Iceland government falls

[David Guyatt]

http://www.guardian.co.uk/business/2011/...urt-ruling

Luxembourg court releases Icelandic bank's documents to investigators

Kaupthing Luxembourg, its Icelandic parent and UK sister bank Kaupthing Singer & Friedlander collapsed in October 2008

Simon Bowers
guardian.co.uk, Sunday 30 January 2011 19.48 GMT



Icelandic prosecutors and the City watchdogs in Britain are scrutinising trading activities of Kaupthing Bank in the months before its demise. Photograph Bob Strong/Reuters
Criminal investigators looking into the failed Icelandic bank Kaupthing have won a rare victory in the secretive tax haven of Luxembourg where the supreme court has thrown out attempts to block the release of documents seized in a police raid almost a year ago.

The documents are likely to be critical to a complex international investigation into the activities of the bank and some of its largest clients in the months before its collapse. The investigation is focused on money flows between three financial centres: Reykjavik, London and Luxembourg.

Kaupthing Luxembourg went bust along with its Icelandic parent bank and UK sister bank Kaupthing Singer & Friedlander in October 2008. Luxembourg regulators split its assets into a "good bank" and a "bad bank", with the former acquired by property tycoon and leading Conservative party donor David Rowland less than a year later.

Rowland's bank and 19 other unidentified parties had appealed against requests for documents seized in police raids being released to state prosecutors in Iceland, who are examining cases of suspected market manipulation.

The decision by Luxembourg's supreme court to release all documents requested by Iceland comes after almost a year of legal battling against some of the toughest banking secrecy laws in the world.

Three of the four largest borrowers from Kaupthing Luxembourg prior to its failure were British businessmen: high street fashion entrepreneur Kevin Stanford, co-founder of Katsouris Fresh Foods Tony Yerolemou and property tycoon Robert Tchenguiz.

They accounted for about a quarter of the bank's exposures. At the same time Stanford, Yerolemou and Tchenguiz held stakes in Kaupthing of 1.9%, 0.85% and 1.5% respectively.

There have been no allegations of wrong-doing levelled at any of them.

Together with the Serious Fraud Office and Financial Services Authority in Britain, Icelandic state prosecutors are examining a wide range of suspect trading activities in the months before Kaupthing's demise, including trades in the complex and opaque credit derivatives markets.

Sigurdur Einarsson and Hreidar Már Sigurdsson, respectively Kaupthing executive chairman and chief executive, have already been made official suspects in Iceland, as has former Kaupthing Luxembourg chief executive Magnus Gudmundsson.

Among allegations being investigated are claims that certain credit derivative trades improperly used at least €500m of Kaupthing funds to manipulate perceptions of the bank's financial strength. Bank bosses, who deny acting improperly, hoped market interventions would restore crumbling confidence in Kaupthing's solvency. They claimed credit derivative prices were distorted by hedge funds set on destabilising the bank.

Yerolemou, at the time a non-executive director of Kaupthing, was among those caught up in the suspect trades. Stanford and his former wife Karen Millen have also found themselves embroiled in the trades. There is no suggestion of dishonesty on the part of Stanford, Millen or Yerolemou. They are not thought to have known trades, involving offshore companies under their ownership, might amount to market abuse on the part of Kaupthing.