Accepting Responsibility for Iceland's Financial Disaster

[Cees Binkhorst]

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http://www.huffingtonpost.com/iris-lee/accepting-responsibility_b_533476.html
Accepting Responsibility for Iceland's Financial Disaster
<http://www.huffingtonpost.com/iris-lee/accepting-responsibility_b_533476.html>

Iris Erlingsdottir, <http://www.huffingtonpost.com/iris-lee>Icelandic
journalist and writer
Posted: April 11, 2010 08:41 PM

After months of eager anticipation and numerous delays, the
investigative committee created by Iceland's legislature to investigate
the dramatic collapse of the country's financial institutions will
release its report <http://sic.althingi.is/> tomorrow. Amazingly, there
have been no leaks of any of the reports 2,000 pages, so the report's
contents will hit with full force.
Human nature being what it is, however, the individuals and
organizations that are expected to be portrayed negatively in the report
have started distancing themselves from responsibility. Davíð Oddsson,
who was Iceland's Prime Minister when the banks were privatized and the
Head of its Central Bank when the banks collapsed, has gone overseas,
despite the fact that he is now the editor-in-chief of Iceland's leading
newspaper. Presumably, his answers to the committee were similar to
those given by for American Central Bank chairman Alan Greenspan in his
testimony <http://www.nytimes.com/2010/04/09/business/09notebook.html>
before Congress last week: "I was right 70 percent of the time, but I
was wrong 30 percent of the time."

    "The report will probably tell us what we already suspect and even
    know," Lára Hanna Einarsdóttir, one of the country's most prominent
    bloggers, said. "It will definitely add something in terms of
    factual knowledge, and it will probably tell us more about the part
    politicians played. The question about who the chief culprits are
    will not be directly answered; it will be interesting to see how
    different factions will interpret that part. Each group will try to
    protect "their men" and try to exaggerate the part of others."

Undoubtedly, mistakes were made. The sheer scope of Iceland's failure is
indisputable proof of that. And yet, no one has accepted personal
responsibility for any error in judgment or oversight. No criminal
charges have been filed. No fines have been assessed.

Although it's highly unlikely that any revelations in the so-called
"Black Report" will cause anyone to publicly repent and beg forgiveness,
Iceland appears to be approaching a tipping point -- perhaps people who
were "in the know" will finally start coming forward with personal
information -- former Glitnir accountants, attorneys, employees -
something that really hasn't happened. "I cannot describe how much I
hope for that," said Einarsdóttir. "It is so sorely needed. There are so
many people who know so many things but have not said a word. I often
hear it said that these people are afraid - the "fear society" is still
alive and well, you know. And people are afraid to lose [their
livelihood], the risk is enormous, that is obvious."
The complexity and the scope of the fraud perpetrated are unprecedented,
and Iceland's resources following the collapse in October 2008 were
compromised, to say the least. The regulatory agencies had been
overwhelmed by the rapid growth of Iceland's financial institutions, and
experienced heavy turnover, as their employees left to work at the banks
they had been charged with regulating. They were highly politicized and
had no incentive to shut the light off while the party was going full bore.
As Gunnar Andersen, the current director of the Financial Supervisory
Authority (FME), recently told me:

    "It is clear now that the financial information presented in annual
    reports, in annual accounts, the yearly reports did not really
    reflect the true situation as we now know, with all the write-offs
    that the banks have gone through. ... [T]he banks were very large
    and had a lot of influence on society as a whole, and the FME was
    understaffed and had huge turnover, it was very difficult to
    regulate and to supervise and regulate those entities effectively --
    because they grew so fast between 2000 and 2008 and the assets of
    the regulated entities in Iceland grew by 554% while the staff here
    only doubled -- we also lost a lot of people to the banks. The FME
    was a training ground for lawyers and others."

