Landsbanki, fraud and the Russian Mafia

It is a surreal story how the privatisation of the Icelandic banking system came to reality. After the flotation of the Icelandic Krona in 2000, events were set in motion that would directly lead to the collapse of the Icelandic financial market. The main focus is on the banking system and in particular the main owners Björgólfur Thor and Björgólfur Sr.

The story, in very short is like this:

In the 1990s he (Björgólfur Guðmundsson) was sentenced to 12 months in prison, suspended for 2 years, for bookkeeping offences, having faced around 450 charges.[4] He went to Russia, remade his fortune and returned to Iceland, where he also has interests in shipping, publishing, food, communications and property.[5] Björgólfur Guðmundsson co-founded Bravo Brewery with Magnús Þorsteinsson chairman of Avion Group and his son. Bravo Brewery became a success and they later sold the venture to Heineken for $400 million which they invested both in Iceland and abroad. (Taken from Wikipedia)

Here is another good story from Iceland Review back in 2005.

The Russian Mafia ties

bjorgolfur srWhen Björgólfur Jr and Sr came back from Russia, they had sold their brewery to Heineken. The story is that when in Russia they had to make a deal with the Russian mafia in order to survive. I heard a radio interview with Björgólfur Sr when he came back to Iceland where he said that they had made a deal with the Russian mafia, they had to pay them “a protection fee” as a part of running the brewery. This is normal practice in a corrupt state like Russia.

Then I heard from another source (cant by verified at the moment at least) that at the time when the brewery was doing fine, and the reason for its success was the fact that two or three other breweries burned down leaving Björgólfur and his brewery the only brewery in a massive market. Both in geographical terms and in terms of population. If this is true, then it seems obvious that there must be a connection between the mafia and the running of the brewery.

This has been further substantiated with constant accusations of money laundering and Russian mafia ties. The article in Iceland Reveiw covers it a little bit. (try google: “russian mafia björgólfur”) This was not talked about much in Iceland until this Iceland Reveiw article came out, but the reason for that article is another article by Ian Griffiths published in The Guardian newspaper in the UK. This article caught my eye while reading the Guardian on my way to Manchester when I used to live in the UK, and I was surprised that this was still going on, the mafia accusations. bjorgolfur thor

This was never talked about in the Icelandic media (owned partly by Björgólfur Jr and Sr) but this kept creeping up again and again in the foreign media. This was also an issue when Björgólfur came into the race to buy West Ham Football Club. The Griffiths article has never been refuted by Björgólfur or anyone from his team, nor has the Icelandic media done a thing to prove or disprove this to be true or not.

Björgólfur Thor is a citizen of Cyprus, a famous heaven for the Russian mafia. See more on that here.

Now to the purchase of Landsbanki

The Icelandic government claimed that the reason for selling the Landsbanki government owned bank to Björgólfur was done because so much foreign currency came to Iceland through them. The money they bring in will be a great asset for Iceland was the main arguments used.  A holding company called Samson owned by the Björgólfur Jr and Sr was one of the bidders for the bank.

A spread ownership was the key word from the government. This bid from Samson was a godsend to the government who wanted to follow in the footsteps of the Neo-Conservatists in the USA and privatise everything in the spirit of Milton Friedman. Government participation is evil was the mantra of the day. A mantra that has crippled the financial markets of the world and devastated the Icelandic market. Lets hope that some lessons have been learned.

The government took their offer and Samson was to pay 33% of the bank. Instead of paying the money directly like they claimed and the government was selling to everyone, it now just came to light that they never came to Iceland with the money in the first place. Instead they got a loan from Búnaðarbanki (merged into Kaupthing shortly after the loan was given in 2002) to finance the deal. Nobody knew about it, at least the media did not report it, and weather the government or politicians knew this was not an injection of foreign currency into the country, but a loan from within this small economic system, shall be left to guesswork. In my experience this sort of deals are never done without the knowledge of key politicians, especially here in Iceland where political and financial ties are close and corruption breeds itself.

It turns out that Samson had talked to 23 foreign banks in order to get a loan to fiance its 33% of Landsbanki. The amount was around 64 million dollars they wanted, that would cover 46% of the fee for the bank. According to DV newspaper, none wanted to lend them the money. Samson asked a foreign financial company to the middleman, three days after the bank was officially put on sale. This did not work, and so they got a loan from Búnaðarbanki instead.

According to DV newspaper the loans request of Samson came from the financial company Dawnay, Day Corporate Finance Limited, dated October 21st 2002.

How they got the loan

The story of how they got the loan is a classic case of bribery and fraud. Halldór J. Kristjánsson the ex manager of Landsbanki was the man who asked Búnaðarbanki for the loan to Samson to buy Landsbanki, in march 2003. So the Landsbanki manager instigated the loan to buy the bank he ran, according to Morgunblaðið newspaper. Kristjansson has disputed this claim and said “I can’t comment on this because of bank secrecy, but I knew about the loan. My involvement in the proceedings was not questionable“.

Halldór and Sigurjon of LandsbankiElín Sigfúsdóttir then the head of corporate banking at Búnaðarbanki made all the arrangements for the loan. She was shortly after that hired to Landsbanki as a high level director. When the Landsbanki fell last October she was appointed the CEO of the bank by the oversee committee. This was highly criticized by many, and information soon leaked out that she had sold her shares as “a part of a Landsbanki elite sting to get their assets out of the bank before it fell”, that was documented here. That case is now under investigation by the special prosecutor.  Sources from inside the bank sector claim that Elín Sigfúsdóttir had no clue what she was doing when she was in Landsbanki and many say she was rather stupid in fact. But she seems to have been a so called “yes person” to the owners and easy to control.

The loan to Samson was cleared on April 25th 2003. Sigurjón Þ. Árnason the director of operations in Búnaðarbanki was then hired to Landsbanki as a CEO next to Halldór J. Kristjánsson. The move was sent to the Icelandic Stock Exchange on April 23rd. Two days before the loan was agreed upon. This Sigurjón Þ. Árnason is the architect of IceSave. He called it a “clear genius”.

The loan to Samson was on a better deal than other loans to regular customers for some reason. To make things even more strange, a company called Egla got a loan from Landsbanki to buy Búnaðarbanki for the percentage a little before this deal came to be. Egla was owned by Ólafur Ólafsson of Kaupþing, who is generally considered to be one the most corrupt men to take part in this whole economic collapse. He is a part of the Sheik Al Thani case under investigation and will go to jail without a doubt in the near future, for massive fraud on all levels.

To this day the loan to Samson from Búnaðarbanki has never been paid. It now stands in 6 billion ISK instead of the 3,4 billion it was in the beginning. Samson had the audacity to ask New Kaupthing who the loan now belongs to, to write off half of it. vilhjalmur bjarnason predicts civil war

That alone could lead to civil war in Iceland it that will happen according to a University of Iceland lecturer Vilhjálmur Bjarnason.  He cold be right, if that happens people will take to the streets again and protests will probably we worse than the January riots.


About this entry