigned all my board positions, and focused on my political career,” he said. He was elected leader of his party in March 2009.

Ingi Freyr Vilhjálmsson of Stundin and Jóhannes Kr. Kristjánsson of Reykjavik Media collaborated with the Guardian on this article.

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