The tax and regulatory authorities have been reorganizated under the
government that took power after the Pots-and-Pans revolution in January
2009. It has taken time to find unbiased individuals capable of
untangling the webs woven by the scheme leaders, but they are getting up
to speed and appear close to cracking down on the worst offenders.
Last week, the resolution committee of Glitnir -- one of the three banks
that failed -- brought suit
<http://www.icelandreview.com/icelandreview/daily_news/?cat_id=28304&ew_0_a_id=360417>against
the owners of the majority of the bank's stock--Jón Ásgeir Jóhannesson
and Pálmi Haraldsson -- and four prominent bank executives -- three of
whom are still employed there -- to recover ISK 6 billion they allegedly
owe. The committee used the services of Kroll
<http://www.krollfraudsolutions.com/?_kk=kroll%20fraud&_kt=926becd3-67dd-4869-b907-f33cae8e8a1c&gclid=CLyf5qT1_6ACFQEMDQodUC2rtg>,
an international fraud investigation company, to identify questionable
arrangements and to hunt down purloined assets.
Ólafur Thór Hauksson, the special prosecutor
<http://www.huffingtonpost.com/iris-lee/special-prosecutor-of-ice_b_208718.html>
appointed to investigate potential criminal activity in connection with
the banks' collapse, had little experience in financial crime. With the
help of internationlly-known white collar criminal prosecutor, Eva Joly,
and their staff, Ólafur has been methodically examining the bank books
and other relevant documents and started conducting raids in Iceland and
abroad earlier this year. Although Ólafur and Eva have both warned the
public that these things take time, it would be reasonable to assume
that the first round of indictments are forthcoming.
Although many within Iceland do not believe that the Black Report will
have any effect on the old Icelandic power structure, I believe that it
will be an important brick in the wall of a new structure for governing
Iceland. The gross abuses of the past decade were possible only because
of a complete lack of transparency and oversight. Public disclosure of
the incompence and fraud that led to the worst recession our country has
known in recent times is necessary to ensure that in the future,
bankers, businessmen, regulators, and politicians realize there are
adverse personal consequences for their dishonest actions and lax
oversight.
There is a human tendency to want to move on, to sweep unpleasant
episodes under the rug and act like everything is hunky dory. We cannot
allow this to happen this time. To learn from our mistakes, we must
first understand exactly what those mistakes were and how they were
permitted to happen. Only then can we set up institutions and
legislation to preclude their recurrance and develop enforceable ethical
principles to ensure that licensed professionals (lawyers, accountants,
etc.) do not facilitate abusive practices.

    It would be a pipedream to expect the worst offenders to come forth
    and assist us in this quest. Accordingly, we must, as a people,
    decide exactly what we want. The Þjóðfundur
    <http://www.facebook.com/thjodfundur2009>--or the "Anthill"--that
    met in November 2009 decided that integrity
    <http://www.icelandreview.com/icelandreview/search/news/Default.asp?ew_0_a_id=352029>
    was the Iceland's single most important value. I can't imagine how
    we can develop a society based on that concept until the individuals
    that failed us man-up and accept responsibility for their actions.
    It may mean that some of them will go to prison; it may mean that
    they will lose their fortunes. There can be no responsibility
    without personal loss proportionate to their ill-begotten gains.

Andersen acknowledges that "we've had a lot of difficulties, but that
doesn't relieve the FME of all responsibility because frankly, it should
have dug deeper and much more critically." To this end, Andersen tells
me that the FME has added a forensic accounting department, and is
developing significant institutional expertise in analyzing financial
reports. New legislation similar to that proposed in the United States
have been proposed to limit the risk to which banks can subject
themselves. It would give the FME wider authority, and introduce certain
limitations and restrictions on some of the things that led to the
crash, such as the banks taking loan shares of collateral for loans that
were dispersed specifically for buying their shares in the same
institutions. It would also impose stricter requirements on internal
auditors and their qualifications and on the participation of the banks
in corporate activities through ownership.
To his credit, Bjarni Benediktsson, the new leader of the Independence
Party, which was in power during the entire period of lax regulatory
oversight, has called off the dogs in his party and stated that they
must take the Black Report extremely seriously and try to learn from its
findings. However, his party has much to answer for and should not be
allowed to resume its rule of Iceland with a simple apology, though that
would be a good start. It and all other political parties must publicly
repudiate the leaders who used their political power for personal gain,
as well as those whose irresponsible oversight brought Iceland to the
brink. They must provide a set of principles to guide Iceland to a
fairer future.
As Andersen
<http://silfuregils.eyjan.is/wp-content/uploads/2010/03/Euromoney-Magazine_failed-state-of-iceland.pdf>
and others have acknowledged, Iceland's return to financial stability is
not guaranteed. Factors outside of our control may keep us from ever
regaining the level of prosperity we knew in 2007. However, it is within
our power to ensure that our society regain some level of self-respect
and of fairness. The Black Report will not, by itself, transform our
political system. However, it is an important piece of the puzzle.
Warren Buffett once observed that "It takes 20 years to build a
reputation and five minutes to ruin it. If you think about that, you'll
do things differently." The reputation we had built over the centuries
was destroyed by the irresponsible acts of a few individuals. Rebuilding
it will be long, slow, but necessary, work.

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